Exhibit 10.1
STOCK PURCHASE AGREEMENT
BETWEEN
REASSURE AMERICA LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL GROUP, INC.
Dated as of January 7, 2000
C:\WINDOWS\TEMP\SPAFinal1700.doc
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.........................................................................................1
SECTION 1.1 Definitions..............................................................................1
SECTION 1.2 Other Definitions........................................................................5
SECTION 1.3 Certain Interpretive Matters.............................................................7
ARTICLE II THE ACQUISITION.....................................................................................7
SECTION 2.1 Consideration for the Shares.............................................................7
SECTION 2.2 Closing Transactions.....................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................................................8
SECTION 3.1 Organization and Qualification...........................................................8
SECTION 3.2 Authorization............................................................................8
SECTION 3.3 No Violation.............................................................................9
SECTION 3.4 Capitalization of the Companies..........................................................9
SECTION 3.5 Company Subsidiaries....................................................................10
SECTION 3.6 Consents and Approvals..................................................................11
SECTION 3.7 Financial Statements; Reserves..........................................................11
SECTION 3.8 Absence of Undisclosed Liabilities......................................................12
SECTION 3.9 Absence of Certain Changes..............................................................13
SECTION 3.10 Litigation..............................................................................13
SECTION 3.11 Property; Liens and Encumbrances........................................................14
SECTION 3.12 Certain Agreements......................................................................14
SECTION 3.13 Employee Benefit Plans..................................................................15
SECTION 3.14 Taxes...................................................................................18
SECTION 3.15 Compliance with Applicable Law; Permits; Policies.......................................22
SECTION 3.16 Fairness Opinion........................................................................24
SECTION 3.17 Proprietary Rights; Year 2000 Compliance................................................24
SECTION 3.18 Insurance...............................................................................25
SECTION 3.19 Environmental Matters...................................................................25
SECTION 3.20 Books and Records.......................................................................26
SECTION 3.21 Bank Accounts...........................................................................26
SECTION 3.22 Insurance and Reinsurance...............................................................26
SECTION 3.23 Labor Matters...........................................................................27
SECTION 3.24 Affiliate Transactions..................................................................28
SECTION 3.25 Bonuses.................................................................................28
SECTION 3.26 All Related Assets......................................................................28
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TABLE OF CONTENTS
(CONTINUED)
SECTION 3.27 Brokers' Fees and Commissions...........................................................28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................................................29
SECTION 4.1 Organization; Qualifications and Operations.............................................29
SECTION 4.2 Authorization...........................................................................29
SECTION 4.3 No Violation............................................................................29
SECTION 4.4 Consents and Approvals..................................................................30
SECTION 4.5 Brokers' Fees and Commissions...........................................................30
SECTION 4.6 Purchase for Investment.................................................................30
SECTION 4.7 Sufficient Funds........................................................................30
ARTICLE V COVENANTS..........................................................................................30
SECTION 5.1 Conduct of Business Prior to the Closing................................................30
SECTION 5.2 Management of Companies.................................................................32
SECTION 5.3 Access to Information...................................................................33
SECTION 5.4 HSR Act Filings.........................................................................34
SECTION 5.5 State Regulatory Approvals..............................................................34
SECTION 5.6 Transaction Bonuses.....................................................................34
SECTION 5.7 All Reasonable Efforts..................................................................35
SECTION 5.8 Public Announcements....................................................................36
SECTION 5.9 Disclosure Supplements..................................................................36
SECTION 5.10 Employment and Employee Benefits........................................................36
SECTION 5.11 Nonsolicitation.........................................................................37
SECTION 5.12 Acquisition Proposals; Recapitalization Transaction.....................................38
SECTION 5.13 Pre-Closing Restructuring Transactions..................................................38
SECTION 5.14 Tax Matters.............................................................................39
SECTION 5.15 Financial Matters.......................................................................43
SECTION 5.16 Bankruptcy Court Approval...............................................................41
SECTION 5.17 Specific Enforcement of Covenants.......................................................45
SECTION 5.18 Intercompany Indebtedness and Transactions; Brokers and Finders Fees....................46
SECTION 5.19 Portsmouth..............................................................................46
ARTICLE VI CLOSING CONDITIONS.................................................................................47
SECTION 6.1 Conditions to the Obligations of Buyer under this Agreement.............................44
SECTION 6.2 Conditions to the Obligations of Seller under this Agreement............................49
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TABLE OF CONTENTS
(CONTINUED)
ARTICLE VII CLOSING............................................................................................49
SECTION 7.1 Closing.................................................................................49
ARTICLE VIII SURVIVAL...........................................................................................51
SECTION 8.1 Survival................................................................................51
ARTICLE IX FURTHER AGREEMENTS AND TERMINATION.................................................................51
SECTION 9.1 Certain Payments........................................................................51
SECTION 9.2 Termination.............................................................................52
SECTION 9.3 Procedure and Effect of Termination.....................................................54
SECTION 9.4 Confidentiality.........................................................................54
ARTICLE X MISCELLANEOUS PROVISIONS...........................................................................55
SECTION 10.1 Amendment and Modification..............................................................55
SECTION 10.2 Waiver of Compliance; Consents..........................................................55
SECTION 10.3 Validity................................................................................55
SECTION 10.4 Expenses and Obligations................................................................55
SECTION 10.5 Parties in Interest.....................................................................55
SECTION 10.6 Notices.................................................................................56
SECTION 10.7 Governing Law...........................................................................57
SECTION 10.8 Counterparts............................................................................57
SECTION 10.9 Headings................................................................................57
SECTION 10.10 Entire Agreement........................................................................57
SECTION 10.11 Assignment..............................................................................57
SECTION 10.12 Obligation of Parent....................................................................57
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ANNEX A Disclosure Schedule
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of January 7, 2000, between Reassure America Life Insurance Company, an Illinois
insurance company ("BUYER") and PennCorp Financial Group, Inc., a Delaware
corporation ("SELLER").
RECITALS:
WHEREAS, Seller is (or, immediately following the
Pre-Closing Restructuring Transactions (as hereinafter defined) will be) the
record and beneficial owner of (i) all of the issued and outstanding shares of
common stock, par value $2.50 per share (the "SLT SHARES") of Security Life and
Trust Insurance Company, a Texas corporation ("SLT") and (ii) all of the issued
and outstanding shares of common stock, par value $1.00 per share (the "SWLIC
SHARES" and together with the SLT Shares, the "Shares") of Southwestern Life
Insurance Company, a Texas corporation ("SWLIC" and together with SLT, the
"COMPANIES");
WHEREAS, subject to the terms and conditions set forth
herein, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Shares on the Closing Date; and
WHEREAS, Seller has agreed that, subject to approval
thereof by its Board of Directors and the other terms of this Agreement, Seller
intends to file a voluntary petition for reorganization relief pursuant to
chapter 11 of title 11 of the United States Code, 11 U.S.C. Sections 101 et seq.
(the "BANKRUPTCY CODE") and in concert with such filing to seek the entry of an
order of the United States Bankruptcy Court having jurisdiction over such
chapter 11 case (the "BANKRUPTCY COURT") approving this Agreement and
authorizing Seller to consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For purposes of this Agreement, the term:
"ACQUISITION PROPOSAL" means any proposal or offer, other
than a proposal or offer (i) by Buyer or any of its Affiliates or (ii) with
respect to any Affiliates of Seller (other than the Companies), for (a) any
merger, consolidation, share exchange, business combination or other similar
transaction (including reinsurance) with Seller or any of its Subsidiaries, (b)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
10% or more of the assets, liabilities or policies (including through
reinsurance) of Seller or either Company, in a single transaction or series of
transactions (whether related or unrelated), (c) any tender offer or exchange
offer for 20% or more of the outstanding shares of Seller's common stock or any
class of Seller's debt securities or the filing of a registration statement
under the Securities Act of 1933, as amended in connection therewith, (d) the
acquisition by an third party of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d)(3) of the Exchange Act) which beneficially owns or has the right
to acquire beneficial ownership of 20% or more of the then outstanding shares of
any class of Seller's common stock or any class of Seller's debt securities or
(e) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing; provided, however,
that "Acquisition Proposal" shall not include (i) any such proposal relating
solely to the sale of the Waco Companies or (ii) any transfer by either Company
of capital stock of any Company Subsidiary.
"AFFILIATE" means, as to a specified Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
Person.
"AMERICAN-AMICABLE NOTES" means the 10% promissory note due
2021 issued by American-Amicable Holdings Corporation, a Texas corporation, to
SLT in the amount of $7,665,499, dated February 24, 1998 and the 10% promissory
note due 2021 issued by American-Amicable Holdings Corporation to SWLIC in the
amount of $15,330,998, dated February 24, 1998.
"ANNUAL STATEMENT" means, with respect to a referenced
Person, the annual statement of such Person filed with or submitted to the
insurance regulatory authority in the jurisdiction in which such Person is
domiciled on forms prescribed or permitted by such authority.
"BANKRUPTCY RESOLUTION DATE" means the date on which a
Final Order of the Bankruptcy Court has been entered dismissing, closing or
otherwise terminating the Chapter 11 Case.
"BUSINESS DAY" means any day that is not a Saturday, Sunday
or other day on which banking institutions in the city of New York, New York are
authorized or required by law or executive order to be closed.
"CHAPTER 11 CASE" means a voluntary case commenced by
Seller under chapter 11 of the Bankruptcy Code.
"CLOSING TRANSACTIONS" means the transactions contemplated
by Section 2.2.
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"CODE" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
"COMPANIES" means SWLIC and SLT.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule
attached hereto as ANNEX A.
"EMPLOYEES" means (i) those current and former employees of
the Companies or the Company Subsidiaries and (ii) those current and former
employees of Seller or any of its Affiliates who primarily render services to or
on behalf of any or all of the Companies or the Company Subsidiaries, in each
case as listed on Section 1.1 of the Disclosure Schedule, and any other
employees of Seller, the Companies or the Company Subsidiaries performing
services primarily for the Companies or the Company Subsidiaries who are hired
between the date hereof and the Closing Date.
"ENVIRONMENTAL LAWS" means all applicable federal, state,
provincial or local laws (including but not limited to federal and state common
law), statutes, codes, rules or regulations relating to the environment, natural
resources, and pollution including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as amended from
time to time (HMTA), the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., as amended from time to time (RCRA), the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq., as amended from time to
time (FWPCA), the Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended from
time to time (CAA), and/or the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq., as amended from time to time (TSCA).
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"FINAL ORDER" means an order or judgment the operation or
effect of which is not stayed, and as to which order or judgment (or any
revision, modification or amendment thereof), the time to appeal or seek review
or rehearing has expired and as to which no appeal or petition for review or
rehearing has been taken and is pending.
"GOVERNMENTAL AUTHORITY" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HAZARDOUS MATERIALS" means (i) any wastes, substances, or
materials which are defined as "hazardous material," "hazardous waste,"
"hazardous substance," "toxic material" or other similar designations in, or
otherwise subject to regulation under, any applicable Environmental Laws; (ii)
petroleum or petroleum byproducts; (iii) friable asbestos and/or any material
which contains friable asbestos; and (iv) electrical equipment containing
polychlorinated biphenyls (PCBs) in excess of 50 parts per million.
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"MATERIAL ADVERSE EFFECT" means a materially adverse effect
on the business, results of operations or financial condition of the Companies,
taken as a whole, other than any change, circumstance or effect relating (i) to
the economy or financial markets in general, (ii) to changes in general
political or regulatory conditions in the United States, (iii) generally to the
industries in which such entity operates and not specifically relating to such
entity, (iv) to or resulting from the announcement or pendency of the
transactions contemplated by this Agreement or (v) to or resulting from the
Chapter 11 Case.
"NASDAQ" means The NASDAQ Stock Market, Inc.
"PERSON" means an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or, as applicable, any other entity.
"PHASE III TAXES" means Taxes imposed under Section 815 of
the Code.
"PRE-CLOSING RESTRUCTURING TRANSACTIONS" means the
transactions to be effected prior to the Closing pursuant to which (i) all of
the SLT Shares will be distributed or otherwise transferred (pursuant to a
series of such distributions or transfers) from a wholly-owned Subsidiary of
Seller that is not a Company or a Company Subsidiary to Seller, (ii) all of the
SWLIC Shares will be distributed or otherwise transferred to Seller, such that,
immediately prior to the Closing, Seller will be the record and beneficial owner
of all of the SLT Shares and the SWLIC Shares, (iii) SLT will declare and pay a
dividend consisting of the shares of preferred stock of Southwestern Financial
Corporation currently held by SLT and (iv) the American-Amicable Notes will be
transferred to and owned by Seller or any of its Affiliates other than the
Companies or any of the Company Subsidiaries.
"QUARTERLY STATEMENT" means, with respect to a referenced
Person, the quarterly statement of such Person submitted to the insurance
regulatory authority in the state in which such Person is domiciled on forms
prescribed or permitted by such authority.
"RECAPITALIZATION TRANSACTION" means a recapitalization
transaction involving Seller and its existing security holders that does not
involve the sale of any of the Companies or the Company Subsidiaries.
"RELEASE" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
release, or threatened release of Hazardous Materials into the environment.
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"SAP" means the statutory accounting practices required or
permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person.
"SFSC" means Southwestern Financial Services Corporation, a
Delaware corporation.
"SUBSIDIARY" means, as to any Person, any other Person of
which at least a majority of the outstanding shares or other equity interests
having ordinary voting power for the election of directors or comparable
managers of such Person is owned, directly or indirectly, by the referenced
Person. For purposes of this Agreement, Buyer's Subsidiaries shall not include
any of the Companies or the Company Subsidiaries, notwithstanding the
consummation of any of the Closing Transactions.
"SUPERIOR PROPOSAL" means an Acquisition Proposal that the
Board of Directors of Seller has determined in good faith, if accepted, is
reasonably likely to be consummated taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the proposal,
and that the Board of Directors of Seller believes in good faith, after
consultation with an outside financial advisor would, if consummated, result in
a transaction more favorable from a financial point of view than the transaction
proposed by this Agreement.
"TAXES" means any and all federal, state, provincial,
local, foreign and other taxes, levies, fees, imposts, duties, and similar
governmental charges (including any interest, fines, assessments, penalties or
additions to tax imposed in connection therewith or with respect thereto)
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits or gross receipts, ad valorem, value added, capital gains,
sales, goods and services, use, real or personal property, capital stock,
license, branch, payroll, Phase III Taxes, estimated withholding, employment,
social security (or similar), unemployment, compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes, and customs duties.
"TAX RETURNS" means any report, return, declaration, claim
for refund, information report or return or statement required to be supplied to
a taxing authority in connection with Taxes, including any schedule or
attachment thereto or amendment thereof.
"WACO COMPANIES" means Pioneer Security Life Insurance
Company, Occidental Life Insurance Company, American-Amicable Life Insurance
Company, and Pioneer Life Insurance Company, and any of their Subsidiaries
(other than SLT).
"WARN" means the Worker Adjustment and Retraining
Notification Act of 1988 and any similar state, local or layoff statute.
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SECTION 1.2 OTHER DEFINITIONS. When used in this Agreement, the following terms
shall have the meanings ascribed to them in Sections noted below:
Term Defined in
Accounts Section 3.21
Agent Compensation Section 3.15(e)
Agreement Preamble
Allocation Agreement Section 5.14(1)
Alternative Termination Amount. Section 9.1(b)
Approval Order Section 5.16(d)
Assignment and Assumption of Lease Section 7.1(a)
Assignment and Assumption of Other Contracts Section 7.1(a)
Assignment of License Agreement Section 7.1(a)
Bankruptcy Code Recitals
Bankruptcy Court Recitals
Bankruptcy Termination Amount.. Section 9.1(b)
Banks Section 3.21
Benefit Plans Section 3.13(a)
Buyer Preamble
Buyer Approvals Section 4.4
Buyer Benefit Plans Section 5.10(b)
Buyer Employee Section 5.10(a)
Buyer Material Adverse Effect.. Section 4.1
Buyer Plans Section 5.10(b)
Buyer's TPA Section 5.10(a)
Claims Section 6.1(n)
Closing Section 7.1
Closing Date Section 7.1
Computation Section 5.14(l)
Deposit Section 3.15(i)
Company Subsidiaries Section 3.5(a)
DOJ Section 3.6
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(e)
Estate Property Section 5.16(d)
HSR Act Section 3.6
Insurance Approvals Section 3.6
Intellectual Property Section 3.17
IRS Section 1.1(k)
Liens Section 3.11(b)
Litigation Section 3.10
MADSP Section 5.14(l)
Material Contract Section 3.12(a)
MEC Section 3.14(z)
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Multiemployer Plan Section 3.13(a)
Neutral Auditors Section 5.14(1)
OID Section 3.9
Opinion Section 3.16
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
PLAIC Section 6.1(m)
PLAIC Reinsurance Agreement Section 6.1(m)
Portsmouth Section 5.19
Portsmouth Preferred Amount Section 5.19
Post-Signing Financial Statements Section 5.15
Pre-Closing Quarterly Statements Section 3.14(b)
Purchase Price Section 2.1
Reinsurance Agreements Section 3.22(a)
Releasees Section 6.1(n)
Releasing Party Section 6.1(n)
Request Section 5.14(l)
Required Permits Section 3.15(b)
Sale Procedures Order Section 5.16(a)
SAP Financial Statements Section 3.7(a)
Section 338(h)(10) Election Section 5.14(l)
Section 9.2(b)(ii) Amount Section 9.1(b)
Seller Preamble
Shares Recitals
SLT Recitals
SLT Shares Recitals
Substituted Buyer Section 10.12
SWLIC Recitals
SWLIC Purchase Price Section 2.1(a)
SWLIC Shares Recitals
Target Company Section 5.14(l)
Target Employees Section 5.10(a)
Tax Attributes Section 3.14(af)
Technology Systems Section 3.17(b)
Termination Amount Section 9.1(a)
Transaction Bonus Section 3.25
Workpapers Section 5.14(l)
SECTION 1.3 CERTAIN INTERPRETIVE MATTERS. Unless otherwise noted, all references
herein to "$" or dollar amounts are to lawful currency of the United States of
America. Unless the context otherwise requires, all references to Sections,
Articles, Annexes or Exhibits are to Sections, Articles, Annexes or Exhibits to
this Agreement.
