EXHIBIT 10.1
PUBLIC OFFERING AND SEPARATION AGREEMENT
THIS AGREEMENT is made and entered into this __ day of March, 1998,
between Torchmark Corporation, a Delaware corporation ("Torchmark"), and Xxxxxxx
& Xxxx Financial, Inc., a Delaware corporation which as of the date hereof is an
indirect wholly owned subsidiary of Torchmark (the "Company").
WHEREAS, Torchmark and the Company have determined that it is
desirable, on the terms and conditions described in this Agreement, to cause the
Company to make an initial public offering of certain newly issued shares of
common stock of the Company;
WHEREAS, Torchmark directly or indirectly owns 100% of the common
stock of the Company;
WHEREAS, the Company is planning an initial public offering and
Torchmark has determined, subject to satisfaction of certain conditions, to
separate the ownership of the Company and the other members of the Company Group
(as defined herein) from Torchmark and the other members of the Torchmark Group
(as defined herein), by means of a distribution of the common stock of the
Company held by Torchmark and the other members of the Torchmark Group to
Torchmark stockholders as described in this Agreement; and
WHEREAS, this Agreement is made to set forth the principal corporate
actions required to effect the Public Offering (as defined herein) and the Spin-
Off (as defined herein) and to set forth other agreements that will govern
certain other matters following the Public Offering and the Spin-Off;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following words, terms and phrases
herein written with an initial capital letter shall have the meanings assigned
to them below:
"Action" shall mean any suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Agent" shall mean the distribution agent to be appointed by Torchmark
to distribute to the stockholders of Torchmark, pursuant to the Distribution,
the shares of Class A Common Stock and Class B Common Stock held by Torchmark.
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"Ancillary Agreement" shall have the meaning set forth in Section 8.1.
"Balancing Cash" shall have the meaning set forth in Section
2.1(m).
"Class A Common Stock" shall mean shares of Class A Common Stock, par
value $.01 per share, of the Company.
"Class B Common Stock" shall mean shares of Class B Common Stock, par
value of $.01 per share, of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Affiliate" shall mean a Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by the Company,
provided, however, that for purposes of this Agreement none of the following
Persons shall be considered Company Affiliates: (i) Torchmark or any Torchmark
Affiliate, (ii) any corporation less than 50.1% of whose voting stock is
directly or indirectly owned by any member of the Company Group, any partnership
less than 50.1% of whose interests in profits and losses is directly or
indirectly owned by any member of the Company Group, and any corporation
(regardless of the percentage of its ownership) where the ownership by any
member of the Company Group was made as a venture capital or a portfolio (as
opposed to operational) investment or where the equity ownership resulted from a
default on a loan to such corporation, (iii) UILIC, and (iv) any former
Torchmark Affiliate previously Controlled by the Company.
"Company's Business" shall mean all of the investment management
business and the business of acting as underwriter, administrator or distributor
of Registered Investment Companies and any related or ancillary business
conducted by any member of the Company Group in the past, at the date hereof, or
in the future.
"Company Group" shall mean collectively, the Company and the Company
Affiliates, or any one or more of such companies.
"Company Registration Statement" shall have the meaning set forth in
Section 5.3(f).
"Control" shall mean the possession, directly or indirectly of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise, provided that no person shall be deemed to control a Registered
Investment Company solely by reason of serving as an investment advisor,
administrator, principal underwriter or distributor for such Registered
Investment Company.
"Demand Registration Statement" shall have the meaning set forth in
Section 5.1.
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"Distribution" shall mean the distribution by Torchmark on a pro rata
basis to holders of Torchmark common stock of all of the outstanding shares of
Class A Common Stock and Class B Common Stock owned by Torchmark on the
Distribution Date as provided in Article IV.
"Distribution Date" shall mean the date determined by Torchmark in
accordance with Section 4.3 on which the Spin-Off will occur.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Firm Shares" shall mean the number of newly issued shares of Class A
Common Stock specified as "Firm Shares" in the Underwriting Agreement included
in the Public Offering.
"Group" shall mean the Company Group or the Torchmark Group.
"Indemnifying Party" shall mean a party to this Agreement which is
obligated to provide indemnification under this Agreement.
"Indemnitee" shall mean a Person who is entitled to indemnification
under this Agreement.
"Information" shall have the meaning set forth in Section 7.1.
"Insurance Proceeds" shall mean those moneys (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of the insured, in either case net of any applicable premium adjustments,
retrospectively rated premium adjustments, deductibles, retentions or costs paid
by such insured.
"Internal Distribution" shall mean the distribution by Liberty to its
sole stockholder, Torchmark, of all of the outstanding shares of Class B Common
Stock owned by it on the Distribution Date as provided in Article IV.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, together with the rules and regulations promulgated
thereunder.
"Liabilities" shall mean all debts, liabilities and obligations,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown, whenever arising, and whether or not the same
would properly be reflected on a balance sheet, including all costs and expenses
related thereto.
"Liberty" shall mean Liberty National Life Insurance Company, an
Alabama corporation and a wholly owned subsidiary of Torchmark.
"Losses" shall mean any and all losses, Liabilities, claims, damages,
obligations, payments, costs and expenses, matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown
(including, without limitation, the costs and
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expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions).
"Net Base Proceeds" shall mean the proceeds of the Public Offering
other than the proceeds attributable to the Overallotment Shares, after
deducting underwriting commissions and discounts, reduced by all Offering
Expenses paid or advanced by Torchmark to the Company which the Company
reimburses to Torchmark pursuant to Section 3.4(a) hereof.
"Offering Expenses" shall mean the costs and expenses of any
registration by the Company which is made hereunder, including specifically the
fees and expenses of counsel and accountants; all out-of-pocket costs and
expenses incidental to the preparation, printing and filing of any registration
statement and all amendments and supplements thereto; the costs of furnishing
copies of preliminary prospectuses, each final prospectus and each amendment or
supplement thereto to the underwriter, dealers and other purchasers of shares so
registered; the reimbursable expenses of the underwriter; the costs and expenses
incurred in connection with the qualification of such shares under the "blue
sky" laws of various jurisdictions; the fees and expenses of the Company's
transfer agent; stock exchange listing fees; fees paid to the National
Association of Securities Dealers, Inc.; and similar expenses incurred in
complying with the registration provisions of this Agreement, but excluding the
underwriter's discounts and commissions and any overtime expenses charged by
X.X. Xxxxxxxxx.
"Overallotment Shares" shall have the meaning set forth in Section
3.1(a)(1).
"Person" shall mean an individual, corporation, partnership,
association, joint venture, unincorporated organization, trust, or other entity,
including, without limitation, employee pension, profit sharing or other benefit
plan or trust.
"Public Offering" shall mean the registered offering for sale to the
public of the newly issued Shares as contemplated by Section 3.1 hereof.
"Public Offering Date" shall mean the date of the closing of the sale
of the Firm Shares in the Public Offering.
"Record Date" shall mean the close of business on the date to be
determined by the Torchmark Board of Directors as the record date for
determining stockholders of Torchmark entitled to receive shares of Class A
Common Stock and Class B Common Stock.
"Registered Investment Company" shall mean an investment company
registered as such under the Investment Company Act.
"Registration Statement" shall mean the registration statement to be
filed by the Company with the SEC in connection with the Public Offering as
contemplated by Section 3.1(a)(1) hereof.
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"Representatives" shall mean the authorized accountants, counsel and
other designated representatives of any Person.
"Ruling Request" shall have the meaning set forth in Section
4.1(a)(1).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Shares" shall mean the Firm Shares and the Overallotment Shares, if
any, included in the Public Offering, in the aggregate constituting no more than
thirty six percent (36%) of the outstanding shares of common stock of the
Company on a fully diluted basis.
"Spin-Off" shall mean the Internal Distribution and the Distribution.
"Torchmark Affiliate" shall mean a Person that directly, or indirectly
through one or more intermediaries Controls or is Controlled by Torchmark and
shall include Century Capital Partners, L.P., a Delaware limited partnership
("Century") although not Controlled by Torchmark; provided, however, that for
purposes of this Agreement none of the following Persons shall be considered
Torchmark Affiliates: (i) the Company or any Company Affiliate and (ii) any
corporation less than 50.1% of whose voting stock is directly or indirectly
owned by any member of the Torchmark Group, any partnership (other than Century)
less than 50.1% of whose interests in profits and losses is directly or
indirectly owned by any member of the Torchmark Group, and any corporation
(regardless of the percentage of its ownership) where the ownership by any
member of the Torchmark Group was made as a venture capital or a portfolio (as
opposed to operational) investment or where the equity ownership resulted from a
default on a loan to such corporation.
