PURCHASE AGREEMENT
among
I.C.H. CORPORATION,
SWL HOLDING CORPORATION,
CARE FINANCIAL CORPORATION,
FACILITIES MANAGEMENT INSTALLATION, INC.
and
SOUTHWESTERN FINANCIAL CORPORATION,
SOUTHWESTERN FINANCIAL SERVICES CORPORATION,
PENNCORP FINANCIAL GROUP, INC.
Dated as of December 1, 1995
TABLE OF CONTENTS
Page
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definition of Certain Terms . . . . . . . . . . . 2
ARTICLE II Sale of Stock and Assets; Closing . . . . . . . . . . . 22
2.1 Pre-Closing Transactions; Sale and Purchase of
the Acquired Shares and Surplus Debenture . . . . 22
2.2 Sale and Purchase of Acquired Assets . . . . . . . 23
2.3 Excluded Assets . . . . . . . . . . . . . . . . . 25
2.4 Excluded Liabilities . . . . . . . . . . . . . . . 26
2.5 Assumed Liabilities; Funding of Certain Assumed
Liabilities . . . . . . . . . . . . . . . . . . . 26
2.6 Closing . . . . . . . . . . . . . . . . . . . . . 27
2.6.1 Delivery of Acquired Shares and Surplus
Debenture . . . . . . . . . . . . . . . . 27
2.6.2 Transfer of Acquired Assets . . . . . . . 28
2.6.3 Payment of the Purchase Price by Buyer . 28
2.6.4 Funding of Escrow Account . . . . . . . . 29
2.6.5 Delivery of PennCorp Shares . . . . . . . 29
2.7 [Reserved] . . . . . . . . . . . . . . . . . . . . 30
2.8 [Reserved] . . . . . . . . . . . . . . . . . . . . 30
2.9 Non-Assignable Assumed Contracts . . . . . . . . . 30
2.10 Non-Assignable Intellectual Property Licenses . . 32
2.11 Buyer's Deposit . . . . . . . . . . . . . . . . . 32
ARTICLE III Conditions Precedent . . . . . . . . . . . . . . . . . . 33
3.1 Conditions to the Obligations of all Parties . . . 33
3.1.1 Regulatory Approvals . . . . . . . . . . 33
3.1.2 Bankruptcy Court Approvals . . . . . . . 33
3.1.3 Distributions Paid . . . . . . . . . . . 36
3.1.4 No Prohibition . . . . . . . . . . . . . 36
3.1.5 [Reserved] . . . . . . . . . . . . . . . 36
3.1.6 Litigation . . . . . . . . . . . . . . . 36
3.2 Conditions to Obligations of Buyer and PennCorp . 37
3.2.1 Representations and Warranties . . . . . 37
3.2.2 Performance . . . . . . . . . . . . . . . 38
3.2.3 Consents . . . . . . . . . . . . . . . . 38
3.2.4 Officer's Certificates . . . . . . . . . 38
3.2.5 Additional Regulatory Approvals . . . . . 38
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3.2.6 Proceedings . . . . . . . . . . . . . . . 40
3.2.7 Terminated Intercompany Agreements . . . 40
3.2.8 Resignation of Directors and Officers . . 40
3.2.9 Material Adverse Effect . . . . . . . . . 41
3.2.10 Opinions of Counsel to Seller . . . . . . 41
3.2.11 [Reserved] . . . . . . . . . . . . . . . . 41
3.2.12 [Reserved] . . . . . . . . . . . . . . . . 41
3.2.13 Certificate of Non-Foreign Status . . . . 41
3.2.14 Related Agreements . . . . . . . . . . . . 41
3.2.15 Section 338(h)(10) Election . . . . . . . 42
3.2.16 [Reserved] . . . . . . . . . . . . . . . . 42
3.2.17 Texas Property Tax Certificate . . . . . . 42
3.3 Conditions to Seller's Obligations . . . . . . . . 42
3.3.1 Representations and Warranties . . . . . 42
3.3.2 Performance . . . . . . . . . . . . . . . 42