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ARTICLE II
THE ACQUISITION
SECTION 2.1 CONSIDERATION FOR THE SHARES. At the Closing, upon the terms and
subject to the conditions of this Agreement and in reliance upon the
representations, warranties and agreements contained herein, Seller shall sell
to Buyer, and Buyer shall purchase from Seller, in the manner described in
Section 2.2, all of the Shares for an amount in cash equal to Two Hundred Sixty
Million and No/100 Dollars ($260,000,000.00) (subject to adjustment pursuant to
Section 5.18(a), Section 5.19 and the immediately following sentence, the
"PURCHASE PRICE"). The Purchase Price shall be reduced by (i) $1 million, if the
Closing does not occur on or prior to the date that is 180 days after the date
hereof and (ii) an additional $1 million for each complete, successive 30-day
period between such 180th day and the Closing Date.
SECTION 2.2 CLOSING TRANSACTIONS. At the Closing:
(a) Seller shall deliver to Buyer certificates representing
the Shares, free and clear of any Liens, other than those which may be created
by Buyer, duly endorsed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer, for transfer to Buyer; and
(b) Buyer shall deliver to Seller the Purchase Price by
wire transfer to an account specified by Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Seller and the Companies is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, which as to each such company is set forth
opposite its name in Section 3.1(a) of the Disclosure Schedule, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted. Seller has delivered
or made available to Buyer a true and complete copy of the Certificate or
Articles of Incorporation and Bylaws (or similar organizational documents) of
each of Seller and the Companies.
(b) Each of the Companies is qualified or licensed to do
business as a foreign corporation or extra-provincial corporation and is in good
standing in every jurisdiction where the nature of the business conducted by it
or the properties owned or leased by it requires qualification, except where the
failure to be so qualified, licensed or in good standing would not reasonably be
expected to have a Material Adverse Effect. Schedule T of each of the Companies'
Annual Statements for the year ended December 31, 1998 sets forth a true and
8
complete list of each jurisdiction in which each of the Companies is qualified
or licensed to do business and is in good standing to transact the business of
life and/or accident and health insurance.
(c) Each Company is domiciled in its jurisdiction of
incorporation, is not deemed to be domiciled in any other jurisdiction, and is
licensed to write the types of insurance shown in Section 3.1(c) of the
Disclosure Schedule in the jurisdictions shown in such Section, which are all
the types of insurance issued by such Companies and all the jurisdictions in
which each such Company writes such insurance. Except as set forth in Section
3.1(c) of the Disclosure Schedule, no such license is the subject of a
proceeding for suspension or revocation or any similar proceedings and, to the
knowledge of Seller, there is no pending threat of such suspension or revocation
by any licensing authority.
SECTION 3.2 AUTHORIZATION. Seller has full corporate power and authority (a) to
execute and deliver this Agreement and (b) in the event Seller commences the
Chapter 11 Case and the Sale Procedures Order and the Approval Order are entered
by the Bankruptcy Court, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Seller, and subject to clause (b)
above, the performance by Seller of its obligations hereunder and the
consummation by Seller of the transactions contemplated hereby, have been duly
authorized by its Board of Directors and no other corporate action on the part
of Seller is necessary to authorize the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby (other than Board of
Directors' approval in connection with the commencement of the Chapter 11 Case).
This Agreement has been duly and validly executed and delivered by Seller and
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, subject (a) to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, including, without limitation, for
purposes of the representation and warranty being made as of the Closing Date,
the discretion of the Bankruptcy Court for so long as the Bankruptcy Court
retains jurisdiction over the Chapter 11 Case, (b) as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity), and (c) for purposes of the representation and
warranty being made as of the date hereof (but not for purposes of the
representation and warranty being made as of the Closing Date), to the
commencement of the Chapter 11 Case, competing offers as described in Section
5.16(a), and entry of the Approval Order.
SECTION 3.3 NO VIOLATION. Except as set forth in Section 3.3 of the Disclosure
Schedule, neither the execution and delivery of this Agreement by Seller, nor in
the event Seller commences the Chapter 11 Case and the Approval Order is entered
by the Bankruptcy Court, the performance by Seller of its obligations hereunder
nor the consummation by Seller of the transactions contemplated hereby will (a)
violate, conflict with or result in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws (or similar organizational
documents) of Seller or any of the Companies, (b) violate or conflict with or
9
result in a violation or breach of, or constitute a default or give rise to any
right of termination or acceleration (with or without due notice or lapse of
time or both) or result in the acceleration of any payments under the terms,
conditions or provisions of any Material Contract (as defined in Section
3.12(a)), (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any Governmental Authority applicable to Seller or any of
the Companies or any of their respective assets or (d) result in the creation of
any Lien upon any of the assets of Seller, any of the Companies (other than any
Liens created by Buyer), except in the case of clause (c) above, for those
violations, conflicts, breaches and defaults which would not be expected to have
a Material Adverse Effect.
SECTION 3.4 CAPITALIZATION OF THE COMPANIES.
(a) The authorized capital stock of SWLIC consists of
5,000,000 SWLIC Shares. As of the date hereof, there are 3,000,000 SWLIC Shares
issued and outstanding, all of which have been validly issued, are fully paid
and non-assessable and were not issued in violation of any preemptive rights.
The authorized capital stock of SLT consists of 5,000,000 SLT Shares. As of the
date hereof, there are 2,542,500 SLT Shares issued and outstanding, all of which
have been validly issued, are fully paid and non-assessable and were not issued
in violation of any preemptive rights.
(b) Except as set forth in Section 3.4(b) of the Disclosure
Schedule, there are no (i) options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating either Company to issue
any additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of such Company, (ii) agreements or commitments obligating such Company to
repurchase, redeem or otherwise acquire any shares of its capital stock, (iii)
restrictions on transfer of any shares of capital stock of such Company (other
than pursuant to this Agreement) or (iv) voting or similar shareholder
agreements relating to any shares of capital stock of such Company.
(c) Except as set forth in Section 3.4(c) of the Disclosure
Schedule, after giving effect to the Pre-Closing Restructuring Transactions and
at all times thereafter prior to the Closing, the Shares will be owned
beneficially and of record by Seller, free and clear of all Liens. At the
Closing, good and valid title to the Shares shall be conveyed to Buyer as
provided for in Section 2.2, in the manner contemplated by Section 2.2, free and
clear of all Liens other than those which may be created by Buyer.
(d) Except as set forth in Section 3.4(d) of the Disclosure
Schedule, neither of the Companies owns, directly or indirectly, 5% or more of
the outstanding voting securities of or otherwise possesses, directly or
indirectly, the power to direct or cause the direction of the management or
policies of any Person.
10
SECTION 3.5 COMPANY SUBSIDIARIES.
(a) Section 3.5(a) of the Disclosure Schedule sets forth
(i) the names of all Subsidiaries of each of the Companies (the "COMPANY
SUBSIDIARIES") and their respective jurisdictions of incorporation and (ii) the
name and number of all authorized, issued and outstanding shares of capital
stock of each Company Subsidiary. Except for the Company Subsidiaries, no
Company directly or indirectly owns or has the power to vote the shares of any
capital stock or other ownership interest (other than capital stock or ownership
interests held in the investment portfolio of either Company) or has ordinary
voting power to elect the majority of directors of any corporation or other
entity or other Person or body performing a similar function of any such entity,
as the case may be.
(b) Each of the Company Subsidiaries is a corporation or a
company duly organized or formed, validly existing and in good standing under
the laws of its jurisdiction of incorporation or formation, which as to each
such company is set forth opposite its name in Section 3.5(a) of the Disclosure
Schedule, with all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted.
Seller has delivered or made available to Buyer a true and complete copy of the
Certificate of Incorporation and Bylaws (or similar organizational documents) of
each of the Company Subsidiaries. All of the outstanding shares of capital stock
of each Company Subsidiary have been duly authorized and validly issued, are
fully paid and non-assessable, have not been issued in violation of any
preemptive rights, and are owned of record and beneficially by the entities
named in Section 3.5(a) of the Disclosure Schedule, free and clear of any Liens
except as set forth in Section 3.5(a) of the Disclosure Schedule.
(c) Except as set forth in Section 3.5(c) of the Disclosure
Schedule, there are no (i) options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating any of the Company
Subsidiaries to issue any additional shares of capital stock of such Subsidiary
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, (ii) agreements or
commitments obligating any such Subsidiary to repurchase, redeem or otherwise
acquire any shares of its capital stock, (iii) restrictions on the transfer of
any shares of capital stock of any such Subsidiary (other than pursuant to this
Agreement or applicable laws or regulations of any Governmental Authority) or
(iv) voting or similar shareholder agreements relating to any shares of capital
stock of any such Subsidiary.
(d) Except as set forth in Section 3.5(d) of the Disclosure
Schedule, none of the Company Subsidiaries is regulated or required to be
regulated as an insurance company.
SECTION 3.6 CONSENTS AND APPROVALS. Other than in connection with the
commencement of a Chapter 11 Case, entry of the Sale Procedures Order, entry of
the Approval Order and as set forth in Section 3.6 of the Disclosure Schedule,
no filing or registration with, no notice to and no permit, authorization,
consent or approval of any Governmental Authority or any other Person is
necessary for the consummation by Seller or the Companies of the transactions
11
contemplated by this Agreement other than (a) consents and approvals of or
filings or registrations with (i) the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and (ii) the insurance
department of the State of Texas and those state insurance departments listed in
Section 3.6 of the Disclosure Schedule (the "INSURANCE APPROVALS") and (b)
consent of any counterparty to any agreement or contract that is not a Material
Contract.
SECTION 3.7 FINANCIAL STATEMENTS; RESERVES.
(a) Seller has previously delivered or made available to
Buyer true and complete copies of the following (the "SAP FINANCIAL
STATEMENTS"):
(i) the Annual Statements for each Company for each of
the years ended December 31, 1997 and 1998, in each
case as filed with the departments of insurance in
the respective states of domicile of each Company
including all exhibits, interrogatories, notes and
schedules thereto and any actuarial opinion,
affirmation or certification filed in connection
therewith;
(ii) the Quarterly Statements for each Company for the
quarters ended March 31, June 30 and September 30,
1999 including all exhibits, interrogatories, notes
and schedules thereto; and
(iii) the statutory annual statements for each of the years
ended December 31, 1997 and 1998 and unaudited
quarterly statements for the quarters ended March 31,
June 30, and September 30, 1999 of each Company which
were filed in any jurisdiction other than such
Company's jurisdiction of domicile and that differ
from the corresponding Annual Statements and
Quarterly Statements for such periods.
Except as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP
Financial Statements were, and when delivered in accordance with the provisions
of Section 5.15, the Post-Signing Financial Statements will be, prepared in all
material respects in accordance with SAP, applied on a consistent basis. Except
as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP Financial
Statements present fairly in all material respects and, when delivered in
accordance with the provisions of Section 5.15, the Post-Signing Financial
Statements will present fairly in all material respects, the statutory financial
position of the applicable Company as of the respective dates thereof and the
related summary of operations and changes in capital and surplus and in cash
flows of such Company for and during the respective periods covered thereby in
conformity with SAP, applied on a consistent basis.
(b) Except as set forth in Section 3.7(b) of the Disclosure
Schedule, all statutory reserves and other similar amounts with respect to
insurance as established or reflected in the SAP Financial Statements of each
Company were determined (and, when delivered in accordance with the provisions
of Section 5.15, all statutory reserves and other similar amounts with respect
12
to insurance as reflected or established in the Post-Signing Financial
Statements will be determined) in all material respects in accordance with SAP,
applied on a consistent basis, and sound actuarial practice, based on actuarial
assumptions and methodologies that were (or will be), as of the date of
preparation, in compliance in all material respects with, and met (or will meet)
in all material respects the requirements of the insurance laws of the
respective states of domicile of the Companies. Except as set forth in Section
3.7(b) of the Disclosure Schedule, each Company owns assets that qualify as
legal reserve assets under insurance laws applicable to such Company in an
amount at least equal to all such reserves and other similar amounts required by
such laws to be owned by such Company.
SECTION 3.8 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of the Companies or the Company Subsidiaries (including without
limitation any Liens) that are required to be reflected or reserved against on a
balance sheet prepared in accordance with SAP other than (a) liabilities and
obligations reflected or reserved against in the September 30, 1999 Quarterly
Statement of each Company and not heretofore discharged, (b) policyholder
benefits payable or other liabilities or obligations arising after September 30,
1999 in the ordinary course of business consistent with past practice and in
amounts consistent with past practice, or (c) liabilities and obligations
disclosed in Section 3.8 of the Disclosure Schedule. Neither Company nor any
Company Subsidiary has any liability or obligation on account of any of the
operations, businesses, obligations or liabilities of Seller or any of its
Affiliates (other than the Companies and the Company Subsidiaries) other than
liabilities to be settled in accordance with Section 5.18 hereof.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 3.9 of
the Disclosure Schedule or as permitted or contemplated by this Agreement
(including in connection with the commencement and prosecution of a Chapter 11
Case), since September 30, 1999, neither of the Companies nor any Company
Subsidiary has (a) experienced any change, event or condition which,
individually or in the aggregate, has had or reasonably would be expected to
have a Material Adverse Effect, (b) conducted its business in any material
respect other than in the ordinary course, (c) incurred any indebtedness for
borrowed money or issued any debt securities or assumed, guaranteed or endorsed
the obligations of any other Person, (d) other than immaterial sales or
dispositions of assets in the ordinary course of business (i) sold, transferred
or otherwise disposed of any of its property or assets or (ii) mortgaged or
encumbered any of its property or assets, (e) suffered any material casualty
losses not covered by insurance, (f) repurchased any of its capital stock or any
capital stock of any of its Subsidiaries, (g) declared, set aside or paid any
dividend or other distribution in respect of its capital stock, other than
ordinary dividends and payments pursuant to certain notes permitted under
applicable insurance laws, (h) amended its Certificate or Articles of
Incorporation or Bylaws (or similar organizational documents) or merged with or
into or consolidated with any other Person, (i) split, combined or reclassified
its capital stock, (j) issued or sold (or agreed to issue or sell) any of its
equity securities or any options, warrants, conversion or other rights to
purchase any such securities or any securities convertible into or exchangeable
13
for such securities, or granted, or agreed to grant any such rights, (k)
increased the rates of compensation (including bonuses) payable or to become
payable to any of its officers, employees, agents, independent contractors or
consultants other than increases made in the ordinary course of business, (l)
entered into any new or amended any existing employment contracts, severance
agreements or consulting contracts or instituted or agreed to institute any
increase in benefits or altered its employment practices or the terms and
conditions of employment, (m) except as otherwise required by law, changed, in
any material respect its underwriting, actuarial or Tax accounting methods,
principles or practices, (n) ceased its lead generation activities other than in
the ordinary course of business, (o) terminated any material reinsurance or
coinsurance contract (including without limitation, any surplus relief or
financial reinsurance contract), whether as reinsurer or reinsured, (p) entered
into any joint ventures or partnerships of any kind, or (q) entered into any
contract or other agreements to do any of the foregoing.
SECTION 3.10 LITIGATION. Except as set forth in Section 3.10 of the Disclosure
Schedule, there are no actions, suits, arbitrations, investigations or
proceedings ("LITIGATION") pending or, to the knowledge of Seller or the
Companies, threatened against Seller or any of its Affiliates before any
Governmental Authority or arbitrator relating to this transaction or to any of
the Companies or to any of the Company Subsidiaries. Except as set forth in
Section 3.10 of the Disclosure Schedule, none of the Companies is in default
under any judgment, decree, injunction or order of any Governmental Authority or
arbitrator outstanding against it.
SECTION 3.11 PROPERTY; LIENS AND ENCUMBRANCES.
(a) Section 3.11(a) of the Disclosure Schedule contains a
complete and accurate list of all real property owned or leased by either
Company or any Company Subsidiary as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the
Disclosure Schedule or in the SAP Financial Statements, all properties and
assets owned by either Company or any Company Subsidiary (the "OWNED
PROPERTIES") or leased by either Company or any Company Subsidiary (the "LEASED
PROPERTIES") are free and clear of all liens, pledges, claims, security
interests, mortgages, assessments, easements, rights of way, covenants, rights
of first refusal, defects in title, encroachments (collectively, "LIENS") except
(i) statutory Liens not yet delinquent or the validity of which are being
contested in good faith by appropriate actions, (ii) purchase money Liens
arising in the ordinary course, (iii) Liens for Taxes not yet delinquent, (iv)
Liens reflected in the SAP Financial Statements (which have not been discharged)
and (v) Liens which in the aggregate do not materially detract from the value
or, in the case of personal property, materially impair the use by the relevant
Company or Company Subsidiary of the property subject thereto or, in the case of
real property, materially impair the present and continued use of such property
in the usual and normal conduct of the business of the relevant Company or
Company Subsidiary. The Companies and Company Subsidiaries have good and
indefeasible title to the Owned Properties and good and valid leasehold
14
interests in the Leased Properties and there are no pending or, to the knowledge
of Seller, threatened condemnation proceedings affecting any of the Owned
Properties or Leased Properties. To the knowledge of Seller, the use, occupancy
and condition of each parcel of real property that is an Owned Property or a
Leased Property is in compliance in all material respects with all applicable
laws.
SECTION 3.12 CERTAIN AGREEMENTS.