"Torchmark's Business" shall mean any business other than the
Company's Business conducted by any member of the Torchmark Group in the past,
at the date hereof, or in the future, including without limitation, Vesta
Insurance Group, Inc.
"Torchmark Group" shall mean collectively, Torchmark and the Torchmark
Affiliates, or any one or more of such companies.
"UILIC" shall mean United Investors Life Insurance Company, a Missouri
corporation and a wholly owned subsidiary of the Company.
"Underwriters" shall mean Xxxxxx Xxxxxxx & Co. Incorporated and Xxxxxx
Xxxxxxx & Co. International Limited, the managing underwriters for the Public
Offering, and Xxxxxxx, Sachs & Co, Xxxxxxx Xxxxx International, Xxxxxxx Xxxxx &
Co., and Xxxxxxx Xxxxx International.
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"Underwriting Agreement" shall mean the underwriting agreement to be
entered into between the Company and the Underwriters with respect to the Public
Offering.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE PUBLIC OFFERING
SECTION 2.1 Actions by the Company. At the request of Torchmark, the
Company shall, prior to the Public Offering, take or cause to be taken, the
following actions in the order set forth below:
(a) The Company shall cancel the balance of all remaining promissory
notes payable to the Company by Torchmark, which notes were in the aggregate
original principal amount of approximately $194 million, in exchange for
preferred stock of Torchmark in an amount equal to the remaining unpaid
principal and interest on such notes (the "$200 Million Preferred");
(b) Xxxxxxx & Xxxx Financial Services, Inc. ("WRFS") shall cancel the
balance of a promissory note payable to WRFS by Torchmark, which note was in the
original principal amount of approximately $124 million, in exchange for
preferred stock of Torchmark in an amount equal to the remaining unpaid
principal and interest on such note (the "$124 Million Preferred");
(c) WRFS shall distribute the $124 Million Preferred to the Company,
and simultaneously the Company shall assume WRFS's obligation to pay principal
and interest on a promissory note payable by WRFS to Liberty in the original
principal amount of approximately $124 million (the "$124 Million Note");
(d) The Company shall transfer the $124 Million Preferred to Liberty
as partial prepayment of the $124 Million Note and partial prepayment of a
promissory note payable by the Company to Liberty in the original principal
amount of approximately $390 million (the "$390 Million Note"), such aggregate
prepayment to be applied to the $124 Million Note and the $390 Million Note in
proportion to their respective outstanding amounts of unpaid principal and
interest, and such prepayments to be applied to interest first, then
principal;
(e) The Company shall transfer part of the $200 Million Preferred to
UILIC as a contribution to capital, in an amount equal to the excess of (i) the
aggregate face amount of the $200 Million Preferred over (ii) the remainder (but
not less than zero) obtained by subtracting (A) the greater of the Net Base
Proceeds and $428 million, from (B) the aggregate remaining outstanding amounts
of principal and interest due under the $124 Million Note, the
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$390 Million Note, and the promissory note payable by the Company to Torchmark
in the original principal amount of approximately $90 million (the "$90 Million
Note");
(f) The Company shall transfer the portion of the $200 Million
Preferred not transferred to UILIC to Torchmark as partial prepayment of the $90
Million Note, such prepayment to be applied to interest first, then
principal;
(g) The Company shall distribute all of the capital stock of UILIC to
the Company's shareholders pro rata in a distribution pursuant to Section 355 of
the Code;
(h) The Company shall distribute a dividend of all of the stock of
Torch Royalty Company, a Delaware corporation, owned by the Company to Liberty
as a non-pro rata dividend;
(i) The Company shall distribute a dividend of all of its interest in
Century Capital Partners, L.P., a Delaware limited partnership, to Liberty as a
non-pro rata dividend;
(j) The Company shall distribute a dividend of that certain account
receivable, payable by Torch Energy Advisors Incorporated in the amount of
approximately $1,938,000 and received in connection with the disposition of
Torch Energy Advisors Incorporated, to Torchmark as a non-pro rata dividend;
(k) The Company shall distribute a dividend of all of its interest in
Associates Oil & Gas Company, L.P., a Texas limited partnership, to Liberty as a
non-pro rata dividend;
(l) The Company shall distribute all its interest in that certain
prepaid expense in the amount of approximately $122,538 that was created in
connection with the sale of stock of Nuevo Energy Company, a Delaware
corporation, to Torchmark as a non-pro rata dividend;
(m) The Company shall distribute cash to Torchmark as a non-pro rata
dividend in the amount necessary for the aggregate dividends paid by the Company
pursuant to Sections 2.1(h) through (m) hereof to be paid to Torchmark and
Liberty in proportion to their stock holdings in the Company (approximately
$251,298) (the "Balancing Cash"); and
(n) The Company shall sell all its interest in Xxxxxxx Gas Company
Ltd., a Texas limited partnership, to Torchmark Development Corporation.
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SECTION 2.2 Certificate of Incorporation and Bylaws. The Company and
Torchmark shall take all actions necessary to adopt and make effective prior to
the Public Offering Date the amendments to the Certificate of Incorporation and
Bylaws of the Company in substantially the forms attached as Exhibits A and B
hereto.
ARTICLE III
PUBLIC OFFERING
SECTION 3.1 Public Offering. Subject to the conditions specified in
Section 3.2, the Company and Torchmark shall use all reasonable efforts to
consummate the Public Offering and shall take all actions necessary in
connection therewith, including, without limitation, the following actions:
(a) Actions by each Party.
(1) The Company has filed a Registration Statement on Form S-1 to
register under the Securities Act for sale or distribution to the public newly
issued Shares for the account of the Company. The Company shall hereafter file
such amendment or amendments to the Registration Statement as shall be necessary
to cause it to become effective. The Registration Statement shall provide for
an Overallotment option to the Underwriters to purchase from the
Company shares of Class A Common Stock in an amount of up to ten percent
(10%) of the Firm Shares (the "Overallotment Shares").
(2) The Company and Torchmark shall use all reasonable efforts to
obtain any and all approvals and authorizations necessary to consummate the
Public Offering and the other transactions and agreements contained herein.
(3) The Company and Torchmark shall use all reasonable efforts to
cause the Shares, upon their issuance pursuant to the Public Offering, to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
(4) Except for the individuals to be directors of the Company in
accordance with Section 3.1(c)(4) and for such other individuals as to whom
Torchmark and the Company may agree, Torchmark shall cause all directors and
employees of the Torchmark Group to resign, effective as of the Public Offering
Date, from all boards of directors or similar governing bodies of all members of
the Company Group on which they serve, and from all positions as officers of all
members of the Company Group in which they serve, it being understood that,
without limitation, this provision does not apply to any directorships of any
Registered Investment Company.
(5) Except for such individuals as to whom Torchmark and the Company
may agree, the Company shall cause all directors and employees of the Company
Group to resign, effective as of the Public Offering Date, from all boards of
directors or similar governing bodies of all members of the Torchmark Group on
which they serve, and from all positions as officers of all members of the
Torchmark Group in which they serve.
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(6) Prior to the Public Offering Date:
(a) Torchmark shall advise the Company as to all outstanding
guarantees, letter of credit obligations, performance or surety bonds, comfort
letters and other similar obligations of Torchmark and the Torchmark Affiliates
relating to the Company's Business. Except as otherwise provided in Section
8.4, the Company shall use its best efforts from and after the Public Offering
Date to obtain the release of Torchmark and the Torchmark Affiliates from all
such obligations or liabilities.
(b) The Company shall advise Torchmark as to all outstanding
guarantees, letter of credit obligations, performance or surety bonds, comfort
letters and other similar obligations of the Company and the Company Affiliates
relating to Torchmark's Business. Except as otherwise provided in Section 8.4,
Torchmark shall use its best efforts from and after the Public Offering Date to
obtain the release of the Company and the Company Affiliates from all such
obligations or liabilities.
(b) Actions by the Company.
(1) The Company shall use all reasonable efforts to have the
Registration Statement declared effective as promptly as reasonably practicable
and will promptly notify Torchmark and confirm such advice in writing, (i) when
the Registration Statement has become effective, (ii) when any post-effective
amendment to the Registration Statement becomes effective, (iii) of any SEC
comment letters, and (iv) of any request by the SEC for any amendment or
supplement to the Registration Statement or any prospectus relating thereto or
for additional information.