3.3.3 Officer's Certificates . . . . . . . . . 42
3.3.4 Opinions of Counsel to Buyer . . . . . . 43
3.3.5 Proceedings . . . . . . . . . . . . . . . 43
3.3.6 Related Agreements . . . . . . . . . . . 43
3.3.7 Securities Laws Issues . . . . . . . . . 44
ARTICLE IV Representations and Warranties . . . . . . . . . . . . . 44
4.1 Representations and Warranties of Seller and
Selling Subsidiaries . . . . . . . . . . . . . . . 44
4.1.1 Corporate Existence . . . . . . . . . . . 44
4.1.2 Authorization; Enforcement . . . . . . . 44
4.1.3 Governmental Approvals . . . . . . . . . 45
4.1.4 No Conflicts; Third Party Consents . . . 46
4.1.5 Capital Structure . . . . . . . . . . . . 46
4.1.6 Company Documents . . . . . . . . . . . . 47
4.1.7 Financial Statements and Information . . 47
4.1.8 SEC Reports . . . . . . . . . . . . . . . 50
4.1.9 Absence of Certain Changes or Events . . 51
4.1.10 Assets . . . . . . . . . . . . . . . . . 52
4.1.11 Environmental Matters . . . . . . . . . 55
4.1.12 Liabilities and Reserves; No
Undisclosed Liabilities . . . . . . . . . 56
4.1.13 Contracts . . . . . . . . . . . . . . . 57
4.1.14 Litigation . . . . . . . . . . . . . . . 59
4.1.15 Compliance with Laws, etc. . . . . . . . 60
4.1.16 Operations Insurance . . . . . . . . . . 60
4.1.17 Taxes . . . . . . . . . . . . . . . . . 61
4.1.18 Affiliate Transactions . . . . . . . . . 64
4.1.19 Employee Benefit Plans . . . . . . . . . 65
4.1.20 Insurance Business . . . . . . . . . . . 67
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4.1.21 Reinsurance . . . . . . . . . . . . . . 69
4.1.22 Intellectual Property . . . . . . . . . 70
4.1.23 Variable Products: Securities Law
Matters: Investment Companies:
Investment Adviser . . . . . . . . . . . 71
4.1.24 Brokers and Finders, etc. . . . . . . . 72
4.1.25 Shinnecock Purchase Agreement . . . . . 72
4.1.26 Purchase for Investment . . . . . . . . 72
4.1.27 Disclosure . . . . . . . . . . . . . . . 73
4.2 Representations and Warranties of Buyer,
PennCorp and SWFSC . . . . . . . . . . . . . . . . 73
4.2.1 Corporate Existence . . . . . . . . . . . 73
4.2.2 Authorization; Enforcement . . . . . . . 73
4.2.3 Governmental Approvals . . . . . . . . . 74
4.2.4 No Conflicts . . . . . . . . . . . . . . 74
4.2.5 Brokers and Finders, etc. . . . . . . . . 75
4.2.6 [Reserved] . . . . . . . . . . . . . . . 75
4.2.7 Purchase for Investment . . . . . . . . . 75
4.2.8 Litigation . . . . . . . . . . . . . . . 75
4.2.9 Capitalization of Buyer . . . . . . . . . 75
4.2.10 Capitalization of SLAC . . . . . . . . . 77
4.2.11 Capitalization of PennCorp . . . . . . . 77
4.2.12 SEC Reports . . . . . . . . . . . . . . . 78
4.2.13 Knowledge of Material Adverse Effect . . 79
4.2.14 Disclosure . . . . . . . . . . . . . . . 79
ARTICLE V Covenants . . . . . . . . . . . . . . . . . . . . . . . 79
5.1 Operations in the Ordinary Course . . . . . . . . 79
5.2 Restrictions . . . . . . . . . . . . . . . . . . . 80
5.3 Related Matters . . . . . . . . . . . . . . . . . 84
5.4 Management of Acquired Companies . . . . . . . . . 84