(a) Except as disclosed in Section 3.12(a) of the
Disclosure Schedule or in the SAP Financial Statements, neither of the Companies
nor any Company Subsidiary is a party to any written (i) agreement, contract,
indenture or other instrument relating to the borrowing of money or the
guarantee of any obligation for the borrowing of money; (ii) employment,
consulting, compensation or severance agreement with any of its directors,
employees or consultants; (iii) agreement, contract or commitment limiting or
restraining it from engaging or competing in any business; (iv) lease pursuant
to which it leases real property; (v) distribution, dealer, representation,
commission or agency agreement, other than agency agreements with insurance
agents in the ordinary course of business; (vi) contract or agreement with any
of its Affiliates that will continue after Closing (other than the other Company
or Company Subsidiaries); or (vii) any other contract that (A) is material to
the businesses of the Companies to the extent such contract would be required to
be filed pursuant to Item 601(b)(10) of Regulation S-K under the Exchange Act if
the Companies (as a whole) were subject to the reporting requirements
thereunder, or (B) requires annual expenditures or $100,000 or more and has a
remaining term of 24 months or more (each of the foregoing a "MATERIAL
CONTRACT"). Each Material Contract is in full force and effect and has been
complied with in all material respects by the Companies and the Company
Subsidiaries and, to the knowledge of Seller, has been complied with in all
material respects by all other parties thereto. Except as set forth in Section
3.12 of the Disclosure Schedule, no consent is required under any Material
Contract in connection with the consummation of the transactions contemplated by
this Agreement.
(b) Except as disclosed in Section 3.12(b) of the
Disclosure Schedule, all agency agreements with insurance agents to which either
Company or any Company Subsidiary is a party are substantially in the form of
one or more standard forms thereof previously delivered by Seller to Buyer.
Seller has delivered to Buyer copies of all agency agreements disclosed in
Section 3.12(b) of the Disclosure Schedule.
(c) To the knowledge of Seller, Section 3.12(c) of the
Disclosure Schedule sets forth a complete and accurate list of all contracts of
SWFS to be assigned to and assumed by Buyer pursuant to Section 7.1(a)(vi).
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SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) Since September 30, 1999, no Person who was an employee
of Seller or any of its Affiliates (other than the Companies and the Company
Subsidiaries) as of such date has become an Employee of any Company or any
Company Subsidiary.
(b) None of Seller or any of its Affiliates (including any
of the Companies or any Company Subsidiary) (i) currently maintains, administers
or contributes to or has any liability under or with respect to, other than
benefits claims in the ordinary course of business, or (ii) during the six year
period preceding the Closing Date maintained, administered or contributed to:
(A) any employee benefit plan, as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); or (B) any
employment contract, bonus, deferred compensation, incentive compensation,
performance compensation, stock purchase, stock option, stock appreciation,
restricted stock, phantom stock, saving and profit sharing, severance or
termination pay other than statutory or the common law requirements for
reasonable notice, health or other medical, salary continuation, cafeteria,
dependent care, vacation, sick leave, holiday pay, fringe benefit, reimbursement
program, life insurance, disability or other (whether insured or self-insured)
insurance, a supplementary unemployment benefit, pension retirement,
supplementary retirement, welfare or other employee plan, program, policy or
arrangement, whether written or unwritten, formal or informal, for the benefit
of the Employees, brokers, agents, or directors of the Companies or the Company
Subsidiaries, or leased employees, independent contractors or other Persons
performing services for or on behalf of the Companies or the Company
Subsidiaries, except for any such plans, programs, policies or arrangements, the
liabilities in respect of which are the sole responsibility of Seller or any of
its Affiliates (other than the Company and the Company Subsidiaries) and except
as set forth in Section 3.13(b) of the Disclosure Schedule ("BENEFIT PLANS").
None of the Benefit Plans is a multiemployer plan as defined in Section 3(37) of
ERISA or is subject to Title IV of ERISA.
(c) Except as set forth in Section 3.13(c) of the
Disclosure Schedule, all Benefit Plans comply in all material respects with and
are operated in all material respects in accordance with their terms and
applicable laws and, all such Benefit Plans comply in all material respects with
and are, and during the six year period preceding the Closing Date have been,
operated in all material respects in accordance with their terms and in
accordance with ERISA and the Code, including, but not limited to the
requirements of ERISA sections 601 et seq. and 701 et seq. and sections 4980B,
9801 and 9802 of the Code. None of the Benefit Plans are subject to the law of
any jurisdiction outside the United States, and no Benefit Plan covers any
Person in any jurisdiction outside the United States.
(d) True and complete copies of each written Benefit Plan
and any related trust, insurance or other related funding contract or agreement
or administrative services contract or agreement, and a description of any
unwritten Benefit Plan, the most recent summary plan descriptions for each
Benefit Plan, the most recent annual reports on Form 5500 for each Benefit Plan,
including schedules, audited financial statements and actuarial valuation
reports, most recent employee manuals, handbooks or personnel policies, sample
16
copies of the current form of all notices or certifications to individuals under
ERISA sections 606, 609, 701 and 711 et seq. or sections 4980B or 9801 of the
Code, any other filings with respect to any Benefit Plan with any government
entity and any opinion or ruling from the IRS or any other government entity
with respect to any Benefit Plan, if any, have been delivered to Buyer.
(e) Except as set forth in Section 3.13(e) of the
Disclosure Schedule, each Benefit Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS as
to its qualification under the Code both as to the original plan and as to all
restatements or material amendments and the exempt status of each related trust
under Section 501(a) of the Code, all of which have been delivered or made
available to Buyer; and nothing has occurred since the date of the most recent
such determination letter that would negatively affect such qualification or
exemption.
(f) Neither of the Companies nor any Company Subsidiary or
any entity required to be aggregated with any of the Companies or any Company
Subsidiary pursuant to Code section 414 or ERISA section 4001(b) ("ERISA
AFFILIATE") have incurred or are reasonably expected to incur, either directly
or indirectly, any liability (other than for premiums) to the Pension Benefit
Guaranty Corporation ("PBGC").
(g) Except as disclosed in Section 3.13(g) of the
Disclosure Schedule, there are no pending or, to the knowledge of Seller,
threatened actions, suits, claims, trials, arbitrations, investigations or other
proceedings by any Person, including any present or former participant or
beneficiary under any Benefit Plan (or any beneficiary of any such participant
or beneficiary) involving any Benefit Plan or any rights or benefits under any
Benefit Plan other than ordinary and usual claims for benefits by participants
or beneficiaries thereunder. There has been no action or failure to act on the
part of Seller, its Affiliates, the Companies, the Company Subsidiaries, any
fiduciary, funding agent or administrator of any of the Benefit Plans that could
reasonably be expected to subject Seller, its Affiliates, the Companies, the
Company Subsidiaries or the fund of any such Benefit Plan to the imposition of
any Tax or penalty with respect to any Benefit Plans, whether by way of
indemnity or otherwise. Except as set forth in Section 3.13(g) of the Disclosure
Schedule, all contributions required to have been made or remitted and all
expenses required to have been paid by Seller, the Companies or the Company
Subsidiaries to or under any Benefit Plan under the terms of any such plan, any
agreement or any applicable law have been paid within the time prescribed by any
such plan, agreement or law. All contributions to or under any Benefit Plan have
been currently deductible under the Code when made. No amount, or any asset of
any Benefit Plan, is subject to Tax as unrelated business income. Except as set
forth in Section 3.13(g) of the Disclosure Schedule, no "reportable events" (as
defined in ERISA section 4043), "prohibited transactions" (as defined in ERISA
section 406), breaches of fiduciary responsibility or "accumulated funding
deficiencies" (as defined in ERISA section 302) have occurred with respect to
any Benefit Plan for which liability would be incurred by the Companies, the
Company Subsidiaries or Buyer.
17
(h) Except as disclosed in Section 3.13(h) of the
Disclosure Schedule, neither Seller nor any of its Affiliates maintains or
contributes to any Benefit Plan which provides, or has any liability or
obligation to provide, retiree life or medical insurance to Employees or other
Persons performing services for or on behalf of the Companies or the Company
Subsidiaries (or their beneficiaries) upon and/or after the last day of the
calendar month in which such Person's termination of employment or other service
occurs, except as may be required by federal, state or local laws, rules or
regulations. With respect to all Benefit Plans disclosed in Section 3.13(h) of
the Disclosure Schedule, Seller has provided or made available to Buyer all
information necessary to determine any and all liabilities of the Companies and
the Company Subsidiaries, on a company by company basis as of December 31, 1998
(or such more recent date as is practicable).
(i) Except as disclosed in Section 3.13(i) of the
Disclosure Schedule, none of the Benefit Plans contains any provision which
would result in any additional benefits, accelerated vesting and/or accelerated
payments or which would subject any employee or other Person to an excise Tax or
result in the loss of deductibility under sections 280G or 4999 of the Code as a
result of the consummation of the transactions contemplated by this Agreement or
the termination of an individual's employment thereafter and for which the
Companies, the Company Subsidiaries or Buyer would be liable.
(j) Neither of the Companies nor the Company Subsidiaries,
or any organization with respect to which such Company or Company Subsidiary is
a successor or parent corporation (within the meaning of ERISA section 4069) has
engaged in any transaction described in ERISA section 4069.
(k) Since the effective date of the documents provided in
accordance with Section 3.13(d) above, no promises or commitments have been made
by Seller or any of its Affiliates or the Companies or the Company Subsidiaries
to amend any Benefit Plan or to provide increased benefits thereunder.
SECTION 3.14 TAXES. Except as set forth in Section 3.14 of the
Disclosure Schedule:
(a) all Tax Returns required to be filed by or with respect
to each of the Companies and the Company Subsidiaries have been filed, the
Companies and the Company Subsidiaries have paid, or there have been paid on
their behalf, all Taxes that were shown to be due on such Tax Returns, and all
such Tax Returns were complete and accurate in all material respects;
(b) the Companies and the Company Subsidiaries have timely
paid or will timely pay or properly accrue (or there have been or will be timely
paid on their behalf) all Taxes owed by the Companies and the Company
Subsidiaries (whether or not shown on any Tax Return) for all taxable periods
for which Tax Returns are required to be filed (taking into account any
extensions) on or before the Closing Date;
18
(c) the Companies and the Company Subsidiaries have timely
paid (or there have been timely paid on their behalf) all required current
estimated Tax payments in amounts sufficient to avoid interest charges and
underpayment penalties;
(d) the Companies and the Company Subsidiaries have given
or otherwise made available to Buyer correct and complete copies of all Tax
Returns, examination reports and statements of deficiencies for periods ending,
or transactions consummated, after December 31, 1994;
(e) there are no outstanding agreements extending or
waiving the statutory period of limitation applicable to any claim for, or the
period for the collection or assessment or reassessment of, Taxes due from
either Company or any Company Subsidiary for any taxable period and no power of
attorney is currently in force with respect to any matter relating to Taxes that
could affect the Companies or the Company Subsidiaries;
(f) no audit or other proceeding by any Governmental
Authority is pending or, to the knowledge of Seller, threatened with respect to
any Taxes due from or with respect to either Company or any Company Subsidiary
and no claim has been made by any Governmental Authority in a jurisdiction where
any of the Companies or any of the Company Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction;
(g) there are no Liens for Taxes upon the assets or
properties of either Company or any of the Company Subsidiaries, except for
statutory Liens for current Taxes not yet due;
(h) neither Company nor any Company Subsidiary is or has
been a member of any partnership or joint venture (or entity treated similarly
for Tax purposes) or the holder of a beneficial interest in any trust, in each
case for any taxable period for which the applicable statute of limitations has
not expired;
(i) neither Company nor any Company Subsidiary is a party
to any agreement relating to the sharing or allocation of, or indemnification
agreement with respect to, Taxes, or any similar contract or arrangement and
neither Company nor any Company Subsidiary has made any payment under or
pursuant to any such agreement, contract, or arrangement since December 31,
1997;
(j) each Company is an "insurance company" within the
meaning of Treas. Reg. Section 1.801-3(a) (under former Section 801 of the Code)
and subject to taxation under Subchapter L of the Code for the taxable period
ending on the Closing Date and for all prior taxable periods for which the
statute of limitations has not expired;
(k) neither Company nor any Company Subsidiary (i) has
income that is includable in computing the taxable income of a United States
person (defined in Section 7701 of the Code) under Section 951 of the Code, (ii)
is a passive foreign investment company within the meaning of Section 1297 of
19
the Code, and (iii) is or has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
(l) neither Company nor any Company Subsidiary has filed a
consent under Section 341(f) of the Code;
(m) no property owned by either Company or any Company
Subsidiary (i) is property required to be treated as being owned by another
Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Return Act of 1986, (ii) constitutes "tax-exempt use property" within the
meaning of Section 168(h)(1) of the Code or (iii) is "tax-exempt bond financed
property" within the meaning of Section 168(g) of the Code;
(n) neither Company nor any Company Subsidiary is a party
to any contract, agreement or other arrangement which could result in the
payment of amounts that could be nondeductible by reason of Section 162(m) or
Section 280G of the Code;
(o) neither Company nor any Company Subsidiary has agreed,
or is required to make, any adjustment under Section 446(e), Section 481(a) or
Section 807(f) of the Code or has entered into any closing agreement pursuant to
Section 7121 of the Code or any other agreement with similar Tax purposes;
(p) neither Company nor any Company Subsidiary has been a
member of an affiliated group filing a consolidated federal income Tax Return,
or has any liability for Taxes of any Person under Treas. Reg. Section 1.1502-6,
Treas. Reg. Section 1.1502-78 or any similar provision of state, local or
foreign law or regulation, as a transferee or successor, by contract or
otherwise;
(q) consolidated federal income Tax Returns which include
the Companies or the Company Subsidiaries, and, to the extent relevant, state,
local, and separate federal income Tax Returns of the Companies or the Company
Subsidiaries, or extensions to file such Tax Returns have been (or will be)
timely filed by or on behalf of the Companies and the Company Subsidiaries for
periods with filing dates prior to the Closing Date;
(r) the Companies and the Company Subsidiaries have each
withheld from their respective employees, independent contractors, creditors,
stockholders and third parties and timely paid to the appropriate taxing
authority proper and accurate amounts in all respects through all periods in
compliance with all Tax withholding and remitting provisions of applicable laws
and have each complied in all material respects with all Tax information
reporting provisions of all applicable laws;
(s) Seller is not a foreign person within the meaning of
Section 1445 of the Code;
20
(t) the amount of each of the policyholders surplus account
and the shareholders surplus account (as defined in Section 815 of the Code) of
each of the Companies and the Company Subsidiaries as of December 31, 1998 is
accurately set forth in Section 3.14 of the Disclosure Schedule, and the amount
of the policyholders surplus account of each of the Companies and the Company
Subsidiaries as of the Closing Date will not be less than each such respective
amount;
(u) each Company is and has been taxable as a life
insurance company within the meaning of Section 816 of the Code for the taxable
period ending on or including the Closing Date and for all prior taxable periods
for which the statute of limitations has not expired;
(v) all life insurance contracts issued by either Company
(whether developed or administered by or reinsured with any unrelated party)
that are subject to Section 7702 of the Code qualify as "life insurance
contracts" within the meaning of Section 7702(a) of the Code;
(w) all contracts issued by either Company (whether
developed or administered by or reinsured with any unrelated party) that are
subject to Section 817 of the Code and the Treasury Regulations promulgated
thereunder have met the diversification requirements applicable thereto since
the issuance of the contracts;
(x) all annuity contracts issued by either Company (whether
developed or administered by or reinsured with any unrelated party) that are
subject to Section 72(s) of the Code contain all of the necessary provisions of
Section 72(s) of the Code;
(y) the Tax treatment under the Code of all insurance or
annuity policies, plans or contracts; all financial products, employee benefit
plans (other than the Benefit Plans), individual retirement accounts or
annuities; or any similar or related policy, contract, plan, or product, whether
individual, group, or otherwise, if any, issued or sold by any of the Companies
on or before the Closing Date is and at all times has been in all material
respects the same as or more favorable to the purchaser, policyholder or
intended beneficiaries thereof than the Tax treatment under the Code for which
such policies, plans or contracts qualified or purported to qualify at the time
of their issuance or purchase, except for changes resulting from changes to the
Code which do not affect such policies, plans or contracts due to the effective
date thereof. Each hardware, software and firmware product used by each Company
to maintain the qualification of such policies, plans, products or contracts for
the Tax treatment under the Code for which such policies, plans, products or
contracts qualified or purported to qualify at the time of their issuance or
purchase is and at all relevant times has been properly designed and implemented
to maintain such qualification. For purposes of this Section 3.14(y), the
provisions of the Code relating to the Tax treatment of such contracts shall
include, but not be limited to, Sections 72, 79, 101, 104, 105, 106, 125, 130,
264, 401, 403, 404, 408, 408A, 412, 415, 419, 419A, 457, 501, 505, 817, 818,
1035, 7702, 7702A and 7702B. Each Company is and at all times has been the owner
for federal income Tax purposes of the assets in any segregated asset account
21
underlying or supporting each variable annuity contract and each variable
insurance policy;
(z) any life insurance contract issued by either Company
(whether developed or administered or reinsured with any unrelated party) which
is a modified endowment contract under Section 7702A of the Code (each, a "MEC")
has been marketed as such at all relevant times or the policyholder otherwise
has consented to such MEC status;
(aa) each reserve item with respect to the Companies set
forth in the 1998 Tax Returns including the Companies was determined correctly
in accordance with the requirements of Sections 807, 811 and 846 of the Code (or
other applicable Code provisions ), and has been consistently and correctly
applied with respect to the filing of all Tax Returns including the Companies
and the Company Subsidiaries for all taxable years for which the applicable
statute of limitations has not expired, will be consistently and correctly
applied with respect to the Companies and the Company Subsidiaries in the 1999
Tax Returns including the Companies and the Company Subsidiaries when such Tax
Returns are filed, and will be consistently and correctly applied with respect
to SWLIC and SLT in the respective 2000 Tax Returns including SWLIC and SLT for
the period from January 1, 2000 through the Closing Date when such Tax Returns
are filed;
(ab) all annuity contracts issued by either Company
(whether developed or administered by or reinsured with any unrelated party)
that are provided under or connected with a plan described in Section 401(a),
403(a) or 403(b) of the Code or that are individual retirement annuities or
provided under individual retirement accounts or annuities, satisfy the federal
income Tax laws applicable to such annuity contracts;
(ac) there are no currently pending or, to the knowledge of
Seller, threatened federal, state, provincial, local or foreign audits or other
administrative or judicial proceedings with regard to the Tax treatment of any
policy, contract, product or plan sold, issued or administered by either Company
or any Company Subsidiary (whether developed by or reinsured with any unrelated
third party);
(ad) neither Company nor any Company Subsidiary is a party
to any hold harmless, sharing, allocation or indemnification agreement with
respect to the Tax qualification or treatment of any policy, contract, product
or plan sold, issued or administered by any insurance company (whether developed
by or reinsured with any unrelated third party);
(ae) each of the Companies and the Company Subsidiaries is
a calendar-year taxpayer for federal income Tax purposes;
(af) Schedule 3.14 sets forth a description prepared by
Seller of (i) the Tax bases of the assets of each Company and Company
Subsidiary, and (ii) the amount of unused net operating losses, net capital
losses and Tax credits of each Company and Company Subsidiary, in each case as
of December 31, 1998 (the "TAX ATTRIBUTES"). The information on such schedule
22
was accurate in all material respects of as December 31, 1998. Such bases and
Tax Attributes would be affected by income and deductions and transactions
occurring in the ordinary course of business between December 31, 1998 and the
Closing Date. Such bases and Tax Attributes will not be affected by any
Pre-Closing Restructuring Transactions;
(ag) there is no claim, audit, action, suit, proceeding,
investigation or limitation now pending or threatened against, with respect to
or in limitation of the Tax Attributes, including without limitation any
limitations under Sections 382, 383 and 384 of the Code or other provisions of
the Code or applicable law (other than limitations incurred in connection with
the Closing Transactions); and
(ah) neither Company nor any Company Subsidiary is or has
been doing business in, is or has been engaged in a trade or business in, or has
business in force in any jurisdiction in which it has not filed all required Tax
Returns.