(2) The Company shall promptly deliver to Torchmark copies of the
Registration Statement and amendments thereto as filed with the SEC. The
Company shall furnish to the Underwriters such number of copies of any
prospectus (including any preliminary prospectus) as such Underwriters may
reasonably request in order to effect the offering and sale of any Shares being
offered and sold pursuant to such Registration Statement.
(3) The Company shall use its reasonable efforts to qualify not later
than the effective date of the Registration Statement the Shares registered
thereunder under the "blue sky" laws of such states as the Underwriters may
reasonably request; provided, however, that the Company shall not be required to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(4) The Company shall enter into customary agreements (including the
Underwriting Agreement) and take all other customary and appropriate actions in
order to expedite or facilitate the disposition of Shares subject to the
Registration Statement.
(5) On the Public Offering Date, the Company shall hereby
represent and warrant to Torchmark that the Registration Statement, in the form
declared effective by the SEC,
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and any amendment and supplement thereto and any prospectus included therein,
will comply in all material respects with the applicable provisions of the
Securities Act, and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided that the Company shall not represent and warrant
as to the information provided in writing by or on behalf of Torchmark which
either (i) related to Torchmark, Torchmark's Business, its operations or its
relationship with the Company, or (ii) was furnished specifically for use in the
Registration Statement or any amendment or supplement thereto or any prospectus
included therein.
(6) On the Public Offering Date, the Company shall issue to the
Underwriters such number of Shares as provided in the Underwriting Agreement.
(c) Actions by Torchmark.
(1) Torchmark shall furnish the Company such information regarding
Torchmark as is reasonably required by the Company in connection with any
registration, qualification or compliance referred to in this Article III.
(2) On the Public Offering Date, Torchmark shall hereby represent and
warrant to the Company that information furnished in writing to the Company by
or on behalf of Torchmark which either (i) related to Torchmark, Torchmark's
Business, its operations or its relationship with the Company, or (ii) was
furnished specifically for use in the Registration Statement or any amendment or
supplement thereto or any prospectus included therein, did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(3) Torchmark shall, and shall cause Liberty to, take all action
necessary to cause the persons identified on Exhibit C to be elected to the
Board of Directors of the Company promptly after the date hereof.
SECTION 3.2 Conditions Precedent to Consummation of the Public
Offering. The obligations of the parties to consummate the Public Offering shall
be conditioned on the satisfaction of the following conditions:
(a) The Registration Statement shall have been filed and declared effective
by the SEC, and there shall be no stop-order in effect with respect thereto;
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(b) The actions and filings with regard to state securities and blue sky
laws of the United States, if any are required, shall have been taken and, where
applicable, have become effective or been accepted;
(c) The Company shall have entered into the Underwriting Agreement and all
conditions to the obligations of the Underwriters shall have been satisfied or
waived;
(d) As of the Public Offering Date, Liberty shall control (within the
meaning of Sections 355 and 368(c) of the Code) the Company, and all other
conditions to permit the Internal Distribution to qualify as a tax-free
distribution to Torchmark and the Distribution to qualify as a tax-free
distribution to Torchmark shareholders shall, to the extent applicable as of the
time of the Public Offering, be satisfied, and there shall be no event or
condition that is likely to cause any of the foregoing not to be satisfied as of
the time of the Distribution Date or thereafter;
(e) The Shares shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance;
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Public Offering or any of the other transactions
contemplated by this Agreement or any other agreement or document contemplated
by this Agreement shall be in effect;
(g) Torchmark and the Company shall have received any necessary
governmental or regulatory approval or authorization;
(h) This Agreement shall not have been terminated;
(i) The Board of Directors of Torchmark or a duly authorized committee of
Torchmark directors shall have determined that the terms of the Public Offering
are acceptable to Torchmark;
(j) The actions required pursuant to Section 2.1 shall have been taken; and
(k) Such other actions as the parties may, based upon the advice of
counsel, reasonably request to be taken prior to the Public Offering in order to
assure the successful completion of the Public Offering, the Spin-Off and the
other transactions contemplated by this Agreement or any other agreement or
document contemplated by this Agreement shall have been taken.
SECTION 3.3 Participation. The participation of any party or its
counsel or other representatives in the preparation of the Registration
Statement or any amendment or supplement thereto or any prospectus included
therein, or its approval of all or any of such documents to be filed, shall not
alter the rights to indemnification or to contribution pursuant to Article VI.
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SECTION 3.4 Use of Proceeds. The Company shall apply the proceeds
of the Public Offering other than the proceeds attributable to the Overallotment
Shares, after deducting underwriting commissions and discounts, as follows:
(a) First, to reimburse Torchmark for all Offering Expenses paid or
advanced by Torchmark to the Company;
(b) Second, to prepay the amounts due under the Company's promissory
notes outstanding as of the Public Offering Date to Torchmark and Liberty to the
extent of such remaining proceeds; and
(c) Third, any remaining amount of such net proceeds, less an amount equal
to the Balancing Cash, shall be paid to Torchmark and Liberty as a pro rata
dividend.
SECTION 3.5 Use of Overallotment Proceeds. The Company shall apply the
proceeds of the Public Offering attributable to the Overallotment Shares, after
deducting underwriting commissions and discounts, as follows:
(a) First, the Company shall retain $28,000,000; and
(b) Second, any remaining amount of such net proceeds, less an amount equal
to the Balancing Cash (but only to the extent the Balancing Cash was not
deducted pursuant to Section 3.4(c) above) shall be paid to Torchmark and
Liberty as a pro rata dividend.
SECTION 3.6 Overtime Charges. The Company agrees to pay overtime expenses
charged by X.X. Xxxxxxxxx as approved by the Company from time to time in
connection with the Public Offering.
SECTION 3.7 Intercompany Debt.
(a) In the event the Company's transfer to Torchmark and Liberty of the
cash amounts to be paid pursuant to Section 3.4(b) are sufficient to constitute
the final payment of the remaining outstanding principal plus accrued interest
under the $90 Million Note, the $390 Million Note and the $124 Million Note,
Torchmark shall cancel the $90 Million Note and Liberty shall cancel the $390
Million Note and the $124 Million Note.
(b) In the event the Company's transfer to Torchmark and Liberty of the
cash amounts to be paid pursuant to Section 3.4(b) are not sufficient to
constitute the final payment of the remaining outstanding principal plus accrued
interest under the $90 Million Note, the $390 Million Note and the $124 Million
Note, the cash shall be applied first to the $90 Million Note and the $390
Million Note in the proportions directed by Torchmark, and then to the $124
Million Note, and the unpaid portion of any such Notes shall remain outstanding
as an obligation of the Company. If such payment completely prepays all amounts
due under any such Note, then Torchmark or Liberty, as applicable, shall cancel
such Note.
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ARTICLE IV
DISTRIBUTION
SECTION 4.1 Actions Prior to the Spin-Off.
(a) Actions by Torchmark.
(1) Torchmark shall continue to seek to obtain a private letter ruling
from the Internal Revenue Service to the effect that, among other things, the
Spin-Off will qualify as a tax-free distribution for federal income tax purposes
under Section 355 of the Code (the "Ruling Request"). The Company shall provide
all information requested by Torchmark as necessary for Torchmark to obtain such
ruling.
(2) Subject to Section 4.3, on or prior to the Distribution Date,
Torchmark shall, subject to any necessary governmental approvals and consents,
cause Liberty to distribute a dividend of all of the Class B Common Stock held
by Liberty to Torchmark, its sole stockholder.
(3) On or prior to the Distribution Date, Torchmark shall, subject to
any necessary governmental approvals and consents, transfer all of the stock of
American Income Life Insurance Company to Globe Life and Accident Insurance
Company as a contribution to capital.
(b) Actions by each Party.
(1) Subject to Section 4.3, prior to the Distribution Date, the
Company and Torchmark shall prepare and mail to the holders of Torchmark common
stock, such information concerning the Company, its business, operations and
management, the Spin-Off and such other matters as Torchmark and the Company
shall reasonably determine and as may be required by law. Torchmark and the
Company, as may be appropriate, will prepare and, to the extent required under
applicable law, will file with the SEC any such documentation which Torchmark
determines is necessary or desirable to effectuate the Spin-Off and Torchmark
and the Company shall each use its reasonable efforts to obtain all necessary
approvals from the SEC with respect thereto.
(2) In addition to their respective obligations under Section
4.1(b)(1) above, Torchmark and the Company shall take all other actions as may
be necessary or appropriate under the securities or blue sky laws of the United
States in connection with the Spin-Off.