5.5 Access to Information . . . . . . . . . . . . . . 85
5.6 Exclusive Dealing . . . . . . . . . . . . . . . . 87
5.7 Regulatory Filing and Compliance . . . . . . . . . 88
5.8 Commercially Reasonable Efforts . . . . . . . . . 90
5.9 Antitwisting and Antisolicitation . . . . . . . . 91
5.10 Certificate of Operating Expenses. . . . . . . . . 92
5.11 Change of Names . . . . . . . . . . . . . . . . . 92
5.12 Bankruptcy Court Approval . . . . . . . . . . . . 93
5.13 [Reserved] . . . . . . . . . . . . . . . . . . . . 94
5.14 Specific Enforcement of Covenants . . . . . . . . 94
5.15 Fund America Certificates . . . . . . . . . . . . 94
5.16 Proceeds from BL of NY . . . . . . . . . . . . . . 95
5.17 Power of Attorney . . . . . . . . . . . . . . . . 95
5.18 Notification of Developments . . . . . . . . . . . 96
5.19 Surplus Debenture and UBIC Shares . . . . . . . . 96
5.20 Limited Partnership Interests . . . . . . . . . . 96
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5.21 Additional Acquired Assets . . . . . . . . . . . . 96
5.22 Recapture of MAL Reinsurance . . . . . . . . . . . 97
5.23 Insurance Coverage . . . . . . . . . . . . . . . . 97
5.24 Transfer of Intellectual Property Licenses . . . . 97
5.25 REO Holding Corp. . . . . . . . . . . . . . . . . 98
5.26 [Reserved] . . . . . . . . . . . . . . . . . . . . 98
5.27 Intercompany Matters . . . . . . . . . . . . . . . 98
5.28 Matters Related to Notes . . . . . . . . . . . . . 98
5.29 Compliance with Securities Laws . . . . . . . . . 99
5.30 Listing of PennCorp Shares . . . . . . . . . . . . 99
5.31 Qualification of Note Indenture . . . . . . . . . 99
5.32 PennCorp Registration Statement . . . . . . . . . 99
ARTICLE VI Certain Tax Matters . . . . . . . . . . . . . . . . . . 99
6.1 Payment of Tax Liabilities . . . . . . . . . . . . 99
6.2 Filing of Tax Returns . . . . . . . . . . . . . . 103
6.3 Bridge Period . . . . . . . . . . . . . . . . . . 105
6.4 Audits and Other Proceedings . . . . . . . . . . . 105
6.5 Section 338(h)(10) Election . . . . . . . . . . . 109
6.6 Transfer Taxes . . . . . . . . . . . . . . . . . . 112
6.7 Cooperation . . . . . . . . . . . . . . . . . . . 112
6.8 Allocation of Purchase Price . . . . . . . . . . . 113
6.9 Tax Refunds and Credits . . . . . . . . . . . . . 114
6.10 Elections Relating to Section 382 of the Code . . 115
6.11 Stub-Period Taxes . . . . . . . . . . . . . . . . 115
6.12 Election Out of Installment Method . . . . . . . . 115
ARTICLE VII Employment Matters . . . . . . . . . . . . . . . . . . . 115
7.1 Definitions . . . . . . . . . . . . . . . . . . . 115
7.2 Employment of Acquired Company Employees . . . . . 116
7.3 Service Credits . . . . . . . . . . . . . . . . . 120
7.4 Savings Investment Plan . . . . . . . . . . . . . 120
7.5 Welfare, Fringe and Other Benefits . . . . . . . . 121
7.6 Retained Seller Liabilities . . . . . . . . . . . 122
7.7 COBRA and WARN . . . . . . . . . . . . . . . . . . 123
ARTICLE VIII Indemnification and Use of Escrow Fund. . . . . . . . . . 124
8.1 Indemnification . . . . . . . . . . . . . . . . . 124