SECTION 3.15 COMPLIANCE WITH APPLICABLE LAW; PERMITS; POLICIES.
(a) The businesses of the Companies and the Company
Subsidiaries are being conducted in compliance with all applicable provisions of
any federal, state, provincial, local or foreign statute, law, ordinance, rule,
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to them,
except as set forth in Section 3.15(a) of the Disclosure Schedule and except for
such noncompliance as has not had and would not reasonably be expected to have a
Material Adverse Effect. The Companies and the Company Subsidiaries are in
compliance in all material respects with the Securities Act of 1933, as amended,
the Exchange Act, the Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended and state securities laws to the extent that
such Acts apply to their operations.
(b) Each Company and each Company Subsidiary owns or
validly holds all licenses, franchises, permits, approvals, authorizations,
exemptions, classifications, certificates, registrations and similar documents
or instruments that are required for its business and operations, except for
those the failure of which to have has not had and would not reasonably be
expected to have a Material Adverse Effect (the "REQUIRED PERMITS"). All
Required Permits relating to insurance are set forth in Schedule T of each of
the Companies' Annual Statements for the year ended December 31, 1998, and all
other Required Permits are listed in Section 3.15(b) of the Disclosure Schedule.
The Required Permits are valid and in full force and effect and, except as
disclosed in Section 3.15(b) of the Disclosure Schedule, none of Seller, any
Company or any Company Subsidiary has received any notice of any inquiry or
proceeding that could reasonably be expected to result in the suspension,
revocation or material limitation of any such permit; and to the knowledge of
Seller, there is no reasonable basis for any such suspension, revocation or
limitation. Neither of the Companies nor any Company Subsidiary is currently the
subject of any supervision, conservation, rehabilitation, liquidation,
receivership, insolvency or other similar proceeding nor, other than as
23
described in Section 3.15(b) of the Disclosure Schedule, are any of the
Companies or any Company Subsidiary operating under any formal or informal
agreement or understanding with the licensing authority of any State which
restricts its authority to do business or requires it to take, or refrain from
taking, any action.
(c) Except as disclosed in Section 3.15(c) of the
Disclosure Schedule, all forms of insurance policies and riders thereto
currently issued by either Company are, to the extent required under applicable
laws, on forms approved by applicable insurance regulatory authorities of the
jurisdictions in which issued or have been filed with and not objected to by
such insurance regulatory authorities within the period provided for such
objection and any premium rates with respect to such policies or riders required
to be filed with or approved by such applicable insurance regulatory authorities
have been so filed or approved and premiums charged conform thereto. No material
deficiencies have been asserted by any Governmental Authority with respect to
any such filings which have not been cured or otherwise resolved to the
satisfaction of such Governmental Authority.
(d) Except as set forth in Section 3.15(d) of the
Disclosure Schedule, each Company (exclusive of their independent agents) and,
to the knowledge of Seller, its independent agents, have marketed, sold and
issued products of such Company in compliance in all material respects with all
laws applicable to the business of such Company in the respective jurisdictions
in which such products have been sold, including but not limited to laws
regulating advertisements, requiring mandatory disclosure of policy information,
requiring employment of standards to determine if the purchase of a policy or
contract is suitable for an applicant, prohibiting the use of unfair methods of
competition and deceptive acts or practices and regulating replacement
transactions. For purposes of this Section 3.15(d), "advertisement" means any
material designed to create public interest in life and health insurance
policies, annuity contracts or in an insurer, or in an insurance producer, or to
induce the public to purchase, increase, modify, reinstate, borrow on,
surrender, replace or retain such a policy or contract, and (ii) "replacement
transaction" means a transaction in which a new life or health insurance policy
or annuity contract is to be purchased by a prospective insured and the
proposing producer should know that one or more existing life or health
insurance policies or annuity contracts is to be lapsed, forfeited, surrendered,
reduced in value or pledged as collateral. Except as set forth in Section
3.15(d) of the Disclosure Schedule, Seller has not received notice (written or
oral) and are not otherwise aware of any review or investigation by any
Governmental Authority of any marketing conduct and/or selling practices of the
Companies or their independent agents, other than periodic market conduct
examinations arising in the ordinary course of business and Attorney General
inquiries in connection with which no material issues have been raised that have
not been resolved to the satisfaction of the relevant insurance authorities or
Attorneys General, as the case may be.
(e) Except as set forth in Section 3.15(e) of the
Disclosure Schedule, no agent of any of the Companies has any claim against any
of the Companies for any compensation or other amounts (the "AGENT
COMPENSATION") other than sales commissions and advances in the ordinary course
of business.
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(f) Seller has previously delivered or made available to
Buyer true and complete copies of the reports (or the most recent draft thereof,
to the extent any final report is not available) reflecting the results of the
two most recent financial examinations and market conduct examinations of any of
the Companies issued by any insurance regulator.
(g) Except as set forth in Section 3.15(g) of the
Disclosure Schedule, no insurance policy gives the holder thereof the right to
receive dividends, distributions or other benefits based on the earnings or
revenues of either Company.
(h) The Companies have (i) timely paid all material state
guaranty association assessments that are due, or claimed or asserted by any
insurance regulatory authority to be due, from such Companies, or (ii) provided
for all such material assessments in their statutory financial statements, filed
with the appropriate insurance regulatory authority, to the extent necessary to
be in conformity in all material respects with SAP for such statements.
(i) Except as set forth in Section 3.15(i) of the
Disclosure Schedule, the December 31, 1998 SAP Financial Statements contain a
list of all material funds maintained in a state of licensure by either Company
under any applicable insurance law (each a "DEPOSIT"), including, without
limitation, any Deposit the beneficial interest of which may have been
transferred in connection with a Reinsurance Agreement, the dollar amount of
each such Deposit and the name of the depository in which such Deposit is
maintained.
SECTION 3.16 FAIRNESS OPINION. Xxxxxxxxxxx Xxxxxxx & Co., Inc., financial
advisor to Seller, has rendered to the Board of Directors of Seller an oral
opinion, dated the date hereof (the "OPINION"), regarding the fairness, from a
financial point of view, to Seller of the Aggregate Consideration (as defined in
the Opinion and which includes both the Purchase Price and the amount to be
received by Seller in connection with the sale of an additional specified
business of Seller), which oral opinion will be confirmed in writing to Seller
with a copy to be delivered to Buyer no later than the close of business on
January 11, 2000.
SECTION 3.17 PROPRIETARY RIGHTS; YEAR 2000 COMPLIANCE. (a) Except as disclosed
in Section 3.17(a) of the Disclosure Schedule, each Company and each Company
Subsidiary owns or possesses the right to use all material trademarks, service
marks, patents, patent rights, assumed names, logos, trade secrets, copyrights
and trade names ("INTELLECTUAL PROPERTY") and all material computer software,
programs and similar systems that are used by it in the conduct of its business.
Each agreement pursuant to which either Company or any Company Subsidiary
licenses such Intellectual Property or material computer software, programs or
similar systems is in full force and effect in accordance with its terms.
Neither of the Companies nor any Company Subsidiary has received any notice of
any conflict with or violation or infringement of or any claimed conflict with
or violation or infringement of (which, in any such case, remains substantially
25
unresolved), any asserted rights of any other Person with respect to any such
Intellectual Property or computer software, programs, or similar systems.
Neither of the Companies nor any Company Subsidiary is in conflict with or in
violation or infringement of any asserted rights of any other Person with
respect to any such Intellectual Property or computer software, programs, or
similar systems, except to the extent that any such conflict, violation or
infringement does not have, or would not be reasonably expected to have, a
Material Adverse Effect.
(b) Except as disclosed in Section 3.17(b) of the
Disclosure Schedule, all material computer hardware and software (including all
computer hardware and software in embedded systems) used by the Companies or any
Company Subsidiary (whether such hardware and software is owned or licensed from
third parties) (collectively, the "TECHNOLOGY SYSTEMS") is designed or is being
modified to be used prior to, during and after the calendar year 2000 and the
Companies and the Company Subsidiaries have taken measures they believe to be
sufficient to prepare such hardware and software to continue to operate during
each such time period to accurately process date data (including, but not
limited to calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including leap year calculations.
SECTION 3.18 INSURANCE. Section 3.18 of the Disclosure Schedule summarizes the
amount and scope of the insurance currently in force insuring the assets of the
Companies and the Company Subsidiaries and their respective operations and
properties against loss or liability. All such policies or contracts of
insurance are in compliance in all material respects with all applicable laws
and all Material Contracts to which any of the Companies or any Company
Subsidiary is a party. All insurance policies pursuant to which any such
insurance is provided are in full force and effect. No notice of cancellation or
termination of any such insurance policy has been given to either Company or any
Company Subsidiary and all premiums required to be paid in connection with such
insurance policies have been paid in full.
SECTION 3.19 ENVIRONMENTAL MATTERS. Except as disclosed on Section
3.19 of the Disclosure Schedule:
(a) the operations of the Companies and the Company
Subsidiaries and the real property currently owned, leased or operated by either
Company or any Company Subsidiary are in compliance and, during the period of
the ownership or tenancy of the relevant Company or Company Subsidiary have been
in compliance, with all applicable Environmental Laws, except for such
noncompliance as would not be expected to have a Material Adverse Effect;
(b) no judicial or administrative proceedings or
investigations are pending or, to the knowledge of Seller, threatened against
either Company or any Company Subsidiary, pursuant to any applicable
Environmental Laws, except for judicial or administrative proceedings or
investigations that would not reasonably be expected to have a Material Adverse
Effect;
26
(c) no condition exists on any real property currently (or
to the knowledge of Seller, formerly) owned, operated or leased by any of the
Companies or any Company Subsidiary arising out of or resulting from any Release
of any Hazardous Material that could reasonably be expected to result in either
Company or any Company Subsidiary incurring any liability under Environmental
Laws that would have a Material Adverse Effect and no such property is listed or
has been proposed for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
(CERCLIS); and
(d) Seller has delivered or made available to Buyer copies
of all environmental investigations, audits, assessments or other analyses
conducted by or on behalf of, or which are otherwise in the possession of,
Seller or either Company relating to any real property currently or formerly
owned or leased by any of the Companies or any Company Subsidiary.
SECTION 3.20 BOOKS AND RECORDS. Copies of all the minute books and stock record
books of the Companies and the Company Subsidiaries have been delivered or made
available to Buyer for inspection and contain accurate records of all meetings
of, and written consents by, the boards of directors (and any committees
thereof) and shareholders of the Companies and the Company Subsidiaries from
January 1, 1995 to the date hereof and, to the knowledge of Seller, from the
date of their respective incorporations to January 1, 1995 (if applicable).
SECTION 3.21 BANK ACCOUNTS. Section 3.21 of the Disclosure Schedule contains (a)
a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions ("BANKS") at
which each of the Companies and Company Subsidiaries has an account or safe
deposit box or maintains a banking, custodial, trading, trust or other similar
relationship ("ACCOUNTS") and (b) a true and complete list and description of
each such Account, including a list of all authorized signatories.
SECTION 3.22 INSURANCE AND REINSURANCE.
(a) Section 3.22(a) of the Disclosure Schedule is a true
and complete description of each material contract providing for reinsurance,
coinsurance, excess insurance, ceding of insurance, assumption of insurance or
indemnification of insurance liabilities to which any Company is a party which
is currently in effect (the "REINSURANCE AGREEMENTS").
(b) Except as required by law or as disclosed in Section
3.22(b) of the Disclosure Schedule, all amounts payable as of the date of this
Agreement by either Company under any Reinsurance Agreement and, to the
knowledge of Seller, all amounts payable as of the date of this Agreement by any
other Person that is a party to any Reinsurance Agreement have been paid in
accordance with the terms of the contracts under which they arose except, in
each case, for immaterial non-payments or discrepancies that would not adversely
affect any of the rights of either Company under any such Reinsurance Agreement.
27
Except as disclosed in Section 3.22(b) of the Disclosure Schedule, to the
knowledge of Seller, no reinsurer (other than the Companies) that is a party to
any of the Reinsurance Agreements has a valid defense to payment of its material
obligations under such Reinsurance Agreements or is in default in any material
respect under any Reinsurance Agreement and Seller is not aware of any
impairment of the financial condition of any such other party to the extent that
a default thereunder could reasonably be anticipated. Each Reinsurance Agreement
is in compliance in all material respects with applicable insurance laws and
regulations regarding life and health reinsurance agreements. The Companies have
not entered into any transaction or series of transactions that are required to
be recorded as financial reinsurance pursuant to SAP.
(c) As of the date hereof, the A.M. Best rating presently
held by either of the Companies has not been reduced since January 1, 1999, and
other than as set forth in Section 3.22(c) of the Disclosure Schedule, neither
Company has, as of the date hereof, received any notice from A.M. Best of any
intended downgrading.
SECTION 3.23 LABOR MATTERS.
(a) Neither of the Companies nor any Company Subsidiary is
a party to any labor or collective bargaining agreement.
(b) No Target Employees are represented by any labor
organization that is certified to represent such employees under the National
Labor Relations Act or other applicable law. No labor organization or group of
Target Employees has made a pending demand for recognition, certification,
successor rights or a related employer declaration, and there are no
representation, certification, successor rights or related employer proceedings
or petitions or applications for certification seeking a representation
proceeding presently pending or to the knowledge of Seller threatened to be
brought before or filed with the National Labor Relations Board or any other
labor relations tribunal or authority. To the knowledge of Seller, there are no
organizing activities involving either Company or any Company Subsidiary pending
with any labor organization or group of Target Employees.
(c) Except as set forth in Section 3.23(c) of the
Disclosure Schedule, there are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or threatened against or involving either Company or any Company
Subsidiary, to the extent applicable to the Target Employees.
(d) Except as set forth in Section 3.23(d) of the
Disclosure Schedule, each of the Companies and the Company Subsidiaries is in
compliance with all laws, regulations and orders applicable to such Company or
Company Subsidiary or the Employees or other Persons providing services to or on
behalf of such Company or Company Subsidiary, as the case may be, relating to
the employment of labor, including all such laws, regulations and orders
relating to wages, hours, employment standards, WARN, collective bargaining,
discrimination, civil rights, safety and health, workers' compensation and the
28
collection and payment of withholding and/or social security Taxes and any
similar Tax, other than such noncompliance as has not had and would not be
reasonably expected to have a Material Adverse Effect.
(e) There is no "mass layoff," "plant closing" or similar event as defined by
WARN with respect to any of the Companies or any Company Subsidiary; provided,
that no representation is made as to actions taken by Buyer in connection with
or after the Closing.
(f) Except as set forth in Section 3.23(f) of the Disclosure Schedule, as of the
date hereof, there are no pending or, to the knowledge of Seller, threatened
complaints, charges or claims against either Company or any Company Subsidiary
brought or filed with any Governmental Authority, arbitrator or court based on,
arising out of, in connection with or otherwise relating to the employment or
termination of employment by either Company or any Company Subsidiary or,
relating to the Employees or other Persons providing services to or on behalf of
the Companies or any Company Subsidiary.
SECTION 3.24 AFFILIATE TRANSACTIONS. Section 3.24 of the Disclosure Schedule
sets forth, as of the date hereof, all contracts, agreements, obligations,
commitments and liabilities between any of the Companies or Company
Subsidiaries, on the one hand, and Seller or any of Seller's Affiliates (other
than the Companies and the Company Subsidiaries), on the other hand. All such
transactions which were required to have been identified or reported to or
approved by the applicable departments of insurance have been identified,
reported and/or approved.
SECTION 3.25 BONUSES. Except as set forth in Section 3.25 of the Disclosure
Schedule, no current or former officer, director, employee or agent of any of
the Companies or any Company Subsidiary, Seller or any of Seller's Affiliates
(other than the Companies and the Company Subsidiaries) or other Person is a
party to or beneficiary of any contract or other agreement pursuant to which
such Person shall receive or is entitled to receive any retention or other
transaction bonus or other payment (a "TRANSACTION BONUS") from either Company
or any Company Subsidiary in connection with the transactions contemplated
hereby.