(3) Torchmark and the Company shall use their reasonable efforts to
cause the conditions set forth in Section 4.3 to be satisfied and to effect the
Spin-Off on the Distribution Date.
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(c) Actions by the Company.
(1) The Company shall prepare and file, and shall use its reasonable
efforts to have approved, an application for the listing of the Class A Common
Stock and Class B Common Stock to be distributed in the Spin-Off on the New York
Stock Exchange.
(2) Between the Public Offering Date and the Distribution Date, the
Company shall not issue any shares of stock or enter into any binding obligation
to do so if the effect thereof would be that Liberty would not control the
Company within the meaning of Sections 355 and 368(c) of the Code, or,
subsequent to the Internal Distribution, that Torchmark would not control the
Company within the meaning of Sections 355 and 368(c) of the Code.
SECTION 4.2 The Spin-Off.
(a) Subject to Section 4.3, on or prior to the Distribution Date, Torchmark
shall deliver to the Agent for the benefit of holders of record of Torchmark
common stock on the Record Date, a single stock certificate endorsed by
Torchmark in blank, representing all of the outstanding shares of Class A Common
Stock then owned by Torchmark or any other member of the Torchmark Group and a
single stock certificate endorsed by Torchmark in blank, representing all of the
outstanding shares of Class B Common Stock then owned by Torchmark or any other
member of the Torchmark Group, and shall cause the transfer agent for the shares
of Torchmark common stock to instruct the Agent to distribute on the
Distribution Date the appropriate number of such shares of Class A Common Stock
and Class B Common Stock (except for fractional shares which will be sold for
cash pursuant to Section 4.4 to be distributed in lieu thereof) to each such
holder or designated transferee or transferees of such holder.
(b) Subject to Section 4.4, each holder of Torchmark common stock on the
Record Date (or such holder's designated transferee or transferees) shall be
entitled to receive, in the Spin-Off, the following:
(1) A number of shares of Class A Common Stock equal to the number of
shares of Class A Common Stock owned by Torchmark and any other member of the
Torchmark Group on the Record Date multiplied by a fraction, the numerator of
which is the number of shares of Torchmark common stock held by such holder on
the Record Date, and the denominator of which is the number of shares of
Torchmark common stock outstanding on the Record Date, which number shall be
rounded down to the nearest whole number of shares; and
(2) A number of shares of Class B Common Stock equal to the number of
shares of Class B Common Stock owned by Torchmark or any other member of the
Torchmark Group on the Record Date multiplied by a fraction, the numerator of
which is the number of shares of Torchmark common stock held by such holder on
the Record Date, and the denominator of which is the number of shares of
Torchmark common stock outstanding on the Record Date, which number shall be
rounded down to the nearest whole number of shares.
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(c) Torchmark and the Company, as the case may be, will provide to the
Agent all share certificates and any information required in order to complete
the Spin-Off on the basis specified above.
SECTION 4.3 Conditions to Spin-Off. Torchmark shall effect the Spin-
Off as promptly as practicable after October 1, 1998 as determined by Torchmark,
following the satisfaction or waiver by Torchmark, in its sole discretion, of
the conditions set forth below:
(a) A private letter ruling from the Internal Revenue Service shall have
been obtained, and shall continue in effect, providing that, among other things,
the Spin-Off will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Code, such ruling shall be in form and
substance satisfactory to Torchmark in its sole discretion and Torchmark and the
Company shall have complied with all conditions set forth in such ruling;
(b) Any material governmental approvals and consents necessary to
consummate the Spin-Off shall have been obtained and shall be in full force and
effect;
(c) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Off shall be in effect and no other event outside the
control of Torchmark shall have occurred or failed to occur that prevents the
consummation of the Spin-Off;
(d) The transactions contemplated hereby shall be in compliance with
applicable federal and state securities and insurance laws;
(e) Each of the Company and Torchmark shall have received such material
consents, and shall have received executed copies of such agreements or
amendments of agreements, as they shall deem material in connection with the
completion of the transactions contemplated by this Agreement or any other
agreement or document contemplated by this Agreement or otherwise;
(f) All action and other documents and instruments deemed necessary or
advisable in connection with the transactions contemplated hereby shall have
been taken or executed, as the case may be, in form and substance satisfactory
to Torchmark;
(g) Since December 31, 1997, no material adverse change shall have occurred
with respect to the business or financial condition of Torchmark and no other
event or development shall have occurred which the Board of Directors of
Torchmark determines, in its sole discretion, make the Spin-Off not in the best
interests of Torchmark and its stockholders.
The foregoing conditions are for the sole benefit of Torchmark and shall not
give rise to or create any duty on the part of Torchmark to waive or not waive
any such condition.
SECTION 4.4 Fractional Shares. As soon as practicable after the
Distribution Date, Torchmark shall direct the Agent to determine the number of
whole shares and fractional shares
15
of the Class A Common Stock and the Class B Common Stock allocable to each
holder of record of Torchmark common stock as of the Record Date, to aggregate
all such fractional shares and sell the whole shares obtained thereby in open-
market transactions in the Agent's sole discretion as to when, how, through
which broker-dealer and at what price to make such sales, and to cause to be
distributed to each such holder or for the benefit of each such holder, in lieu
of any fractional share, such holder's ratable share of the proceeds of such
sale, after making appropriate deductions of the amount required to be withheld
for federal income tax purposes and after deducting an amount equal to all
brokerage charges, commissions and transfer taxes attributed to such sale.
Torchmark and the Agent shall use their reasonable efforts to aggregate the
shares of Torchmark common stock that may be held by any holder of record
thereof through more than one account in determining the fractional shares
allocable to such holder.
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.1 Registration of Shares In the event that the Spin-Off
has not occurred by March 31, 1999, upon the request of Torchmark [made at any
time after such date but prior to March 31, 2002], the Company shall file with
the SEC, as promptly as practicable, a demand registration statement (the
"Demand Registration Statement") including the shares of Class A Common Stock
and/or Class B Common Stock then held by Torchmark or any other member of the
Torchmark Group Torchmark requests to be included, provided, however, that the
number of shares of Class A Common Stock and/or Class B Common Stock Torchmark
requests be included must represent not less than the lesser of (i) twenty
percent (20%) of the Class A Common Stock and the Class B Common Stock then held
by Torchmark and any other member of the Torchmark Group and (ii) all of the
shares of Class A Common Stock and Class B Common Stock then held by Torchmark
and the other members of the Torchmark Group. Torchmark shall have the right to
request up to three Demand Registration Statements, provided that the Company
shall have no obligation to file any such Demand Registration Statement on or
prior to a ninety (90) day period following the filing of any other registration
statement by the Company (other than registration statements on Form S-4 or Form
S-8 or another form available for registration of securities other than for sale
to the public for cash). The Company shall use its best efforts to cause each
Demand Registration Statement to be declared effective by the SEC as promptly as
practicable. If a Demand Registration Statement shall be withdrawn by the
Company before effectiveness, it shall not be counted against Torchmark's right
to request three registrations. Torchmark will pay all reasonable costs incurred
to obtain shareholder approval for any mutual fund which is a party to an
investment advisory contract with any member of the Company Group in the event a
sale by Torchmark pursuant to a Demand Registration Statement or a Company
Registration Statement would constitute an "assignment" as defined in the
Investment Company Act and the Advisors Act of such investment advisory
contract.
SECTION 5.2 Limitations of Registration Rights.
(a) The Company may, by written notice to Torchmark, for a period of
up to forty-five (45) days from the date of written notice, delay the filing or
effectiveness of any of the Demand Registration Statements in the event that (1)
the Company is engaged in any activity or
16
transaction that the Company desires to keep confidential for business reasons,
(2) the Company's Board of Directors determines in good faith that the
disclosure of such information would be detrimental to the Company, and (3) the
Company's Board of Directors determines in good faith that the public disclosure
requirements imposed on the Company under the Securities Act in connection with
any Demand Registration Statement would require disclosure of such activity
or transaction.
(b) If the Company delays a Demand Registration Statement, the Company
shall, as promptly as practicable following the termination of the circumstances
which entitled the Company to do so, provide notice to Torchmark of the
termination of such circumstances and take such actions as may be necessary to
file or reinstate the effectiveness of a Demand Registration Statement. If as a
result thereof the prospectus included in a Demand Registration Statement has
been amended to comply with the requirements of the Securities Act, the Company
shall enclose such revised prospectus with the notice to Torchmark given
pursuant to this paragraph (b), and Torchmark shall make no offers or sales of
shares pursuant to a Demand Registration Statement other than by means of such
revised prospectus.