8.2 Provisions Regarding Escrow Account . . . . . . . 140
8.3 Funding of Escrow Accounts . . . . . . . . . . . . 142
8.4 Tax Treatment of Escrow . . . . . . . . . . . . . 142
8.5 Escrow Payments at Buyer's Direction . . . . . . . 142
8.6 [Reserved] . . . . . . . . . . . . . . . . . . . . 143
ARTICLE IX Further Agreements . . . . . . . . . . . . . . . . . . . 143
9.1 Public Announcements . . . . . . . . . . . . . . . 143
9.2 Limited Guaranty . . . . . . . . . . . . . . . . . 143
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9.3 Matters Relating to Schedules . . . . . . . . . . 143
ARTICLE X Miscellaneous . . . . . . . . . . . . . . . . . . . . . 144
10.1 Termination . . . . . . . . . . . . . . . . . . . 144
10.2 Severability . . . . . . . . . . . . . . . . . . . 146
10.3 Agreement; No Third-Party Beneficiaries . . . . . 146
10.4 Expenses . . . . . . . . . . . . . . . . . . . . . 147
10.5 Assignment . . . . . . . . . . . . . . . . . . . . 147
10.6 Notices . . . . . . . . . . . . . . . . . . . . . 147
10.7 Amendments and Waivers . . . . . . . . . . . . . . 149
10.8 Counterparts . . . . . . . . . . . . . . . . . . . 149
10.9 Successors and Assigns . . . . . . . . . . . . . . 149
10.10 Interpretation . . . . . . . . . . . . . . . . . . 149
10.11 Schedules . . . . . . . . . . . . . . . . . . . . 149
10.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . 150
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SCHEDULES
Schedule 2.2(a) . . . . . . . Tangible and Intangible Assets of Seller
and Retained Companies
Schedule 2.2(b)(i) . . . . . Tangible Assets of FMI
Schedule 2.2(b)(ii) . . . . . Scheduled Intellectual Property
Schedule 2.3 . . . . . . . . Excluded Assets
Schedule 2.5(a)(i) . . . . . FMI Assumed Contracts
Schedule 2.5(a)(ii) . . . . . Seller and Retained Company Assumed
Contracts
Schedule 2.5(b) . . . . . . . Trade Accounts
Schedule 3.2.7 . . . . . . . Intercompany Agreements
Schedule 4.1.3 . . . . . . . Governmental Approvals
Schedule 4.1.4 . . . . . . . No Conflicts; Third-Party Consents
Schedule 4.1.5 . . . . . . . Capital Structure
Schedule 4.1.7(b) . . . . . . Deviations from GAAP
Schedule 4.1.7(e) . . . . . . Capital Gains and Losses
Schedule 4.1.8(b) . . . . . . SEC Communications
Schedule 4.1.9 . . . . . . . Absence of Certain Changes or Events
Since December 31, 1994
Schedule 4.1.9(a)(i) . . . . Borrowed Funds
Schedule 4.1.9(a)(ii) . . . . Damage or Destruction
Schedule 4.1.9(a)(iii) . . . Dividends or Other Distribution
Schedule 4.1.9(a)(iv) . . . . Transactions with Directors, Officers or
Employees
Schedule 4.1.9(a)(v) . . . . Compensation Increases to Directors,
Officers or Employees
Schedule 4.1.9(a)(vi) . . . . Severance Benefits
Schedule 4.1.9(a)(vii) . . . Changes in Underwriting, Pricing,
Actuarial or Investment Practices
Schedule 4.1.9(a)(viii) . . . Reinsurance/Lapse Ratio/In-force Business
Schedule 4.1.9(a)(ix) . . . . Material Adverse Effect
Schedule 4.1.9(a)(x) . . . . Material Breach
Schedule 4.1.10(a)(i) . . . . Real Property
Schedule 4.1.10(a)(ii) . . . Real Properties Not in Compliance