SECTION 3.26 ALL RELATED ASSETS. As of the Closing Date, immediately following
the Closing Transactions, the Companies and the Company Subsidiaries will own,
lease, license or otherwise have the valid right to use all material property
and assets necessary to carry on their respective businesses and operations as
presently conducted. Notwithstanding the foregoing, no representation is made in
this Section 3.26 with respect to any services provided pursuant to agreements
between the Company or any Company Subsidiary on the one hand and Seller or any
of its Affiliates other than the Companies and the Company Subsidiaries on the
other hand.
SECTION 3.27 BROKERS' FEES AND COMMISSIONS. Except for Xxxxxxxxxxx Xxxxxxx &
Co., Inc. (the fees of which will be paid by Seller), neither Seller nor any of
29
its directors, officers, employees or agents has employed any investment banker,
brokers or finders in connection with the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 4.1 ORGANIZATION; QUALIFICATIONS AND OPERATIONS. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, with all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as it is now being
conducted and to own directly or indirectly the Shares. Buyer is qualified or
licensed to do business and is in good standing in each jurisdiction in which
the ownership or leasing of property by it or the conduct of its business
requires such licensing or qualification, except where the failure to be so
qualified or licensed will not affect Buyer's ability to consummate the
transactions contemplated by this Agreement (a "BUYER MATERIAL ADVERSE EFFECT").
SECTION 4.2 AUTHORIZATION. Buyer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer, the
performance by Buyer of its respective obligations hereunder, and the
consummation by Buyer of the transactions contemplated hereby, have been duly
authorized by the Board of Directors of Buyer. No other corporate action on the
part of Buyer is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer, enforceable against Buyer
in accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 4.3 NO VIOLATION. Subject to the receipt by Buyer of the Buyer Approvals
identified in Section 4.4 below and except as set forth in Section 4.3 of the
Disclosure Schedule, neither the execution and delivery by Buyer of this
Agreement, the performance by Buyer of the obligations hereunder and thereunder
nor the consummation by Buyer of the transactions contemplated hereby and
thereby will (a) violate, conflict with or result in any breach of any provision
of the Articles of Incorporation or Bylaws of Buyer, (b) violate or conflict
with or result in a violation or breach of, or constitute a default (with or
without due notice or lapse of time or both) under the terms, conditions or
provisions of any note, bond, mortgage, indenture or deed of trust, or any
license, lease or agreement to which Buyer is a party or by which any of its
assets is bound or (c) violate any order, writ, judgment, injunction, decree,
30
statute, rule or regulation of any Governmental Authority applicable to Buyer or
any of its assets, except in each case as would not have a Buyer Material
Adverse Effect.
SECTION 4.4 CONSENTS AND APPROVALS. Other than the Approval Order and as set
forth in Section 4.4 of the Disclosure Schedule, no filing or registration with,
no notice to and no permit, authorization, consent or approval of any third
party or any Governmental Authority is necessary for Buyer to enter into this
Agreement or for the consummation by Buyer of the transactions contemplated by
this Agreement other than consents and approvals of or filings or registrations
with (a) the DOJ pursuant to the HSR Act, (b) the Insurance Approvals, (c) the
insurance department of the State of Texas, and (d) any state insurance
department pursuant to any preacquisition notification statutes (collectively,
the "BUYER APPROVALS").
SECTION 4.5 BROKERS' FEES AND COMMISSIONS. Neither Buyer nor any of its
directors, officers, employees or agents has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby.
SECTION 4.6 PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for its own
account for investment purposes and not with a view to the distribution of the
Shares. Buyer has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares. Buyer is an "accredited investor" as defined in Rule 501 of the
Securities Act of 1933, as amended. Buyer will not, directly or indirectly,
dispose of the Shares except in compliance with applicable federal and state
securities laws.
SECTION 4.7 SUFFICIENT FUNDS. Buyer has or will have at Closing sufficient
surplus and funds available (through existing credit arrangements or otherwise)
to pay the Purchase Price and to pay all fees and expenses related to the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS PRIOR TO THE CLOSING. Except as expressly
contemplated by this Agreement (including, without limitation, the Pre-Closing
Restructuring Transactions contemplated hereby and the commencement and
prosecution of the Chapter 11 Case), the Closing Transactions and the other
transactions described as conditions to the consummation of the transactions
contemplated by this Agreement specified in Article VI hereof), as set forth in
Section 5.1 of the Disclosure Schedule or with the prior written consent of
Buyer (not to be unreasonably withheld or delayed), during the period from the
date of this Agreement to the Closing or termination of this Agreement, Seller
will cause each of the Companies and each Company Subsidiary to conduct its
business and operations according to its ordinary and usual course of business
and will use all reasonable efforts consistent therewith to preserve intact and,
as applicable, maintain in good repair its properties, assets and business
organizations, to keep available the services of its officers, agents and
employees and to maintain satisfactory relationships with policyholders, agents
31
and regulators, in each case in the ordinary course of business. Without
limiting the generality of the foregoing, and except as otherwise provided in
this Agreement and as set forth in Section 5.1 of the Disclosure Schedule or
with the prior written consent of Buyer (not to be unreasonably withheld or
delayed), prior to the Closing, Seller will not permit either Company or any
Company Subsidiary to:
(a) propose or adopt any amendment to its Certificate or
Articles of Incorporation or Bylaws (or similar organizational documents);
(b) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse the obligations of any other
Person;
(c) (i) adopt any new Benefit Plan (including any stock
option, stock benefit or stock purchase plan) or amend any existing Benefit Plan
in any material respect or (ii) increase in any manner the rate or terms of
compensation of any of its directors, officers, agents or employees or enter
into any employment, severance or collective bargaining agreement other than (A)
normal, annual pay increases of employees or (B) increases in compensation to
agents in connection with new products;
(d) enter into any agreement with any officer, director,
employee, general agent or sales agent of either Company or Company Subsidiary
pursuant to which such Persons will be entitled to receive from either Company
or Company Subsidiary any Transaction Bonus;
(e) (i) sell, transfer or otherwise dispose of any of its
property or assets (not including those assets constituting investment
securities of the Companies, which are the subject of paragraph (f) below) other
than immaterial sales or other dispositions of assets or (ii) mortgage or
encumber any of its property or assets;
(f) except in the ordinary course consistent with past
practices, sell, transfer or otherwise dispose of any securities in the
Companies' investment portfolios;
(g) enter into or terminate any other material agreements,
commitments or contracts;
(h) (i) split, combine or reclassify the Shares, (ii)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to the Shares; (provided, however, that the
Companies may declare and pay cash dividends, after September 30, 1999, in an
aggregate amount not in excess of $17,700,000, (iii) issue, sell or pledge, or
authorize or propose the issuance, sale or pledge of any additional shares of,
or securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, the Shares or any of its capital
stock, or (iv) redeem, purchase or otherwise acquire directly or indirectly any
of its capital stock;
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(i) enter into any agreement or commitment (other than an
insurance policy issued in the normal course of business) (A) having a duration
of 12 months or more, or (B) involving an aggregate capital expenditure or
commitment exceeding (x) $100,000 individually, or (y) collectively with all
other such agreements, $500,000;
(j) take any action that would intentionally result in a
breach of the representations and warranties contained in Article III of this
Agreement;
(k) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization;
(l) change any of the Tax or financial accounting methods
or practices used by it unless required by SAP or applicable law, make or
terminate any Tax election, or take any Tax Return position inconsistent with
past practices;
(m) settle or compromise any claim (including arbitration)
or litigation, which after insurance reimbursement involves an amount in excess
of $250,000 or otherwise is material to the Company involved or the Companies
taken as a whole;
(n) file any amended Tax Return or settle or compromise any
claim relating to Taxes in excess of $50,000;
(o) except in accordance with any arrangement or agreement
described in Section 3.24 of the Disclosure Schedule, make any payment, loan or
advance of any amount to or in respect of, or engage in the sale, transfer or
lease of any of its property or assets to, or enter into any contract with, any
Affiliate;
(p) amend the terms of or terminate any (i) Material
Contracts or Reinsurance Agreements (other than an extension of the terms, or
termination in accordance with the scheduled termination, of such Material
Contract or Reinsurance Agreements expressly required by their terms) or (ii)
contracts, agreements or arrangements with any Affiliate to cause any change in
the cost, services being provided, or term of any such agreements, other than as
specifically contemplated by this Agreement;
(q) enter into or renew (other than a renewal of such
contract expressly required by the terms of such contract) any contract that
would be considered a Material Contract or Reinsurance Agreement (including any
contracts, agreements or arrangements with any Affiliates);
(r) engage in any transaction with any Affiliate, except to
the extent provided in this Agreement; provided, however, that the Companies and
Company Subsidiaries may perform their obligations under any agreement with any
Affiliate identified in Section 3.24 of the Disclosure Schedule and may renew
any such agreement upon the expiration thereof on terms no less favorable to the
33
relevant Company or Company Subsidiary than those existing in the original
agreement; or
(s) agree to take any of the foregoing actions.
SECTION 5.2 MANAGEMENT OF COMPANIES. Seller shall, from the date of this
Agreement through the Closing Date, cause management of the Companies and the
Company Subsidiaries to consult on a periodic basis and in good faith with the
employees and representatives of Buyer concerning the management of their
businesses, including without limitation the policies and practices of the
Companies with respect to (i) the ceding or assumption of reinsurance or the
termination or modification of existing Reinsurance Agreements, (ii) significant
underwriting, actuarial, Tax or accounting issues (including matters related to
Tax audits or the establishment, review and modification of insurance and other
reserves), (iii) significant matters relating to the conditions, forms and
pricing of new kinds of policies and (iv) significant matters relating to the
agency force, product distribution, commissions and similar matters; provided,
however, that the authority to manage the Companies and the Company Subsidiaries
at all times shall remain with the management of the Companies, and that
management of the Companies and the Company Subsidiaries shall not consult with
employees and representatives of Buyer on any matter if, based on advice of
counsel, management determines that such consultation might violate the
provisions of the HSR Act or any other laws.
SECTION 5.3 ACCESS TO INFORMATION.
(a) Between the date hereof and the Closing Date, Seller
shall cause the Companies and the Company Subsidiaries to give to Buyer and its
counsel, accountants and other authorized representatives and agents, all
reasonable access, during regular business hours and upon reasonable advance
notice, to any and all of their respective premises, properties, contracts,
books and records, and will cause their respective officers and employees to
furnish to Buyer and its representatives, except where prohibited by law, any
and all data and information pertaining, directly or indirectly, to the
Companies or the Company Subsidiaries that Buyer shall from time to time
reasonably request, and shall permit Buyer and its representatives to make
extracts and copies thereof. During such period, Seller shall furnish promptly
to Buyer (i) each written report on examination of financial condition or market
conduct (whether in draft or final form) of any of the Companies issued by any
applicable Governmental Authority, (ii) all material filings with state
insurance regulators made by either Company under the insurance holding company
statutes of its domiciliary state, (iii) all material correspondence or
communications with state insurance regulatory authorities concerning the
companies, including without limitation such items relating to rehabilitation,
insolvency, liquidation, supervision, or other comparable state proceedings and
(iv) all other information and documents concerning the business, properties and
personnel of the Companies or the Company Subsidiaries as Buyer may reasonably
request. Seller will promptly deliver to Buyer such copies of all pleadings,
motions, notices, statements, schedules, applications, reports and other papers
filed by Seller in the Chapter 11 Case as Buyer may reasonably request. Subject
34
to any applicable confidentiality agreements and to Section 5.12, Seller will
promptly provide to Buyer all documents and materials relating to the proposed
sale of the Companies or any portion thereof, including, without limitation,
with respect to competing bids, and otherwise cooperate with Buyer, to the
extent reasonably necessary in connection with Buyer's preparation for or
participation in any part of the Chapter 11 Case in which Buyer's participation
is necessary, required or reasonably appropriate. Subject to Section 5.16(e),
Seller will promptly deliver to Buyer all pleadings, motions, notices,
statements, schedules, applications, reports and other papers filed in any other
judicial or administrative proceeding as Buyer may reasonably request. In
addition, Seller shall, and shall cause the Companies to, consult with Buyer
with respect to any written or oral communication concerning, in whole or in
part, the transactions contemplated by this Agreement and directed to any state
insurance department or other Governmental Authority, any rating agency, any
agent or other producer, or any policyholder, and, to the extent reasonably
practicable, shall permit a representative of Buyer to attend any meetings
(telephonic or otherwise, but excluding board of directors meetings) with any
such parties at which the transactions contemplated by this Agreement are
reasonably likely to be discussed; provided, however, that Seller shall be
deemed to have satisfied the foregoing provisions of this sentence with respect
to Seller's or the Companies' discussions, in the ordinary course of business,
with agents and other producers and with policyholders if such discussions
follow a script or other plan of communication mutually agreed-upon by Seller
and Buyer; and provided, further, that Seller shall be deemed to have satisfied
the foregoing provisions of this sentence with respect to the responses of
senior employees of Seller or the Companies to unsolicited inquiries by agents,
producers or policyholders if such responses are conceptually consistent with
the mutually agreed-upon plan of communication.
(b) If the transactions contemplated herein are
consummated, Buyer covenants and agrees that it shall preserve and keep the
records of the Companies and the Company Subsidiaries delivered to it hereunder
for a period of seven years from the Closing Date, and shall make such records
available to Seller (without charge, other than reasonable photocopying expenses
if copies are so requested by Seller), as reasonably requested by Seller in
connection with any legal proceedings by or against, or governmental
investigations of Seller or any of its Affiliates, or in connection with any Tax
examination of Seller or any consolidated group of which any of them was a part
or for any other proper business purpose of Seller or any of its Affiliates.
(c) If the transactions contemplated herein are
consummated, Buyer and Seller jointly covenant and agree that, from and after
the Closing Date, each will use its reasonable best efforts to cooperate with
each other in connection with (i) the preparation of any Tax Return described in
Section 5.14(a), (b) or (c) of this Agreement and (ii) any action, suit,
proceeding, investigation or audit of any of them relating to any Tax liability.
In furtherance thereof, Buyer and Seller further covenant and agree to promptly
respond to all inquiries related to such matters and to provide, to the extent
reasonably possible, substantiation of transactions and to make available and
furnish appropriate documents and personnel in connection therewith.
35
SECTION 5.4 HSR ACT FILINGS. As soon as practicable after the date hereof,
Seller and Buyer shall make appropriate filings with the DOJ under the HSR Act
with respect to the transactions contemplated by this Agreement. In connection
with such filings, the parties hereto shall, in cooperation with each other, and
as promptly as reasonably practicable from time to time hereafter, make all such
further filings and submissions, and take such further action, as may be
required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
provisions of this Section 5.4. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
SECTION 5.5 STATE REGULATORY APPROVALS. As soon as practicable after the date
hereof, Buyer shall file all applications and other documents, and shall use its
reasonable best efforts to obtain all consents and approvals, as are required to
be filed or obtained by it under the applicable laws of the State of Texas, and
of any other applicable jurisdictions, including all requisite approvals of the
insurance regulatory authorities in such jurisdictions and all other
governmental approvals required for consummation of the transactions
contemplated by this Agreement, in each case as promptly as is practicable.
Seller shall cause each of the Companies to take all such actions as are
reasonably requested by Buyer to assist Buyer in completing all such filings and
obtaining all such consents and approvals as are required to be made and
obtained. Buyer shall take all such actions as are reasonably requested by
Seller to assist in completing all filings and obtaining all consents and
approvals as any of them may be required to make and obtain.
SECTION 5.6 TRANSACTION BONUSES. Seller shall pay at or prior to Closing all
Transaction Bonuses approved by the Bankruptcy Court, payable to those officers,
directors, employees or agents set forth on Section 3.25 of the Disclosure
Schedule or otherwise agreed by Buyer and Seller prior to Closing in accordance
with Section 5.1(d). To the extent such payments are made by any of the
Companies or Company Subsidiaries, Seller shall reimburse the relevant Companies
or Company Subsidiaries for the full amount of such payments at Closing. Buyer
shall cause the Companies to assume all obligations for any Employee under the
retention agreements referenced in Section 3.13(b) of the Disclosure Schedule
arising after the Closing, other than the obligation to pay the Transaction
Bonuses.
SECTION 5.7 ALL REASONABLE EFFORTS.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done as promptly as
practicable, all things necessary, proper and advisable under applicable laws
and regulations to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including, without limitation, the
prompt preparation by Seller of all pleadings, motions, notices, statements,
schedules, applications, reports and other papers reasonably necessary to
commence the Chapter 11 Case; provided, however, that nothing in this Agreement
shall be construed as an obligation, commitment or agreement of Seller to
36
commence a Chapter 11 Case if Seller's Board of Directors does not elect to
commence the Chapter 11 Case or if Seller accepts a Superior Proposal or
Recapitalization Transaction prior to the commencement of such case. If at any
time after the Closing any further action is necessary or desirable to carry out
the purposes of this Agreement, including, without limitation, the execution of
additional instruments, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
(b) At the Closing, Seller will assign to Buyer the
non-exclusive right to enforce the rights of Seller under the confidentiality
agreements entered into between any investment bank acting as agent for Seller
to sell its assets, and the prospective purchasers of the Companies or any other
Affiliates of Seller to the extent that such rights affect the Companies or the
Company Subsidiaries.
(c) Prior to Closing, Seller shall use all reasonable
efforts to obtain consents of counterparties identified in Section 6.1(e) of the
Disclosure Schedules and the lessor of the Maxus Energy Tower lease. Buyer shall
use all reasonable efforts to cooperate with Seller in its efforts to obtain
such consents.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. The parties hereto will consult with each
other and will mutually agree (the agreement of each party not to be
unreasonably withheld or delayed) upon the content and timing of any press
release or other public statements with respect to the transactions contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations as advised by
counsel; provided, however, that each party will give prior notice to the other
parties of the content and timing of any such press release or other public
statement required by applicable law or by obligations pursuant to any listing
agreement with any securities exchange or any stock exchange regulations.