SECTION 5.3 Registration Procedures.
(a) In connection with the filing by the Company of a Demand
Registration Statement, the Company shall furnish to Torchmark as many copies of
the prospectus, including each preliminary prospectus, in conformity with the
requirements of the Securities Act as Torchmark shall reasonably request for the
purpose of effecting the plan of distribution set forth therein.
(b) The Company shall use its best efforts to register or qualify the
shares of Class A Common Stock and/or Class B Common Stock covered by a Demand
Registration Statement under the securities laws of such states as Torchmark
shall reasonably request; provided, however, that the Company shall not be
required in connection with this paragraph (b) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
(c) If the Company has delivered preliminary or final prospectuses to
Torchmark and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify Torchmark
and, if requested by the Company, Torchmark shall immediately return all
prospectuses to the Company. The Company shall promptly provide Torchmark with
revised prospectuses.
(d) At the request of Torchmark, the Company shall sign an
underwriting agreement in customary form with managing underwriter selected by
Torchmark and reasonably satisfactory to the Company, and shall cooperate with
such managing underwriter in all reasonable respects to facilitate the
distribution contemplated by Torchmark, including without limitation making
available the books, records and personnel of the Company for the purpose of the
underwriter's "due diligence" and providing customary legal opinions and
auditors' comfort letters.
(e) The Offering Expenses incurred in complying with this Section 5.3
shall be paid as follows:
17
(i) Offering Expenses in connection with a Demand Registration
Statement shall be paid by Torchmark; provided, that in the event any shares of
the Company's stock are included in a Demand Registration Statement in addition
to the shares of Class A Common Stock and/or Class B Common Stock held by
Torchmark or any other member of the Torchmark Group, the Company shall pay its
prorata portion of the Offering Expenses equal to the Offering Expenses
multiplied by a fraction, the numerator of which is the number of any shares
included in the Demand Registration Statement other than the shares held by
Torchmark or any other member of the Torchmark Group and the denominator of
which is the total number of shares included in the Demand Registration
Statement; and
(ii) Offering Expenses in connection with a Company Registration
Statement (as defined below) shall be paid by the Company; provided, that in the
event Class A Common Stock and/or Class B Common Stock held by Torchmark or any
other member of the Torchmark Group is included in the Company Registration
Statement, Torchmark shall pay its prorata portion of the Offering Expenses
equal to the Offering Expenses multiplied by a fraction, the numerator of which
is the number of such Class A Common Stock and/or Class B Common Stock held by
Torchmark or any other member of the Torchmark Group and included in the Company
Registration Statement and the denominator of which is the total number of
shares included in the Company Registration Statement.
(f) Prior to March 31, 2002, each time the Company proposes to
register any of its securities (except with respect to registration statements
on Form S-4 or Form S-8 or another form available for registration of securities
other than for sale to the public for cash), whether or not for sale for its own
account, which is in whole or in part, an underwritten public offering (a
"Company Registration Statement"), it will give prompt written notice to
Torchmark of its intention to do so and of Torchmark's rights under this Section
5.3(f). Torchmark may request within thirty (30) days after receipt of any such
notice to include in the Company Registration Statement some or any portion of
the shares of Class A Common Stock or Class B Common Stock then held by
Torchmark or any other member of the Torchmark Group. The Company shall use its
best efforts to cause the Company Registration Statement to include all shares
of Class A Common Stock and/or Class B Common Stock that Torchmark requested to
be included; provided, however, the number of shares of Class A Common Stock
and/or Class B Common Stock Torchmark requested be included in the Company
Registration Statement may be reduced (pro rata among Torchmark and any other
stockholder with similar registration rights based on the number of shares so
requested to be registered) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold. Torchmark's exercise of its right under this
Section 5.3(f) to include shares in any Company Registration Statement shall not
be counted against Torchmark's right to request three registrations.
SECTION 5.4 Requirements of Torchmark. The Company shall not be
required to include any Class A Common Stock and/or Class B Common Stock owned
by Torchmark or any other member of the Torchmark Group in a Demand Registration
Statement or a Company Registration Statement unless:
18
(a) Torchmark furnishes to the Company in writing such information
regarding Torchmark as the Company may reasonably request in writing in
connection with the Demand Registration Statement or the Company Registration
Statement, as the case may be, or as shall be required in connection therewith
by the SEC or any state securities law authorities; and
(b) Torchmark shall have provided to the Company its written agreement
to report to the Company sales made pursuant to the Demand Registration
Statement or the Company Registration Statement, as the case may be.
SECTION 5.5 Sales without Registration. Torchmark and any other
member of the Torchmark Group may sell shares of Class A Common Stock and/or
Class B Common Stock without a registration in the event Torchmark provides to
the Company an opinion of counsel, satisfactory in form and substance to the
Company, to the effect that such Class A Common Stock and/or Class B Common
Stock is eligible for sale without limitation or restriction of any sort under
Rule 144 under the Securities Act.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Indemnification by the Company. Subject to Section 6.5,
the Company hereby agrees to indemnify and hold harmless Torchmark and the
Torchmark Affiliates and their respective directors, officers, employees, and
agents, and each Person, if any, who controls Torchmark within the meaning of
the Securities Act (the "Torchmark Indemnitees"), against:
(a) All Liabilities of the Company Group under this Agreement, any
Ancillary Agreement or the Underwriting Agreement;
(b) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Demand Registration Statement, or any Company
Registration Statement, any prospectus (including a preliminary prospectus)
contained therein, or any amendment or supplement to any such Registration
Statement, Demand Registration Statement, Company Registration Statement or
prospectus, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that the Company shall not be so liable insofar as such
Losses arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, Demand Registration Statement, Company Registration Statement,
prospectus, supplement or amendment in conformity with or based upon information
furnished in writing to the Company by or on behalf of Torchmark which either
(i) related to Torchmark, Torchmark's Business, its operations, or its
relationship with the Company, or (ii) was furnished specifically for use
therein;
(c) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in any
Exchange Act report by Torchmark or the
19
omission or alleged omission to state therein a material fact required to be
stated in any such report or necessary to make the statements therein not
misleading, but only insofar as such Losses arise out of or are based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made in such report in conformity with or based upon information
furnished in writing to Torchmark by or on behalf of the Company which either
(i) related to the Company, the Company's Business, its operations, or its
relationship with Torchmark, or (ii) was furnished specifically for use therein;
(d) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact contained in any Exchange Act report
by the Company or the omission or alleged omission to state therein a material
fact required to be stated in any such report or necessary to make the
statements therein not misleading; provided that the Company shall not be liable
insofar as such Losses arise out of or are based upon any such untrue statement
or alleged untrue statement or omission or alleged omission made in such report
in conformity with or based upon information furnished in writing to the Company
by or on behalf of Torchmark which either (i) related to Torchmark, Torchmark's
Business, its operations or its relationship with the Company or (ii) was
furnished specifically for use therein;
(e) All Losses relating to, or arising out of or due to, directly or
indirectly, (i) the Company's Business, (ii) any individual employed by any
member of the Company Group on the Public Offering Date or any individual
employed by any member of the Company Group prior to the Public Offering Date,
except to the extent such person was acting solely as an officer, director or
employee of any member of the Torchmark Group, or (iii) any Representative of
any member in the Company Group, in each case, whether relating to or arising
out of occurrences prior to, on or after the Public Offering Date; and
(f) All Losses to which Torchmark and the Torchmark Affiliates may be
subject as a result of the Spin-Off not qualifying as a tax-free transaction
under Section 355 of the Code, to the extent that any Losses would not have
resulted but for (x) the actions described in Section 4.1(c)(2) or (y) any
untrue statement or alleged untrue statement of a material fact contained in the
Ruling Request or the Registration Statement or the omission or alleged omission
to state in the Ruling Request or the Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon, and in conformity with information furnished in writing by or on
behalf of the Company which either (i) related to the Company, the Company's
Business, its operations, or its relationship with the Company, or (ii) was
furnished specifically for use therein.
SECTION 6.2 Indemnification by Torchmark. Subject to Section 6.5,
Torchmark hereby agrees to indemnify and hold harmless the Company and the
Company Affiliates and their respective directors, officers, employees, and
agents, and each Person, if any, who controls the Company within the meaning of
the Securities Act (the "Company Indemnitees"), against:
(a) All Liabilities of the Torchmark Group under this Agreement, any
Ancillary Agreement, or the Underwriting Agreement;
20
(b) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact in the Registration Statement, any
Demand Registration Statement, or any Company Registration Statement, any
prospectus (including a preliminary prospectus) contained therein, or any
amendment or supplement to such Registration Statement, Demand Registration
Statement, Company Registration Statement, or prospectus, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only insofar as
such Losses arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, Demand Registration Statement, Company Registration Statement,
prospectus, supplement or amendment that was based upon or in conformity with
information furnished in writing to the Company by or on behalf of Torchmark
which either (i) related to Torchmark, Torchmark's Business, its operations or
its relationship with the Company or (ii) was furnished specifically for use
therein;
(c) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact contained in any Exchange Act report
by Torchmark or the omission or alleged omission to state therein a material
fact required to be stated in any such report or necessary to make the
statements therein not misleading; provided that Torchmark shall not be liable
insofar as such Losses arise out of or are based upon any such untrue statement
or alleged untrue statement or omission or alleged omission made in such report
in conformity with or based upon information furnished in writing to Torchmark
by or on behalf of the Company which either (i) related to the Company,
Company's Business, its operations or its relationship with Torchmark or (ii)
was furnished specifically for use therein;
(d) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact contained in any Exchange Act report
by the Company or the omission or alleged omission to state therein a material
fact required to be stated in any such report or necessary to make the
statements therein not misleading, but only insofar as such Losses arise out of
or are based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made in such report in conformity with or based
upon information furnished in writing to the Company by or on behalf of
Torchmark which either (i) related to Torchmark, Torchmark's Business, its
operations, or its relationship with the Company, or (ii) was furnished
specifically for use therein;
(e) All Losses relating to, or arising out of or due to, directly or
indirectly, (i) Torchmark's Business, (ii) any individual employed by any member
of the Torchmark Group on the Public Offering Date or any individual employed by
any member of the Torchmark Group prior to the Public Offering Date, except to
the extent such person was acting solely as an officer, director or employee of
any member of the Company Group, (iii) or any Representative of any member of
the Torchmark Group, in each case, whether relating to or arising out of
occurrences prior to, on or after the Public Offering Date; and
(f) All Losses to which the Company and the Company Affiliates may be
subject as a result of the Spin-Off not qualifying as a tax-free transaction
under Section 355 of the Code,
21
provided that Torchmark shall not be liable in any such case to the extent that
any Losses would not have resulted but for (x) the actions described in Section
4.1(c)(2) or (y) any untrue statement or alleged untrue statement of a material
fact contained in the Ruling Request or the Registration Statement or the
omission or alleged omission to state in the Ruling Request or the Registration
Statement a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon, and in conformity with information furnished
in writing by or on behalf of the Company which either (i) related to the
Company, the Company's Business, its operations or its relationship with the
Torchmark or (ii) was furnished specifically for use therein.
SECTION 6.3 Indemnification Procedure. Promptly after receipt by an
Indemnitee of notice of the commencement of any action or proceeding in respect
of which indemnity may be sought by such Indemnitee pursuant to Section 6.1 or
6.2, such Indemnitee will, if a claim in respect thereof is to be made against
an Indemnifying Party under Section 6.1 or 6.2, notify the Indemnifying Party of
the commencement thereof, but the omission so to notify the Indemnified Party
will not relieve the Indemnifying Party from any liability which it may have to
any Indemnitee under Section 6.1 or 6.2 or otherwise, except to the extent the
Indemnifying Party is prejudiced by such omission. In case any such action or
proceeding is brought against any Indemnitee and it notifies an Indemnifying
Party of the commencement thereof, the Indemnifying Party will be entitled to
participate therein and, to the extent that it may wish to assume the defense
thereof, and if it assumes such defense, it shall retain counsel reasonably
satisfactory to such Indemnitee to represent the Indemnitee and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnitee shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
unless in the reasonable judgment of the Indemnitee separate and conflicting
defenses are available to such Indemnitee, in which event the Indemnitee may
select one firm of separate counsel reasonably satisfactory to the Indemnifying
Party for purposes of defending such action, whose fees and expenses shall be
borne by the Indemnifying Party, provided that the Indemnifying Party shall not
be responsible for the fees and expenses of more than one counsel for all such
Indemnitees. After notice from the Indemnifying Party to such Indemnitee of its
election so to assume the defense thereof, the Indemnifying Party will not
(except as otherwise provided herein) be liable to such Indemnitee under
Sections 6.1 or 6.2 for any legal or other expenses subsequently incurred by
such Indemnitee in connection with the defense thereof other than reasonable
costs of investigation. If the Indemnifying Party elects not to assume the
defense of a claim or action, it will not be obligated to pay the fees and
expenses of more than one counsel for the Indemnitee with respect to such claim
or action. No Indemnifying Party shall consent to entry of any judgment or enter
into any settlement without the consent of any Indemnitee which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such action or
proceeding. No Indemnifying Party shall be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
22
SECTION 6.4 Indemnification Payments.
(a) The amount which any Indemnifying Party is or may be required to
pay to an Indemnitee pursuant to Section 6.1 or Section 6.2 shall be reduced,
including, without limitation, retroactively, by any Insurance Proceeds or other
amounts actually recovered by or on behalf of such Indemnitee, in reduction of
the related Loss. If an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of any Loss and shall
subsequently actually receive Insurance Proceeds or other amounts in respect of
such Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal
to the amount of such Insurance Proceeds or other amounts actually received (up
to but not in excess of the amount of any indemnity payment made hereunder). An
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto, or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to a "windfall" (i.e., a benefit they would not be
entitled to receive in the absence of the indemnification provisions) by virtue
of the indemnification provisions hereof.
(b) Any payment required to be made pursuant to this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or losses, damages or
liabilities are incurred.
(c) If the indemnification provided for in this Article VI is held by a
court of competent jurisdiction to be unavailable to an Indemnitee with respect
to any Loss, then the Indemnifying Party, in lieu of indemnifying such
Indemnitee hereunder, shall contribute the amount that would have been due
hereunder to the amount paid or payable by such Indemnitee as a result of such
Loss.
SECTION 6.5 Tax Liabilities. This Article VI shall not be applicable
to Losses related to Taxes (as defined in the Tax Disaffiliation Agreement)
which shall be governed by the Tax Disaffiliation Agreement, attached hereto as
Exhibit D, except as otherwise provided in Sections 6.1(e) and 6.2(e). To the
extent this Agreement and the Tax Disaffiliation Agreement are inconsistent, the
provisions of the Tax Disaffiliation Agreement shall control.
ARTICLE VII
ACCESS TO, AND TREATMENT OF, INFORMATION
SECTION 7.1 Access to Information. From and after the Public
Offering Date Torchmark shall afford to the Company and its Representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to all records, books, contracts, instruments, computer data and other
data and information (collectively, "Information") within Torchmark's possession
relating to the businesses of the Company, insofar as such access is reasonably
required by the Company. The Company shall afford to Torchmark and its
Representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing Information) and duplicating rights during
normal business hours to Information within the Company's possession
23
relating to the business of the Company, insofar as such access is reasonably
required by Torchmark. Information may be requested under this Article VII for,
without limitation, audit, accounting, claims, litigation and tax purposes, as
well as for purposes of fulfilling disclosure and reporting obligations and for
performing the transactions contemplated in this Agreement or any other
agreement or document contemplated by this Agreement or otherwise.
SECTION 7.2 Securities Filings. For a period of three (3) years
following the Effective Date, each of the Company and Torchmark shall provide to
the other, (a) promptly following such time at which such documents shall be
filed with the SEC, copies of all documents which shall be filed by either the
Company or Torchmark, as the case may be, with the SEC pursuant to the periodic
and interim reporting requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder, and (b) promptly following
receipt thereof, any comment letter of the SEC related to any documents
described in paragraph (a) of this Section 7.2.
SECTION 7.3 Reimbursement. Except to the extent otherwise
contemplated by any Ancillary Agreement, a party providing information to the
other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such information.
SECTION 7.4 Production of Witnesses. After the Public Offering Date,
each of Torchmark and the Company and the other members of their respective
Group shall use reasonable efforts to make available to the other party and the
other members of their Group, upon written request, its directors, officers,
employees and agents as witnesses to the extent that any such Person may
reasonably be required (giving consideration to business demands of such
Representatives) in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved
(other than proceedings between the parties or the other members of their
Group).