SECTION 5.9 DISCLOSURE SUPPLEMENTS. From time to time prior to the Closing and
as soon as reasonably practicable following a material event, Seller and Buyer
will promptly supplement or amend the Disclosure Schedules to this Agreement to
reflect any matter which, if existing, occurring or known on the date hereof
should have been so disclosed, or which is necessary to correct any information
in such Disclosure Schedules which was or has been rendered inaccurate thereby;
provided, however, that for purposes of determining the rights and obligations
of the parties under this Agreement, any such supplemental or amended disclosure
by any party shall not be deemed to have been disclosed as of the date hereof,
to constitute a part of, or an amendment or supplement to, such party's
Disclosure Schedules, or to cure any breach or inaccuracy of a representation or
warranty unless so agreed to in writing by the other party.
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SECTION 5.10 EMPLOYMENT AND EMPLOYEE BENEFITS.
(a) Section 5.10(a) of the Disclosure Schedule sets forth a
list of the Employees who currently render services primarily to or on behalf of
any or all of the Companies or the Company Subsidiaries (the "TARGET
EMPLOYEES"). Buyer shall provide to Seller, no more than sixty Business Days
after the date hereof, but no later than five Business Days prior to the Closing
Date, the names of those Target Employees to whom Buyer or a third-party
administrator utilized by Buyer ("BUYER'S TPA") will offer employment (any
Target Employee who accepts such offer of employment by Buyer being a "BUYER
EMPLOYEE"). Each such offer shall be at a salary or wage generally comparable to
that paid by Seller or its Affiliates immediately prior to the Closing, shall be
for employment in Dallas County, Texas, and shall be effective as of the Closing
Date. With respect to any Target Employee who is not offered employment by Buyer
(other than a Target Employee for whom a retention agreement is assumed in
accordance with Section 5.6), if such Target Employee is terminated by Seller or
its Affiliates without cause within 60 days after the Closing Date, Buyer shall
reimburse Seller and be responsible for the amount of severance required by
Seller's severance arrangements, practices and contracts identified on Section
5.10(a) of the Disclosure Schedule and for obligations under WARN or any similar
state law; provided, however, that Seller and Buyer will cooperate in good faith
to minimize such severance or other obligations to the extent reasonably
practicable, and Seller shall cause SFSC provide notice of termination to such
Target Employees at the time and in the form and manner specified by Buyer. For
the avoidance of doubt, Buyer shall have no obligation with respect to severance
payable to any Target Employee who does not accept an offer of employment by
Buyer or Buyer's TPA made in accordance with the preceding terms of this Section
5.10(a), other than for a Target Employee for whom a retention agreement is
assumed in accordance with Section 5.6. Except as otherwise specifically
provided in this Section 5.10 or Section 5.6, (i) SFSC shall retain liability
for all salary, commissions and other compensation and benefits of any kind due,
and any other liability relating to, any Target Employee on account of
employment by SFSC before the Closing Date (except for obligations for which a
Company is obligated to reimburse SFSC under any of the agreements listed in
Section 3.24 of the Disclosure Schedule) , and (ii) Buyer or Buyer's TPA shall
assume liability for all salary, commissions and other compensation and benefits
of any kind earned on and after the Closing Date by all Buyer Employees.
(b) Subject to the last sentence of Section 5.10(c) Buyer
or Buyer's TPA shall, and shall cause its Subsidiaries (including the Companies
and the Company Subsidiaries), to provide employee benefits for Buyer Employees
("BUYER BENEFIT PLANS") that are at least substantially comparable in the
aggregate to the employee benefits and compensation provided to similarly
situated Persons (i) by Seller or its Affiliates under the Benefit Plans and
compensation arrangements in effect as of the Closing Date or (ii) by Buyer or
Buyer's TPA under its employee benefit plans and compensation arrangements in
effect for its employees; provided, that neither Buyer nor Buyer's TPA shall be
required to grant service credit for service prior to the Closing Date under any
such benefit plans or compensation arrangements. Buyer or Buyer's TPA shall or
shall cause the Companies and the Company Subsidiaries to honor and pay all
accrued and unpaid compensation, including vacation pay, as of the Closing Date
38
in respect of the Buyer Employees, except as provided in Section 5.6.
Notwithstanding the foregoing, Buyer shall assume all liabilities and expenses,
and indemnify and hold Seller harmless with respect to Seller's obligations for,
the welfare benefits provided to Employees by Integon Corporation and retiree
medical benefits provided to Employees under the PennCorp Financial Group, Inc.
Retiree Benefit Plan or the Southwestern Financial Services Corporation Retiree
Benefit Plan.
(c) Prior to or effective as of the Closing Date, Seller
shall cause the Companies and the Company Subsidiaries to contribute or accrue
employer matching contributions for the portion of the calendar year prior to
the Closing Date, with respect to all Buyer Employees, and shall immediately
thereafter fully vest all such Buyer Employees' accounts under any 401(k) plan
maintained by Seller or its Affiliates prior to the Closing Date for the benefit
of Buyer Employees. As soon as practicable after the Closing Date, Buyer shall
cause a 401(k) plan maintained by Buyer or the Companies to accept "eligible
rollover contributions," within the meaning of section 402(c)(4) of the Code,
from any 401(k) plan maintained by Seller or its Subsidiaries prior to the
Closing Date, for the benefit of Buyer Employees.
SECTION 5.11 NONSOLICITATION. Seller hereby agrees that, for a period commencing
on the Closing Date and ending on the second anniversary of the Closing Date, it
shall not, and shall cause its Subsidiaries not to, without Buyer's prior
written consent, directly or indirectly, solicit or hire any of the current
officers, general agents or sales agents (down to the level of district manager)
of any of the Companies or any Company Subsidiary; provided, however, that
nothing herein shall prohibit Seller from publishing a general solicitation of
employment in any newspaper, magazine, trade publication or other medium or from
soliciting or hiring any person who was an officer of any of the Companies or
any Company Subsidiary on the Closing Date but whose employment by such Company
or Company Subsidiary thereafter ceases, except as a result of Seller's
solicitation or hiring of such person in violation of the first clause of this
Section 5.11.
SECTION 5.12 ACQUISITION PROPOSALS; RECAPITALIZATION TRANSACTION. From the date
hereof until the earlier of (a) the termination hereof or (b) the filing of a
Chapter 11 Case (in which event the provisions of Section 5.16 shall govern),
and except as expressly permitted by the following provisions of this Section
5.12, Seller will not, nor will it permit any of its Subsidiaries to, nor will
it authorize or permit any officer, director or employee of or any investment
banker, attorney, accountant or other advisor or representative of, Seller or
any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to any Acquisition Proposal; provided, however, that nothing
contained in this Section 5.12 shall prohibit the Board of Directors of Seller
from furnishing information to, or entering into discussions or negotiations
with, any person that makes an unsolicited bona fide written Acquisition
Proposal if, and only to the extent that (A) such Acquisition Proposal
constitutes a Superior Proposal, or (B) such Acquisition Proposal constitutes a
39
Recapitalization Transaction and (C) prior to taking such action, Seller (x)
provides reasonable notice to Buyer to the effect that it is taking such action
and (y) receives from such person an executed confidentiality agreement in
reasonably customary form. Prior to providing any information to or entering
into discussions or negotiations with any person in connection with an
Acquisition Proposal by such person, Seller shall notify Buyer of any
Acquisition Proposal (including, without limitation, the material terms and
conditions thereof and the identity of the person making it) as promptly as
practicable after its receipt thereof, and shall provide Buyer with a copy of
any written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Buyer on a prompt basis of the status of any discussions or
negotiations with such a third party, and any material changes to the terms and
conditions of such Acquisition Proposal, and shall promptly give Buyer a copy of
any information delivered to such person which has not previously been reviewed
by Buyer. Following the commencement of the Chapter 11 Case, this Section 5.12
will be of no further force and effect and the solicitation and acceptance of
competing offers (including Acquisition Proposals) will be governed by Section
5.16 and by the Bankruptcy Court. Nothing in this Section 5.12 (or otherwise in
this Agreement) will restrict the ability of Seller to enter into or continue
discussions or negotiations, or to provide information to appropriate persons in
connection with any contemplated Recapitalization Transaction.
SECTION 5.13 PRE-CLOSING RESTRUCTURING TRANSACTIONS. Seller shall use
commercially reasonable efforts to cause the Pre-Closing Restructuring
Transactions to occur as soon as possible, but in no event later than
immediately prior to (x) the entry of the Sale Procedures Order, in the case of
the transactions contemplated by clauses (i) and (ii) of the definition of
"Pre-Closing Restructuring Transactions," and (y) the Closing Date, in the case
of the transactions contemplated by clauses (iii) and (iv) of such definition.
Following the completion of the Pre-Closing Restructuring Transactions, Seller
shall, to the extent permitted by applicable law, not include or take any action
to include either Company or any of the Company Subsidiaries in any
consolidated, unitary, or combined group of corporations for Tax purposes.
SECTION 5.14 TAX MATTERS.
(a) Except as provided in Section 5.14(c), Buyer shall
prepare or cause to be prepared, and file or cause to be filed, in a manner
consistent with past practice (subject to any departure required to comply with
any applicable law), all Tax Returns for the Companies and the Company
Subsidiaries for all periods ending on or prior to the Closing Date that are
filed after the Closing Date. Except as provided in Section 5.14(c), Buyer shall
be responsible for the payment of Taxes due with respect to such Tax Returns.
(b) Except as provided in Section 5.14(c), Buyer shall
prepare or cause to be prepared, and file or cause to be filed, in a manner
consistent with past practice (subject to any departure required to comply with
any applicable law), all Tax Returns for the Companies and the Company
Subsidiaries for Tax periods that begin before the Closing Date and end after
40
the Closing Date. Except as provided in Section 5.14(c), Buyer shall be
responsible for the payment of Taxes due with respect to such Tax Returns.
(c) (i) Seller and its Affiliates shall prepare or cause to
be prepared, and file or cause to be filed, in a manner consistent with past
practice and in the ordinary course of business (subject to any departure
required to comply with any applicable law), (A) all consolidated, combined, or
unitary Tax Returns of Seller or its Affiliates that include the Companies or
the Company Subsidiaries for all periods that begin prior to the Closing Date
and (B) all other Tax Returns required to be filed by or on behalf of the
Companies or the Company Subsidiaries on or prior to the Closing Date. Seller
agrees to consult with Buyer with respect to the Tax Returns described in this
Section 5.14(c), and shall deliver drafts of such Tax Returns (or, in the case
of Tax Returns that include the Companies or the Company Subsidiaries, the
portions of such Tax Returns which include the Companies or the Company
Subsidiaries) to Buyer no later than 10 Business Days prior to the date,
including extensions, on which such Tax Returns are required to be filed.
(ii) For any Taxes attributable to a taxable period that
ends on or before the Closing Date, and for which Seller or its Affiliate is
responsible for the preparation of the Tax Return pursuant to this Section
5.14(c), Seller shall pay or cause to be paid all Taxes shown due with respect
to such Tax returns. Seller and Buyer shall, on or before the Closing Date, make
a good faith estimate of the amount of any Tax liability for such period
(calculated on a separate company basis), and, subject to clause (iii), the
Companies and the Company Subsidiaries shall pay such amounts to Seller or its
Affiliate.
(iii) For any Taxes attributable to the Pre-Closing
Restructuring Transactions, Seller shall be responsible for the payment of, and
shall indemnify Buyer and its Affiliates against, such Taxes, including any
Taxes attributable to an audit adjustment. If such Taxes are due with respect to
Tax Returns filed by Buyer pursuant to Sections 5.14(a) or 5.14(b), Buyer shall
deliver drafts of such Tax Returns, or the portions of such Tax Returns which
include the Pre-Closing Restructuring Transactions, to Seller no later than 10
Business Days prior to the date, including extensions, on which such Tax Returns
are required to be filed. In the case of a dispute between Buyer and Seller as
to the proper reporting of the Pre-Closing Restructuring Transactions, Seller's
characterization shall be used, except where a departure is required to comply
with applicable Tax laws. Seller shall pay to Buyer the amount of Taxes
attributable to the Pre-Closing Restructuring Transactions within 15 Business
Days after the date on which such Taxes are paid by Buyer.
(iv) In the event that any Pre-Closing Restructuring
Transaction reduces (A) the Tax basis of the assets, (B) the amount of the Tax
Attributes (other than a reduction resulting from the election contemplated by
the proviso of Section 5.14(j), or (C) the amount of the policyholders surplus
account, in each case of any of the Companies or Company Subsidiaries, Seller
41
shall pay to Buyer the reasonably anticipated Tax cost or detriment to Buyer,
the Companies, and Company Subsidiaries of such reduction. Buyer and Seller
shall use their reasonable best efforts to agree on the appropriate amount of
such payment within 60 days of Buyer's written notification to Seller of such
reduction, taking into account reasonable income projections and all other
relevant factors. If the Parties cannot agree on such amount, such dispute shall
be resolved by a law or accounting firm mutually acceptable to the Parties. The
decision of such firm shall be final, and the fees and expenses of such firm
shall be borne equally by Buyer and Seller. Seller's payment shall be made
within 15 days of the earlier of any agreement reached by the Parties and the
Parties = receipt of the decision of the law or accounting firm.
(d) Seller shall allow the Companies and the Company
Subsidiaries and their counsel to participate in any audits of the consolidated
federal income Tax Returns of Seller to the extent that such Tax Returns relate
to the Companies or the Company Subsidiaries. Seller shall not settle any such
audit in a manner that would adversely affect the Companies or the Company
Subsidiaries after the Closing Date without the prior written consent of Buyer,
which consent shall not unreasonably be withheld.
(e) Neither Seller nor any Affiliate of Seller that is a
common parent of any affiliated group that files consolidated returns for
federal income Tax purposes, and of which affiliated group any Company or
Company Subsidiary is a member, shall make an election to retain any net
operating loss carryovers or capital loss carryovers of the Companies or the
Company Subsidiaries under Treas. Reg. Section 1.1502-20(g) or any similar
provision of federal, state, local, or foreign law; except in accordance with
the proviso in Section 5.14(j).
(f) Seller shall immediately pay to Buyer any Tax refund
(or reduction in Tax liability) resulting from a carryback of a post-acquisition
Tax attribute of any of the Companies or the Company Subsidiaries into a
consolidated, combined or unitary Tax Return of any Person, when such refund or
reduction is realized. Seller shall cooperate with the Companies and the Company
Subsidiaries in obtaining such refunds (or reduction in Tax liability),
including through the filing of amended Tax Returns.
(g) Buyer, the Companies, the Company Subsidiaries, and
Seller shall cooperate fully, as and to the extent reasonably requested by the
other Party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Companies, the Company Subsidiaries and
Seller agree (A) to retain all books and records with respect to Tax matters
pertinent to the Companies or the Company Subsidiaries relating to any taxable
42
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Seller, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, the Companies
and the Company Subsidiaries or Seller, as the case may be, shall allow the
other party to take possession of such books and records. Buyer and Seller
further agree, upon request, to use their best efforts to obtain any certificate
or other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby). Buyer and Seller further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to Section 6043 of the Code and all Treasury Department Regulations promulgated
thereunder.
(h) All tax sharing agreements or similar agreements with
respect to or involving the Companies or the Company Subsidiaries shall be
terminated as of the Closing Date and, after the Closing Date, neither Seller
nor the Companies or the Company Subsidiaries shall be bound thereby or have any
liability thereunder.
(i) All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including New York City
Transfer Tax and any similar Tax imposed in other states or subdivisions), if
any, shall be paid by Seller when due, and Seller will file all necessary Tax
Returns and other documentation with respect to any such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation. Buyer shall reimburse
Seller, within 15 days after the date on which the above Taxes are paid, in an
amount equal to (i) one-half of the Taxes paid pursuant to this Section 5.14(i);
and (ii) one-half of the expenses incurred with respect to the filing of Tax
Returns pursuant to this Section 5.14(i).
(j) Except as otherwise required by law, as occurs in the
ordinary course of business and consistent with past practice, or with the
consent of Buyer, which consent shall not be unreasonably withheld, Seller
covenants and agrees that neither it nor its Affiliates (including the Companies
and the Company Subsidiaries prior to the Closing) shall file or amend any Tax
Return, file any claim for refund, change any method of Tax accounting (except
that certain of Seller's Affiliates have filed or will file Applications for a
Change in Accounting Method with respect to each of the Companies as set forth
in Section 3.9(m) of the Disclosure Schedule), settle or compromise any federal,
state, local, or foreign Tax liability affecting the Companies or the Company
Subsidiaries, or make or change any Tax election with respect to any Tax period,
in each case that may result in any material increased Tax liability of, or
material loss of Tax benefits by, Buyer, the Companies or the Company
Subsidiaries in respect of any Tax period ending after the Closing Date;
provided, however, that Pioneer Security Life Insurance Company, an Affiliate of
43
Seller, may elect pursuant to Treasury Regulation 1.1502-20(g) to re-attribute
to itself any portion of the net operating loss carryovers attributable to SLT
in connection with its disposition of the stock of SLT.
(k) Seller shall furnish to Buyer on or before the Closing
Date a certification of Seller's non-foreign status as set forth in Section 1445
of the Code and the Treasury Regulations thereunder.
(l) (i) At Buyer's request (the "REQUEST"), Seller and
Buyer will join in making a timely election or elections under Section
338(h)(10) of the Code and any corresponding elections under state, local or
foreign tax law (collectively, the "SECTION 338(H)(10) ELECTION") with respect
to the purchase and sale of the stock of any of the Companies or Company
Subsidiaries hereunder. Buyer shall make the Request in writing no later than
180 days after the Closing Date. If Buyer does not make the Request that Seller
join in making the Section 338(h)(10) Election, the remainder of the provisions
of this Section 5.14(l) shall not apply.