SECTION 7.5 Confidentiality. Each of Torchmark and the other members
of the Torchmark Group on the one hand, and the Company and the other members of
the Company Group on the other hand, shall hold, and shall cause its
Representatives to hold, in strict confidence, all Information concerning the
other in its possession or furnished by the other or the other's Representatives
pursuant to this Agreement (except to the extent that such Information is (a)
publicly available or (b) known or becomes known to such party on a non-
confidential basis from a source not bound by a confidentiality agreement to the
other party), and each party shall not release or disclose such Information to
any other Person, except its auditors, attorneys, financial advisors, bankers
and other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as advised by its counsel, by other requirements of
law or the applicable rules of any securities exchange.
SECTION 7.6 Retention of Records. For a period of six (6) years
following the Public Offering Date, each of Torchmark and the Company shall
retain all Information relating to the other as of the Public Offering Date,
except as otherwise required by law or set forth in an
24
Ancillary Agreement or except to the extent that such Information is in the
public domain or in the possession of the other party.
ARTICLE VIII
RELATIONSHIP FOLLOWING PUBLIC OFFERING
SECTION 8.1 Ancillary Agreements. Torchmark and the Company agree
to, as soon as practicable following the execution of this Agreement, execute
and deliver the following agreements which agreements will become effective as
of the Public Offering Date (the "Ancillary Agreements"):
(a) Tax Disaffiliation Agreement, attached hereto as Exhibit D;
(b) Investment Services Agreement, attached hereto as Exhibit E;
(c) Amendment No. 1 to the General Agent Contract, attached hereto as
Exhibit F;
(d) Amendment No. 1 to Independent Agent Contract, attached hereto as
Exhibit G;
(e) Amendment to Distribution Contract, attached hereto as Exhibit H;
(f) Amendment to Principal Underwriting Agreement, attached hereto as
Exhibit I;
(g) Services Agreement, attached hereto as Exhibit J;
(h) Administrative Services Agreement, attached hereto as Exhibit
K;
(i) Reciprocity Agreement, attached hereto as Exhibit L; and
(j) Management Contract, attached hereto as Exhibit M.
SECTION 8.2 Cancellation of Agreements. Torchmark and the Company
agree, on their own behalf and on behalf of the other members of their
respective Group, that each and every agreement, arrangement, commitment or
understanding, whether or not in writing, by or among any such parties except
this Agreement, the agreements specifically identified in this Article VIII, and
the agreements set forth on Exhibit N, shall be canceled and of no further
effect as of the Public Offering Date. Each party shall, at the reasonable
request of the other party, take, or cause to be taken, such other actions as
may be necessary to effect the foregoing. Notwithstanding the foregoing,
neither party shall be relieved from any obligations or liabilities accruing
prior to the Public Officering Date by any member of the Company Group or any
member of the Torchmark Group, as the case may be, which obligations or
liabilities shall be paid or satisfied consistent with past practices.
SECTION 8.3 Use of Name.
(a) As soon as practicable following the Public Offering Date,
Torchmark shall take all action necessary to change the name of Xxxxxxx & Xxxx
Asset Management Company to a name bearing no similarity to "Xxxxxxx & Xxxx".
25
(b) The Company shall take all necessary action to ensure that the
members of the Company Group, and Torchmark shall take all necessary action to
ensure that the members of the Torchmark Group, shall take all reasonable
diligent action to discontinue the use of any existing printed material or any
signage implicitly or explicitly showing any current affiliation or connection
between Torchmark and the Company or any member of their respective Groups as
promptly after the Distribution Date as practicable. After the Distribution
Date, neither party shall permit any member of its respective Group, to
represent to third parties that it has a present business affiliation with the
other party or its affiliates other than for ongoing contractual relationships.
SECTION 8.4 Insurance.
(a) All insurance coverage provided by Torchmark or any other member
of the Torchmark Group to any member of the Company Group insuring the
properties, employees, assets or operations of any member of the Company Group
and all insurance coverage provided by the Company or any other member of the
Company Group to any member of the Torchmark Group, insuring the properties,
employees, assets or operations of any member of the Torchmark Group, in each
case, as identified on Exhibit O, shall continue in full force and effect
until the earlier of the renewal date of the respective policy as set forth on
Exhibit O, or the Distribution Date (the "Coverage Expiration Date"). The
Company shall or shall cause the other members of the Company Group (as the case
may be) to, reimburse Torchmark or other members of the Torchmark Group (as the
case may be), and Torchmark shall or shall cause the other members of the
Torchmark Group (as the case may be) to, reimburse the Company or other members
of the Company Group (as the case may be), the portion of the premiums for such
coverage in accordance with the past practices established by Torchmark and the
Company related to the period of such coverage through the Coverage Expiration
Date. The Company shall be responsible for obtaining insurance coverage for
itself and the other members of the Company Group, at the Company's expense, and
Torchmark shall be responsible for obtaining insurance coverage for itself and
the other members of the Torchmark Group, at Torchmark's expense, from and after
the Coverage Expiration Date of the respective policy.
(b) Torchmark and the Company agree that each party (the "Insured
Party") shall have the right to present claims to the other party (the "Insuring
Party") or the other party's insurers under all policies of insurance identified
on Exhibit N for insured incidents occurring prior to the Coverage Expiration
Date of the relevant policy. The parties acknowledge that any such policies
written on a "claims made" rather than an "occurrence" basis will not provide
coverage for incidents occurring prior to the Coverage Expiration Date of the
relevant policy but which are first reported after the Coverage Expiration Date
of the relevant policy. With respect to any insured Losses prior to the
Coverage Expiration Date of the relevant policy (i) the Insuring Party shall pay
promptly over to the Insured Party, any Insurance Proceeds it receives on
account of such Losses; and (ii) the Insured Party shall promptly reimburse the
Insuring Party for all costs, expenses or payments made by the Insuring Party in
good faith and consistent with past practice on or after the Coverage Expiration
Date of the relevant policy on account of such Losses (including any self-
insured retention), with such costs, expenses or payments allocated on a basis
consistent with that utilized by the parties as of the date hereof.
26
SECTION 8.5 Employee Benefits.
(a) Torchmark and the Company agree to establish stock
option conversion programs as described in this Section 8.5(a) to become
effective on the date the Spin-Off occurs. Outstanding options to purchase
shares of common stock of Torchmark (the "Torchmark Options") granted by
Torchmark to officers, directors, and employees of Torchmark and its affiliates,
including the Company, under various Torchmark stock compensation plans (the
"Torchmark Plans") will be adjusted (the "Adjusted Torchmark Options") and the
Company will provide for the issuance of options (the "Conversion Options") to
purchase Class A Common Stock to the holders of outstanding Torchmark Options
(except for options granted December 24, 1997). The Company and Torchmark agree
to then provide (i) holders of Torchmark Options that are employees of the
Company an election to receive either solely Conversion Options or a combination
of Conversion Options and Adjusted Torchmark Options in a ratio that is
reflective of the pro rata distribution of Class A Common Stock to Torchmark
stockholders in the Spin-Off and (ii) holders of Torchmark Options who are
employees of Torchmark an election to receive either solely Adjusted Torchmark
Options or a combination of Conversion Options and Adjusted Torchmark Options in
a ratio that is reflective of the pro rata distribution of Class A Common Stock
to Torchmark stockholders in the Spin-Off. The number of options that the
option holder will be entitled to receive and respective exercise prices will be
determined so that (i) the ratio of the exercise price of each of the Conversion
Options and the Adjusted Torchmark Options to the market value of their
respective underlying common stock will not be less than the ratio of the
exercise price of Torchmark Options to the underlying market value of the
Torchmark common stock immediately prior to the Spin-Off and (ii) the aggregate
intrinsic value of the Conversion Options and Adjusted Torchmark Options (the
difference between the aggregate exercise price and aggregate market value of
the underlying stock) will not exceed the aggregate intrinsic value inherent in
Torchmark Options immediately prior to the Spin-Off. All other terms and
conditions of the options issued in the conversions described above will be the
same as the original options. Notwithstanding the foregoing, if either
Torchmark or the Company determines that because of legal, accounting, tax,
and/or regulatory rules or requirements applicable to options, stock
appreciation rights or restricted stock in any jurisdiction, compliance with any
of its obligations under this Section 8.5(a) with respect to options, stock
appreciation rights or restricted stock held by or to be issued to any
individual would be impossible, illegal, impracticable or unreasonably
expensive, it shall so notify the other party, and Torchmark and the Company
shall use their best efforts to agree to appropriate alternative
arrangements.