(ii) Seller, Buyer, and any Company or Company Subsidiary
as to which a Request has been made (a "TARGET COMPANY") shall execute any and
all documents, statements, and other forms that are required to be submitted to
any taxing authority in connection with a Section 338(h)(10) Election (the
"Section 338 Forms") no later than 15 days prior to the date such Section 338
Forms are required to be filed. Seller, Buyer, and the Target Company shall
cause the Section 338 forms to be duly executed by an authorized person for
Seller, Buyer, and the Target Company, in each case, and shall duly and timely
file the Section 338 Forms in accordance with applicable Tax laws and the terms
of this Agreement. Seller and Buyer shall report the purchase of the shares of
stock of a Target Company consistent with any Section 338(h)(10) Election made
with respect to that company and shall take no position contrary thereto unless
and to the extent required to do so pursuant to applicable law.
(iii) Seller and Buyer agree to use their reasonable best
efforts, as soon as practicable after the date of the Request, to enter into an
agreement (the "ALLOCATION AGREEMENT"), to allocate the portion of the Purchase
Price allocable to the purchased shares of each Target Company and the
liabilities of such Target Company to the assets of the Target Company for all
applicable Tax purposes, including the computation of the Modified Aggregate
Deemed Sale Price (as defined under applicable Treasury Regulations and similar
state or local tax provisions) ("MADSP") for the assets of the Target Company.
Buyer shall initially prepare a statement setting forth a proposed computation
and allocation of MADSP (the "COMPUTATION"). Buyer shall submit the Computation
to Seller along with copies of all workpapers, reports, opinions and other
similar documents used to prepare the Computation (the "WORKPAPERS"), no later
than 30 days after the date the Request is made. If, within 30 days of Seller's
receipt of the Computation and the Workpapers, Seller shall not have objected in
writing to such Computation, the Computation shall become the Allocation
Agreement. If Seller objects in writing to the Computation within such 30 days,
Buyer and Seller shall negotiate in good faith to resolve the Computation. If
44
Buyer and Seller shall not have agreed to the Computation and adopted an
Allocation Agreement within 30 days after Seller's objection, any disputed
aspects of the Allocation Agreement shall be resolved by an accounting or law
firm mutually acceptable to Seller and Buyer (the "NEUTRAL AUDITORS") as soon as
practicable but in no event later than 30 days prior to the earlier of (i) the
last date on which the Section 338 Forms may be filed or (ii) the last date on
which either Buyer or Seller (whichever is earlier) must file a Tax return
relating to the transactions contemplated hereby. The decision of the Neutral
Auditors shall be final, and the costs, expenses and fees of the Neutral
Auditors shall be borne equally by Seller and Buyer. Seller and Buyer shall not
take a position before any taxing authority or otherwise (including in any Tax
Return) inconsistent with the Allocation Agreement unless and to the extent
required to do so pursuant to applicable law.
(iv) Buyer, the Companies and the Company Subsidiaries
shall be liable for, and shall indemnify and hold Seller harmless against, any
net incremental Taxes (including Phase III Taxes, interest and penalties
associated with such election) or other costs to Seller as a consequence of the
Section 338(h)(10) Election, including, but not limited to, any audit adjustment
relating to the Section 338(h)(10) Election and the allocations reported in
accordance with Section 5.14(l)(iii) of this Agreement.
SECTION 5.15 FINANCIAL MATTERS. Not later than two business days after the
filing thereof with the applicable regulatory authorities, Seller shall cause
the Companies to deliver to Buyer true and complete copies of the Annual Report
for each Company for the year ended December 31, 1999 and the Quarterly Reports
for each Company for each calendar quarter thereafter, including all exhibits,
interrogatories, notes and schedules thereto and any actuarial opinion,
affirmation or certification filed in connection therewith (the "POST-SIGNING
SAP FINANCIAL STATEMENTS"). In addition, Seller shall, as promptly as
practicable, provide to Buyer all internally prepared management reports and all
other financial data and other information relating to the Companies reasonably
requested by Buyer.
SECTION 5.16 BANKRUPTCY COURT APPROVAL.
(a) On or before two Business Days after the commencement
of the Chapter 11 Case, Seller shall file a motion or motions with the
Bankruptcy Court seeking entry of (i) the Approval Order (as defined in Section
5.16(d)) approving, inter alia, the sale of the Estate Property (as defined in
Section 5.16(d)) to Buyer pursuant to section 363 of the Bankruptcy Code,
subject to higher and better offers and (ii) an order, in form and substance
reasonably satisfactory to Buyer and Seller (the "SALE PROCEDURES ORDER"), (A)
approving the Termination Amount and the Bankruptcy Termination Amount and
providing that, in the event the obligation of Seller to pay Buyer either the
Termination Amount or the Bankruptcy Termination Amount arises, such obligation
will constitute an administrative expense under Sections 503(b) and 507(a)(1) of
the Bankruptcy Code and will be payable in accordance with the provisions of
Section 9.1 of this Agreement without further order of the Bankruptcy Court, (B)
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establishing procedures for the submission of competing offers, including,
without limitation, that a competing offer, whether a proposed Recapitalization
Transaction or a proposed purchase of the Shares, will not be considered to be a
higher and better offer unless, at a minimum, such offer provides for aggregate
consideration of at least $7,000,000 in excess of the Purchase Price and is
otherwise a Superior Proposal and (C) scheduling a hearing to consider entry of
the Approval Order and providing that notice of such hearing be given to all of
Seller's creditors and interest holders of record. Buyer and Seller agree to
make promptly any filings, to take all actions and to use their reasonable best
efforts to obtain entry of the Sale Procedures Order, entry of the Approval
Order and any and all other approvals and orders necessary or appropriate for
the consummation of the transactions contemplated hereby.
(b) Prior to entry of the Approval Order, Seller and Buyer
will accurately inform the Bankruptcy Court of all material facts of which it is
aware relating to this Agreement and the transactions contemplated hereby.
(c) If the Approval Order, Sale Procedures Order or any
other orders of the Bankruptcy Court relating to this Agreement shall be
appealed by any party (or a petition for certiorari or motion for hearing or
reargument shall be filed with respect thereto), Seller agrees to take all steps
as may be reasonable and appropriate to defend against such appeal, petition or
motion, and Buyer agrees to cooperate in such efforts, and each party hereto
agrees to use its reasonable best efforts to obtain an expedited resolution of
such appeal; provided, however, that nothing herein shall preclude the parties
hereto from consummating the transactions contemplated herein if the Approval
Order shall have been entered and have not been stayed and Buyer, in its sole
discretion, waives the requirement that the Approval Order be a Final Order.
(d) Prior to Closing, the sale of the Shares (the "Estate
Property") to Buyer pursuant to this Agreement and the other transactions
contemplated by this Agreement shall have been approved by order of the
Bankruptcy Court pursuant to section 363 of the Bankruptcy Code, in form and
substance reasonably acceptable to Seller and Buyer (the "Approval Order") and
the Approval Order shall have been entered and become a Final Order. Buyer and
Seller agree to use their reasonable best efforts to cause the Bankruptcy Court
to enter an Approval Order which contains, among other provisions reasonably
requested by Buyer, the following provisions (it being understood that certain
of such provisions may be contained in either the findings of fact or
conclusions of law to be made by the Bankruptcy Court as part of the Approval
Order): (i) the transfers of the Estate Property by Seller to Buyer (A) are or
will be legal, valid and effective transfers of the Estate Property; (B) vest or
will vest Buyer with all right, title and interest of Seller to the Estate
Property free and clear of all Liens and claims pursuant to Section 363(f) of
the Bankruptcy Code (other than Liens created by Buyer); and (C) constitute
transfers for reasonably equivalent value and fair consideration under the
Bankruptcy Code and the laws of the State of Texas and Delaware; (ii) all
amounts to be paid to Buyer pursuant to this Agreement constitute administrative
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expenses under sections 503(b) and 507(a)(1) of the Bankruptcy Code and are
immediately payable if and when the obligations of Seller arise under this
Agreement, without any further order of the Bankruptcy Court; provided, however,
that Seller shall have the right to contest the validity and amount of such
asserted claims; (iii) all Persons are enjoined from taking any action against
Buyer, Buyer's Affiliates (as they existed immediately prior to the Closing) or
the Companies to recover any claim which such Person has solely against Seller
or its Affiliates (as they existed immediately following the Closing); (iv) the
satisfaction of the intercompany indebtedness and the termination of the
affiliate transactions as referred to in SECTION 5.18 hereof are approved; (v)
the obligations of Seller relating to Taxes shall be fulfilled by Seller; (vi)
the Bankruptcy Court retains exclusive jurisdiction through the Bankruptcy
Resolution Date to interpret and enforce the provisions of this Agreement, the
Sale Procedures Order and the Approval Order in all respects; provided, however,
that in the event the Bankruptcy Court abstains from exercising or declines to
exercise jurisdiction with respect to any matter provided for in this clause
(vi) or is without jurisdiction, such abstention, refusal or lack of
jurisdiction shall have no effect upon and shall not control, prohibit or limit
the exercise of jurisdiction of any other court having competent jurisdiction
with respect to any such matter; (vii) the provisions of the Approval Order are
nonseverable and mutually dependent; and (viii) the transactions contemplated by
this Agreement are undertaken by Buyer and Seller at arm's length, without
collusion and in good faith within the meaning of section 363(m) of the
Bankruptcy Code, and such parties are entitled to the protections of section
363(m) of the Bankruptcy Code.
(e) Seller shall cooperate reasonably with Buyer and its
representatives in connection with the Approval Order, the Sales Procedures
Order and the bankruptcy proceedings in connection therewith. Such cooperation
shall include, but not be limited to, consulting with Buyer at Buyer's
reasonable request concerning the status of such proceedings and providing Buyer
with copies of requested pleadings, notices, proposed orders and other documents
relating to such proceedings as soon as reasonably practicable prior to any
submission thereof to the Bankruptcy Court. Seller further covenants and agrees
that the terms of any plan submitted by Seller to the Bankruptcy Court for
confirmation shall not conflict with, supersede, abrogate, nullify or restrict
the terms of this Agreement, or in any way prevent or interfere with the
consummation or performance of the transactions contemplated by this Agreement
including, without limitation, any transaction that is contemplated by or
approved pursuant to the Approval Order and the Sales Procedures Order.
SECTION 5.17 SPECIFIC ENFORCEMENT OF COVENANTS. Seller acknowledges that
irreparable damage would occur in the event that any of the covenants and
agreements of Seller set forth in this Article V or in any other part of this
Agreement were not timely performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that Buyer shall be entitled
to an injunction or injunctions to prevent or cure any breach of such covenants
and agreements of Seller and to enforce specifically the terms and provisions
thereof, this being in addition to any other remedy to which it may be entitled
at law or in equity, it being understood that, after commencement of the Chapter
47
11 Case, the Bankruptcy Court shall have exclusive jurisdiction over such
matters; provided, however, that in the event the Bankruptcy Court abstains from
exercising or declines to exercise jurisdiction with respect to any matter
provided for in this sentence or is without jurisdiction, such abstention,
refusal or lack of jurisdiction shall have no effect upon and shall not control,
prohibit or limit the exercise of jurisdiction of any other court having
competent jurisdiction with respect to any such matter.
SECTION 5.18 INTERCOMPANY INDEBTEDNESS AND TRANSACTIONS; BROKERS AND
FINDERS FEES.
(a) Seller will cause all indebtedness owed to either
Company by Seller or any of its Affiliates (other than the Companies and the
Company Subsidiaries and other than the American-Amicable Notes) to be paid in
full prior to Closing, or the Purchase Price shall be reduced by the amount of
such indebtedness remaining unpaid at Closing.
(b) All other contracts, agreements, obligations,
commitments and liabilities between any of the Companies or any Company
Subsidiary and Seller or its Affiliates (other than the Companies and the
Company Subsidiaries) shall be terminated prior to the Closing without any
payment by any of the Companies or any Company Subsidiary other than (i)
payments made consistent with past practice in accordance with the agreements or
arrangements described in Section 3.24 of the Disclosure Schedule and (ii) with
respect to services subcontracted to an unaffiliated third party under such
other contracts, agreements, obligations, commitments and liabilities, such
portion as is reasonably allocable to the Companies and the Company Subsidiaries
of any early termination fee payable to such unaffiliated third party under a
termination provision identified in Section 5.18(b) of the Disclosure Schedule.
Not later than 30 days following the Closing, Seller shall prepare and submit to
Buyer a computation of amounts owing to Seller or any of its Affiliates (other
than the Companies or Company Subsidiaries) consistent with past practice in
accordance with such agreements or arrangements as of the Closing Date. Buyer
shall pay such amounts to Seller not later than 15 days following its receipt of
such computation, together with reasonably detailed documentation supporting the
allocation of any portion of an early termination fee to the Companies and the
Company Subsidiaries. Buyer and Seller will work together in good faith to
minimize any early termination fees payable hereunder.
(c) Any fees or expenses incurred by Seller or any
Affiliate of Seller payable with respect to any Person for acting as broker,
finder or in any other similar capacity in connection with the transactions
contemplated by this Agreement shall be the responsibility of Seller.
SECTION 5.19 PORTSMOUTH. Prior to the Closing, Seller shall take any and all
steps necessary to assure that neither Company nor any Company Subsidiary owns
or holds any shares of capital stock of Portsmouth Financial Group, Inc.
("PORTSMOUTH"). If no cash consideration is received by SWLIC upon the
48
disposition of the shares of preferred stock of Portsmouth currently held by
SWLIC, the Purchase Price shall be reduced by Five Million Three Hundred
Thousand and No/100 Dollars ($5,300,000.00) (the "PORTSMOUTH PREFERRED AMOUNT").
If the cash consideration received by SWLIC upon such disposition is less than
the Portsmouth Preferred Amount, the Purchase Price shall be reduced by the
amount of the shortfall. If the cash consideration received by SWLIC upon such
disposition is greater than the Portsmouth Preferred Amount, the Purchase Price
shall be increased by the amount of the excess.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 CONDITIONS TO THE OBLIGATIONS OF BUYER UNDER THIS AGREEMENT. The
obligations of Buyer under this Agreement to consummate the Closing Transactions
shall be subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(a) all authorizations, consents and approvals of any
Governmental Authority contemplated by Sections 3.6, 4.4 and 5.16(a), including
the Insurance Approvals and the Buyer Approvals, shall have been obtained and
shall be in full force and effect and applicable regulators shall not have
imposed any material prohibitions, limitations, conditions or restrictions on
Buyer or any of the Companies in connection with the approvals by such
regulators of the Forms A to be filed by the parties as contemplated hereby,
including but not limited to a restriction on the ability of any of the
Companies to pay ordinary dividends, which are not consented to by Buyer;
(b) any waiting period applicable to the consummation of
the sale and purchase of the Shares under the HSR Act shall have expired or been
terminated;
(c) no injunction, restraining order or other ruling or
order issued by any Governmental Authority or other legal restraint or
prohibition preventing the consummation of the Closing Transactions shall be in
effect;
(d) (i) each of the obligations of Seller required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, (ii) the
representations and warranties of Seller contained in this Agreement shall be
true at and as of the Closing Date, as if made at and as of such date (without
giving effect to any materiality or Material Adverse Effect qualifications or
exceptions contained therein), except for those representations and warranties
made as of a specified date, which shall be true and correct as of the date
specified (without giving effect to any materiality or Material Adverse Effect
qualifications or exceptions contained therein); provided, that this condition
(ii) shall be deemed satisfied if any inaccuracies in any of such
representations and warranties at and as of the applicable date (without giving
effect to any materiality or Material Adverse Effect qualifications or
49
exceptions contained therein) would not, individually or in the aggregate, have
or reasonably be expected to have a Material Adverse Effect, and (iii) Buyer
shall have received a certificate to that effect signed by a senior officer of
Seller;
(e) all consents of third parties identified on Section
6.1(e) of the Disclosure Schedule shall have been obtained;
(f) the Liens in favor of The Bank of New York, as
administrative agent, as disclosed in the Disclosure Schedule, shall have been
released concurrently with or prior to the Closing;
(g) the Approval Order shall have been entered and, shall
be in form and substance reasonably satisfactory to Buyer, and shall have become
a Final Order;
(h) Seller shall have provided to Buyer documentation
reasonably evidencing Seller's fulfillment of the requirements of Section 5.18;
(i) each of the Pre-Closing Restructuring Transactions
shall have been completed or otherwise provided for to the reasonable
satisfaction of Buyer;
(j) Seller shall have delivered to Buyer a certificate
complying with Treasury Regulations section 1.1445-2(b)(2), in form and
substance reasonably satisfactory to Buyer, duly executed and acknowledged,
certifying that Seller is not a foreign person within the meaning of such
section;
(k) Seller shall have caused SFSC to obtain the consent of
the landlord to assign the real property lease for the Maxus Energy Tower,
located at 000 Xxxxx Xxxxxxx Xx., Xxxxxx, Xxxxx to Buyer or to Buyer's TPA;
(l) No act, event or condition shall have occurred after
the date hereof which has had or would reasonably be expected to have a Material
Adverse Effect;
(m) Pacific Life and Accident Insurance Company ("PLAIC")
shall have executed and delivered to a reinsurance agreement containing economic
terms acceptable to Buyer and otherwise in a form acceptable to Buyer (the
"PLAIC REINSURANCE AGREEMENT") with respect to all of the remaining business of
PLAIC; provided, however, that prior to the Closing, Seller shall have caused
the administration of all of PLAIC's business to be converted to the CyberLife
systems of Buyer's TPA at PLAIC's sole expense; and
(n) Each Company and each Company Subsidiary (each, a
"RELEASING PARTY") shall have executed and delivered a release in a form
reasonably satisfactory to Seller and Buyer under which each Company and each
Company Subsidiary shall release and forever discharge each existing officer and
director (the "RELEASEES") of each Releasing Party from any and all claims,
demands, proceedings, causes of actions, obligations, damages, debts and
liabilities whatsoever, whether known or unknown, suspected or unsuspected, both
at law and in equity (collectively, "CLAIMS"), which such Releasing Parties then
50
have, have ever had or may hereafter have against the Releasees on account of or
arising out of any matter with respect to the operations or conduct of the
business of any of the Releasing Parties; provided, however, that nothing
contained herein shall operate to release any Claim based on such Releasee's
embezzlement or similar intentional misconduct.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF SELLER UNDER THIS AGREEMENT. The
obligation of Seller under this Agreement to consummate the Closing Transactions
shall be subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(a) all authorizations, consents and approvals of any
Governmental Authority contemplated by Sections 3.6 and 4.4 and 5.16(a),
including the Insurance Approvals, the Buyer Approvals and the Approval Order
shall have been obtained and shall be in full force and effect;
(b) any waiting period applicable to the consummation of
the sale and purchase of the Shares under the HSR Act shall have expired or been
terminated;
(c) no injunction, restraining order or other ruling or
order issued by any Governmental Authority or other legal restraint or
prohibition preventing the consummation of the Closing Transactions shall be in
effect;
(d) (i) each of the obligations of Buyer required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, (ii) the
representations and warranties of Buyer contained in this Agreement shall be
true at and as of the Closing Date, as if made at and as of such date (without
giving effect to any materiality or Buyer Material Adverse Effect qualifications
or exceptions contained therein), except for those representations and
warranties made as of a specified date, which shall be true and correct as of
the date specified (without giving effect to any materiality or Buyer Material
Adverse Effect qualifications or exceptions contained therein); provided, that
this condition (ii) shall be deemed satisfied if any inaccuracies in any of such
representations and warranties at and as of the applicable date (without giving
effect to any materiality or Buyer Material Adverse Effect qualifications or
exceptions contained therein) would not, individually or in the aggregate, have
or reasonably be expected to have a Buyer Material Adverse Effect, and (iii)
Seller shall have received a certificate to that effect signed by a senior
officer of Buyer;
(e) the Approval Order shall have been entered, shall be in
form and substance reasonably satisfactory to Seller and shall have become a
Final Order; and
(f) Buyer shall have executed and delivered to PLAIC the
PLAIC Reinsurance Agreement.
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ARTICLE VII
CLOSING
SECTION 7.1 CLOSING. The closing of the Closing Transactions (the "CLOSING")
shall take place at the offices of Xxxxxxxxxx Xxxxxx & Xxxxxxx LLP, at 000 Xxxx
Xxx., Xxx Xxxx, XX 00000, subject to the satisfaction or waiver of the
conditions set forth in Sections 6.1 and 6.2, as soon as practicable after the
date hereof and in any event not later than the first anniversary of the date of
this Agreement, or at such other time and place and on such other date as Buyer
and Seller shall agree (the "CLOSING DATE"). As a further condition to Closing,
at the Closing:
(a) Seller shall deliver or cause to be delivered to Buyer
the following:
(i) the certificates described in Section 6.1(d);
(ii) share certificates representing all of the Shares in
appropriate form for transfer to Buyer or Buyer's
designee (as appropriate) duly endorsed in blank or
accompanied by stock powers duly executed in blank;
(iii) resignations of the directors of each of the
Companies and the Company Subsidiaries;
(iv) an Assignment and Assumption of Lease executed by
SFSC and the landlord under the lease for the Maxus
Energy Tower, 000 Xxxxx Xxxxxxx Xx., Xxxxxx, Xxxxx in
a form reasonably acceptable to Buyer (the
"ASSIGNMENT AND ASSUMPTION OF LEASE");
(v) an Assignment and Assumption of the CYBERTEK
Corporation License Agreement executed by SWFS and
SLT (the "ASSIGNMENT OF LICENSE AGREEMENT"), in a
form reasonably acceptable to Buyer; and
(vi) an Assignment and Assumption of the rights and
obligations of SWFS under all other contracts
(including any contracts unknowingly and
unintentionally omitted from Section 3.12(c) of the
Disclosure Schedule) of SWFS entered into in the
ordinary course of business, which (A) are terminable
by SWFS within two years without penalty and (B) in
the case of any such individual contract, do not
provide for payments by SWFS of more than $50,000 in
any single year and, in the case of all such
contracts in the aggregate, do not provide for
payments by SWFS of more than $400,000 in any single
year, executed by SWFS (the "ASSIGNMENT AND
ASSUMPTION OF OTHER CONTRACTS") in a form reasonably
acceptable to Buyer.
(b) Buyer shall deliver or cause to be delivered to Seller
the following:
(i) the certificate described in Section 6.2(d);
52
(ii) the Assignment and Assumption of Lease executed by
Buyer or Buyer's TPA;
(iii) the Assignment of License Agreement executed by
Buyer; and
(iv) the Assignment and Assumption of Other Contracts
executed by Buyer.
(c) Buyer shall pay or shall cause to be paid to Seller, by
wire transfer of immediately available funds to such account or accounts as
Seller shall have designated in writing at least two days prior to the Closing
Date, the Purchase Price.
ARTICLE VIII
SURVIVAL
SECTION 8.1 SURVIVAL. The covenants, agreements, representations and warranties
of the parties hereto contained in this Agreement shall not survive the Closing;
provided, that the covenants and agreements that, by their terms, are to have
effect or to be performed after the Closing Date shall survive in accordance
with their terms.
ARTICLE IX
FURTHER AGREEMENTS AND TERMINATION
SECTION 9.1 CERTAIN PAYMENTS.
(a) TERMINATION PAYMENT. In the event this Agreement is
terminated pursuant to Section 9.2(b)(i), Section 9.2(c)(iii), Section
9.2(c)(iv) (in a case in which Seller is in material default or material breach
of this Agreement, or where a representation or warranty made as of the date
hereof is shown to have been inaccurate as of the date hereof, subject to the
other terms and conditions of Section 9.2(c)(iv) regarding such inaccuracy),
Section 9.2(d)(ii) or Section 9.2(d)(iii) of this Agreement, or in the event
that this Agreement is terminated by Seller pursuant to Section 9.2(b)(iv) of
this Agreement, then in any such case Seller shall be obligated to pay Buyer, in
cash, the sum of $5,200,000 plus an amount (not to exceed $800,000) equal to
Buyer's reasonable out of pocket expenses (including but not limited to
reasonable attorney's fees and expenses) incurred in connection with the
negotiation or performance of this Agreement or its due diligence investigation
of the Companies in connection with this Agreement (such sum being the
"TERMINATION AMOUNT"). The Termination Amount shall be paid immediately upon the
termination of this Agreement.
(b) BANKRUPTCY TERMINATION PAYMENTS. In the event this
Agreement is terminated pursuant to Section 9.2(b)(ii) of this Agreement, Seller
shall be obligated to pay to Buyer, in cash, the sum of $5,200,000 plus an
amount (not to exceed $800,000) equal to Buyer's reasonable out of pocket
expenses (including but not limited to reasonable attorney's fees and expenses)
incurred in connection with the negotiation or performance of this Agreement or
53
its due diligence investigation of the Companies in connection with this
Agreement (such sum being the "SECTION 9.2(B)(II) AMOUNT"), which amount shall
be payable no later than the earlier of (i) the consummation of the
Recapitalization Transaction or sale of either Company or all or substantially
all of the assets of either Company to a Person other than Buyer or an Affiliate
of Buyer, (ii) the effective date of a plan of any plan of reorganization
confirmed in the Chapter 11 Case, (iii) the dismissal of the Chapter 11 Case,
and (iv) the conversion of the Chapter 11 Case to a case under title 7 of the
Bankruptcy Code. In the event this Agreement is terminated pursuant to Section
9.2(c)(i) or Section 9.2(c)(ii) of this Agreement, then (i) Seller shall be
obligated to pay Buyer, immediately upon such termination of this Agreement, an
amount (not to exceed $800,000) equal to Buyer's reasonable out of pocket
expenses (including but not limited to reasonable attorney's fees and expenses)
incurred in connection with the negotiation or performance of this Agreement or
its due diligence investigation of the Companies in connection with this
Agreement, and (ii) if, within nine (9) months following such termination of
this Agreement, Seller or the Companies consummate a Recapitalization
Transaction or sale of either Company or all or substantially all of the assets
of either Company to a Person other than Buyer or an Affiliate of Buyer, then
Seller shall be obligated to pay to Buyer, immediately upon the consummation of
such transaction, an amount equal to $5,200,000 (the sum of (i) and (ii) being
the "ALTERNATIVE TERMINATION AMOUNT," with the Section 9.2(b)(ii) Amount and the
Alternative Termination Amount being referred to herein collectively as the
"BANKRUPTCY TERMINATION AMOUNT.")
SECTION 9.2 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(a) by mutual consent of each of Seller and Buyer;
(b) by either of Seller or Buyer:
(i) if a Chapter 11 Case is not commenced on or before
the date that is 30 days following the date of this
Agreement and, as of the time that the terminating
party provides the other party with notice of such
termination of this Agreement, the Chapter 11 Case
has not been commenced; provided, that no termination
under this Section 9.2(b)(i) shall be effective until
the Termination Amount shall have been paid to Buyer;
(ii) if, following the commencement of a Chapter 11 Case,
the Bankruptcy Court approves a Recapitalization
Transaction or a sale of either Company or all or
substantially all of the assets of either Company to
a Person other than Buyer or an Affiliate of Buyer;
(iii) if a Governmental Authority shall have issued an
order, decree or ruling or taken any other action
(which order, decree or ruling the parties hereto
shall use their best efforts to lift), in each case
permanently restraining, enjoining or otherwise
prohibiting any of the Closing Transactions and such
54
order, decree, ruling or other action shall have
become final and nonappealable;
(iv) if the Closing shall not have occurred on or before the first anniversary
of the date of this Agreement;
(c) by Buyer:
(i) if the Sale Procedures Order shall not have been
entered by the Bankruptcy Court within 20 days of the
filing of the bankruptcy petition by Seller and, as
of the time of such termination of this Agreement,
the Sales Procedures Order has not been entered by
the Bankruptcy Court;
(ii) if the Approval Order has not been entered by the
Bankruptcy Court within 50 days of the filing of the
bankruptcy petition by Seller and, as of the time of
such termination of this Agreement, the Approval
Order has not been entered by the Bankruptcy Court;
(iii) if a supervisor, conservator, rehabilitator,
liquidator, receiver or other Person in a similar
capacity shall be appointed for either Company or a
cease-and-desist order is entered, and in the case of
a cease-and-desist order, such cease-and-desist order
is not overturned, vacated or reversed within three
Business Days of the entry of such order, with
respect to either Company; or
(iv) if a material default or material breach shall be
made by Seller with respect to the due and timely
performance of any of its covenants or agreements
contained herein, or if its representations or
warranties contained in the Agreement shall have
become inaccurate (without giving effect to any
materiality or Material Adverse Effect qualifications
or exceptions contained therein) and such inaccuracy
has had or would be reasonably likely to have a
Material Adverse Effect, if such default, breach or
inaccuracy has not been cured or waived within 30
days after written notice to Seller specifying, in
reasonable detail, such claimed default, breach or
inaccuracy and demanding its cure or satisfaction.
(d) by Seller:
(i) if a material default or breach shall be made by
Buyer with respect to the due and timely performance
of any of its covenants or agreements contained
herein, or if its representations or warranties
contained in the Agreement shall have become
inaccurate (without giving effect to any materiality
or Material Adverse Effect qualifications or
exceptions contained therein) and such inaccuracy has
had or would be reasonably likely to have a Buyer
Material Adverse Effect, if such default, breach or
inaccuracy has not been cured or waived within 30
55
days after written notice to Buyer specifying, in
reasonable detail, such claimed default, breach or
inaccuracy and demanding its cure or satisfaction;
(ii) if prior to the commencement of a Chapter 11 Case,
the Board of Directors of Seller authorizes Seller,
subject to complying with the terms of this
Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior
Proposal and Seller notifies Buyer in writing that it
intends to enter into such an agreement, attaching
the most current version of such agreement to such
notice and during the five-day period after Seller's
notice, (A) Seller shall have offered to Buyer the
opportunity to make such adjustments in the terms and
conditions of its offer such that any third party
Acquisition Proposal no longer continues to be a
Superior Proposal and (B) Seller shall have
reasonably concluded, upon the termination of such
five day period, that any Acquisition Proposal giving
rise to Seller's notice continues to be a Superior
Proposal; provided, that no termination under this
Section 9.2(d)(ii) shall be effective until the
Termination Amount shall have been paid to Buyer; or
(iii) if, prior to the commencement of a Chapter 11 Case,
the Board of Directors of Seller authorizes Seller to
enter into a binding written agreement for a
Recapitalization Transaction; provided, that no
termination under this Section 9.2(d)(iii) shall be
effective until the Termination Amount shall have
been paid to Buyer.
SECTION 9.3 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination and
abandonment of the transactions contemplated hereby pursuant to Section 9.2,
written notice thereof shall forthwith be given to the other parties to this
Agreement and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without further action by any of the parties hereto.
If this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all
documents, work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing the same; and
(b) no party hereto shall have any liability or further
obligation to any other party to this Agreement resulting from such termination
except (i) that the provisions of Sections 9.1, this Section 9.3 and Section 9.4
shall remain in full force and effect and (ii) no party waives any claim or
right against a breaching party to the extent that such termination results from
the breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement; provided, however, that in
the event Buyer is entitled to receive the Termination Amount or the Bankruptcy
Termination Amount, the right of Buyer to receive such amount shall constitute
Buyer's sole remedy for (and such amount shall constitute liquidated damages in
56
respect of) any breach by Seller of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 9.4 CONFIDENTIALITY. Each party hereto acknowledges that the other
parties have legitimate and continuing proprietary interests in the protection
of their confidential information and that the parties have invested substantial
sums and will continue to invest substantial sums to develop, maintain and
protect such confidential information. Prior to and after the Closing, each
party agrees not to disclose, furnish or make accessible to anyone or use for
its own benefit (other than as contemplated hereby) any trade secrets or other
confidential or proprietary information of another party relating to the
Companies and/or their respective businesses or the other parties including, but
not limited to, information obtained by or revealed to such party during any
investigations, negotiations or review relating to this Agreement and any other
document contemplated hereby or thereby or any past or future actions taken in
connection with, pursuant to, in accordance with, or under this Agreement,
including without limitation any business plans, marketing plans, financial
information, strategies, systems, programs, methods, employee lists, computer
programs, insurance profiles and customer lists; provided, however, that such
protected information shall not include (i) information required to be disclosed
by law, legal or judicial process (including a court order, subpoena or order of
a Governmental Authority) or the rules of any stock exchange, (ii) information
that is or becomes available to the disclosing party on a non- confidential
basis from a source other than the other parties and not obtained in violation
of this Agreement and (iii) information known to the public or otherwise in the
public domain without violation of this Section 9.4; provided, further, that
this Section 9.4 shall not in any way limit the disclosure of information by
Seller (a) in connection with the commencement and prosecution of a Chapter 11
Case or (b) regarding the Companies or their Businesses (i) to other bidders or
potential bidders to the extent specifically permitted by this Agreement or (ii)
following the termination of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 AMENDMENT AND MODIFICATION. This Agreement may only be amended,
modified or supplemented by a written instrument signed by all the parties
hereto.
SECTION 10.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Buyer to comply with
any obligation, covenant, agreement or condition contained herein may be waived
in writing by Seller, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any other failure. Any
failure of Seller to comply with any obligation, covenant, agreement or
condition contained herein may be waived in writing by Buyer, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
57
SECTION 10.3 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
SECTION 10.4 EXPENSES AND OBLIGATIONS. Except as specifically set forth in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses. For the avoidance of doubt, the cost of Seller's
attorneys, accountants, actuaries and other consultants shall be borne by Seller
and not by either of the Companies.
SECTION 10.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their successors and assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
other Person any rights or remedies of any nature whatsoever under or by reason
of this Agreement, whether by a claim of third party beneficiary or otherwise.
SECTION 10.6 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given upon the earlier of delivery thereof if by
hand or upon receipt if sent by mail (registered or certified, postage prepaid,
return receipt requested) or on the second next Business Day after deposit if
sent by a recognized overnight delivery service or upon transmission if sent by
telecopy or facsimile transmission (with electronic acknowledgment of
transmission confirmed) as follows:
(a) If to Buyer or, after the Closing, any of the
Companies, to:
Swiss Re Life & Health America Inc.
000 Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: General Counsel
Facsimile No.: 203-968-0920
with copies to:
Xxxxxxxxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxx X. Xxxxxx
Facsimile No.: 202-637-3593
Lord, Bissell & Brook
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxxxxx
Facsimile No.: 000-000-0000
58
(b) If to Seller, to:
PennCorp Financial Group, Inc.
c/o Southwestern Financial Services Corporation
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx
Facsimile No.: 000-000-0000
with a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts to be
performed within that state.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.9 HEADINGS. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 10.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule, the
Annexes hereto and the Confidentiality Agreement dated June 23, 1999 embody the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein or therein. There are no agreements,
representations, warranties or covenants other than those expressly set forth
herein or therein. This Agreement, the Disclosure Schedule and the Annexes
hereto supersede all prior agreements and understandings between the parties
(other than the Confidentiality Agreement referenced above) with respect to such
subject matter.
SECTION 10.11 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, permitted assigns and
legal representatives. Unless otherwise provided herein, neither this Agreement
nor any right or obligation hereunder may be assigned by any party (in whole or
in part) without the prior written consent of the other parties hereto.
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IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be signed on its behalf by its duly
authorized officers, all as of the day and year first above written.
REASSURE AMERICA LIFE INSURANCE COMPANY
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman and Chief Executive Officer
PENNCORP FINANCIAL GROUP, INC.
By: /s/ Xxxxx X. Xxxx
---------------------------------------------
Name: Xxxxx X. Xxxx
Title: President and Chief Executive Officer
60