(b) Until the date the Spin-Off occurs, Torchmark agrees to cause
Liberty to continue to provide insurance to the employees of members of the
Company Group at a discount and the Company agrees to continue to provide
certain net asset value accounts without certain charges to employees of members
of Torchmark Group, in each case, consistent with past practice.
SECTION 8.6 Unclaimed Stock. The Company agrees to provide to
Torchmark any claim or notice of claim for payment for shares of non-voting
stock of the Company converted into cash as a result of the merger of the
Company and a wholly owned subsidiary of Torchmark
27
on October 1, 1993 and Torchmark agrees to pay any amounts legally owing to such
claimants prior to the date their claim escheats to any state.
ARTICLE IX
DISPUTE RESOLUTION
SECTION 9.1 Negotiation. Any dispute, controversy or claim arising
out of or relating to this Agreement or the Tax Disaffiliation Agreement,
attached hereto as Exhibit D, other than those disputes governed by Section 7.1
of the Tax Disaffiliation Agreement, or the breach, termination or invalidity
hereof or thereof (a "Dispute") shall be settled by the procedures provided in
this Article IX. Either party may send the other party written notice
identifying the matter in Dispute and invoking the procedures in this Article
IX. Within ten (10) days of such written notice, the parties shall meet to
negotiate in good faith a resolution of the Dispute.
SECTION 9.2 Arbitration. Any Dispute which cannot be resolved
pursuant to Section 9.1 within fifteen (15) days of the written request provided
pursuant to Section 9.1, will be settled by binding arbitration in accordance
with Title 9 of the United States Code (the Federal Arbitration Act) and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). A
party may initiate arbitration by sending written notice of its intention to
arbitrate to the other party and to the AAA office located in Chicago, Illinois.
Such written notice will contain a description of the Dispute and remedy sought.
Each party shall select one arbitrator, and such arbitrators, jointly, shall
select another arbitrator. If either party fails to appoint an arbitrator or the
two arbitrators fail to agree on the third arbitrator, either party may request
that the AAA appoint such arbitrator. The place of the arbitration will be
Chicago, Illinois. The law of the State of Delaware shall govern the
arbitration. The award rendered by the arbitrators shall be conclusive and
binding upon the parties and judgment on the award may be entered in any court
of competent jurisdiction. The parties intend that this agreement to arbitrate
by irrevocable.
SECTION 9.3 Injunctive Relief. Notwithstanding anything in this
Article IX, in advance of the institution of any arbitration proceeding, but in
aid thereof, an application may be filed for order or orders to be entered by
any court of competent jurisdiction (i) invoking the jurisdiction of the court
over the controversy in rem, by attachment, garnishment, sequestration, or (ii)
seeking to restrain or enjoin the destruction of the subject matter of the
controversy or any essential part thereof, or the destruction or alteration of
books, records, documents, or evidence needed for the arbitration proceeding.
No such judicial proceeding by a party shall be deemed a waiver of the party's
right to arbitrate.
SECTION 9.4 Consolidation of Disputes. The arbitrators, in their
discretion, may consolidate two or more arbitrations or Disputes between the
parties into one arbitration, or terminate any such consolidation and/or
establish other arbitration proceedings for different Disputes that may arise in
any one arbitration. Notwithstanding the foregoing, the arbitrators shall
consolidate arbitrations and/or Disputes, if they determine that it would be
more efficient to consolidate such arbitrations and/or Disputes than to continue
them separately and (i) there are matters of fact or law that are common to the
arbitrations and/or Disputes to be consolidated, (ii)
28
there are related payment and performance obligations considered in the
arbitrations and/or Disputes to be consolidated, or (iii) there is a danger of
inconsistent awards.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Survival. All representations, covenants and agreements
contained or provided for herein shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the party
benefiting from any such covenant or agreement and shall survive the Public
Offering Date and the Distribution Date.
SECTION 10.2 Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand, or when sent by telex or telecopier (without
receipt confirmed), provided a copy is also sent by certified mail, postage
prepaid and return receipt requested, addressed as follows (or to such other
address as a party may designate by notice to the other):
If to the Company:
Xxxxxxx & Xxxx Financial, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxx 00000
Attn: General Counsel
If to Torchmark:
Torchmark Corporation
0000 Xxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn: General Counsel
SECTION 10.3 Governing Law. This Agreement shall be governed by,
construed and interpreted in accordance with the laws of the State of Delaware,
without regard to the conflicts of law principles thereof.
SECTION 10.4 Headings. The Article and Section headings contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning of interpretation of this Agreement.
SECTION 10.5 Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto and supersedes all prior
agreements and understandings, written or oral, between the parties.
SECTION 10.6 Amendment and Modification. The parties may, by written
agreement, (i) extend the time for the performance of any of the obligations or
other acts of the
29
parties hereto, (ii) waive any inaccuracies in any document delivered pursuant
to this Agreement, and (iii) waive compliance with or modify, amend or
supplement any of the agreements contained in this Agreement or waive or modify
performance of any of the obligations of any of the parties hereto. This
Agreement may not be amended or modified except by an instrument in writing duly
signed on behalf of the parties hereto.
SECTION 10.7 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by any party hereto without the prior
written consent of the other party. No purchaser (or transferee or assignee) of
Shares from Torchmark shall have any rights or obligations under this
Agreement.
SECTION 10.8 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.
SECTION 10.9 Waiver. No failure by any party to take any action or
assert any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to such
right, unless expressly waived in writing as contemplated by the terms of
Section 10.6 hereof.
SECTION 10.10 Termination. Notwithstanding any provision hereof,
this Agreement may be terminated and the Public Offering and/or the Spin-Off
abandoned at any time prior to the Public Offering Date by Torchmark in its sole
discretion without the approval of the Company. This Agreement may be terminated
by either party if the Spin-Off does not occur on or before March 31, 1999. In
the event this Agreement is terminated on or after the Public Offering Date,
only the provisions of Article IV will terminate and the other provisions of
this Agreement or any agreement or document contemplated by this Agreement or
otherwise shall remain in full force and effect.
SECTION 10.11 Limitation of Liability. Neither Torchmark nor the
Company shall be liable to the other for any special, indirect, incidental or
consequential damages of the other arising in connection with this Agreement.
SECTION 10.12 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
TORCHMARK CORPORATION
By: ________________________________________
Title: _____________________________________
XXXXXXX & XXXX FINANCIAL, INC.
By: ________________________________________
Title: _____________________________________
31
EXHIBIT A
CERTIFICATE OF INCORPORATION
EXHIBIT A - Page 1
EXHIBIT B
BYLAWS
EXHIBIT B - Page 1
EXHIBIT C
BOARD OF DIRECTORS
EXHIBIT C - Page 1
EXHIBIT D
TAX DISAFFILIATION AGREEMENT
EXHIBIT D - Page 1
EXHIBIT E
INVESTMENT SERVICES AGREEMENT
EXHIBIT E - Page 1
EXHIBIT F
AMENDMENT NO. 1 TO GENERAL AGENT CONTRACT
EXHIBIT F - Page 1
EXHIBIT G
AMENDMENT NO. 1 TO INDEPENDENT AGENT CONTRACT
EXHIBIT G - Page 1
EXHIBIT H
AMENDMENT TO DISTRIBUTION AGREEMENT
EXHIBIT H - Page 1
EXHIBIT I
AMENDMENT TO PRINCIPAL UNDERWRITING AGREEMENT
EXHIBIT I - Page 1
EXHIBIT J
SERVICES AGREEMENT
EXHIBIT J - Page 1
EXHIBIT K
ADMINISTRATIVE SERVICES AGREEMENT
EXHIBIT K - Page 1
EXHIBIT L
RECIPROCITY MANAGEMENT AGREEMENT
EXHIBIT L - Page 1
EXHIBIT M
MANAGEMENT CONTRACT
EXHIBIT M - Page 1
EXHIBIT N
CONTINUING AGREEMENTS
1. Tax Sharing Agreement dated August 29, 1990, effective as of January 1,
1989, by and among Torchmark and each of the corporations listed on Exhibit A
thereto, to the extent provided in the Tax Disaffiliation Agreement, between
Torchmark and the Company.
2. Wholesale Agreement, dated _____, by and among, LifeUSA, United Investors
Life Insurance Company and Xxxxxxx & Xxxx, Inc.
EXHIBIT N - Page 1
EXHIBIT O
INSURANCE
I. Policies provided by Torchmark or other members of the Torchmark Group.
Policy Renewal Date
------ ------------
II. Policies provided by the Company or other members of the Company Group.
Policy Renewal Date
------ ------------
EXHIBIT O - Page 1