Schedule 4.1.10(a)(iii) . . . Real Estate Taxes
Schedule 4.1.10(a)(iv) . . . Admitted Assets
Schedule 4.1.10(b)(i) . . . . Jointly Owned Mortgage Loans
Schedule 4.1.10(b)(iii) . . . Delinquent Mortgage Loans
Schedule 4.1.10(b)(iv) . . . Admitted Assets (Mortgage Loans)
Schedule 4.1.10(c) . . . . . Admitted Assets (Bonds)
Schedule 4.1.10(d) . . . . . Admitted Assets (Equities)
Schedule 4.1.10(e) . . . . . Ownership of Property
Schedule 4.1.10(f) . . . . . List of Worthless Assets Since
December 31, 1994
Schedule 4.1.11(a) . . . . . Compliance with Environmental Law
vi
Schedule 4.1.11(b) . . . . . Other Environmental Matters
Schedule 4.1.12(a) . . . . . Liabilities and Reserves
Schedule 4.1.12(c) . . . . . Guaranty Fund Claims or Assessments
Schedule 4.1.13(a)(i) . . . . Out of the Ordinary Course of Business
Contracts that have Exposure Over $50,000
and which are not Terminable without
Penalty upon 30 Days or Less Notice
Schedule 4.1.13(a)(ii) . . . Contracts with Officers, Directors and
Agents
Schedule 4.1.13(a)(iii) . . . Contracts Containing a Limitation of
Business and/or Covenants not to Compete
Schedule 4.1.13(a)(iv) . . . Partnerships/Joint Venture Contracts
Schedule 4.1.13(a)(v) . . . . Nonrecourse Mortgage Loans Contracts and
Contracts Related to Indebtedness
Schedule 4.1.13(a)(vi) . . . Real Property and Personal Property Lease
Contracts
Schedule 4.1.13(a)(vii) . . . Contracts with Labor Unions
Schedule 4.1.13(a)(viii) . . Contracts Disposing of Business Units
Since January 1, 1989
Schedule 4.1.13(a)(ix) . . . Contracts Disposing of Real Property
Since January 1, 1989 in the Amount of
$1,000,000 or More
Schedule 4.1.13(a)(x) . . . . Contracts Between FMI or Acquired
Companies and Affiliates
Schedule 4.1.13(a)(xi) . . . Reinsurance Agreements
Schedule 4.1.13(a)(xii) . . . Agency Agreements
Schedule 4.1.13(a)(xiii) . . Other Material Agreements
Schedule 4.1.14 . . . . . . . Litigation
Schedule 4.1.14(a) . . . . . Claims, Actions, Proceedings
Schedule 4.1.14(b) . . . . . Injunctions, Orders, Judgments
Schedule 4.1.15 . . . . . . . Compliance with Laws
Schedule 4.1.16 . . . . . . . Operations Insurance
Schedule 4.1.17 . . . . . . . Taxes
Schedule 4.1.18 . . . . . . . Affiliate Transactions
Schedule 4.1.19(a) . . . . . Employee Benefit Plans
Schedule 4.1.19(c) . . . . . Post-employment Benefits/ERISA
Schedule 4.1.19(d) . . . . . Compensation Items
Schedule 4.1.20 . . . . . . . Insurance Business
Schedule 4.1.2(a) . . . . . . Insurance Licenses
Schedule 4.1.20(b) . . . . . Insurance Policies
Schedule 4.1.20(c) . . . . . Compliance with Insurance Laws
Schedule 4.1.20(e) . . . . . Insurance Deposits
Schedule 4.1.21 . . . . . . . Reinsurance
Schedule 4.1.22(a) . . . . . Owned Intellectual Property
Schedule 4.1.22(b) . . . . . Intellectual Property Used, but not Owned
vii
Schedule 4.1.22(c) . . . . . Intellectual Property Licenses
Schedule 4.1.22(d) . . . . . Registered Intellectual Property
Schedule 6.8 . . . . . . . . Allocation of Purchase Price
Schedule 7.1(a)(i) . . . . . FMI Retirees
Schedule 7.1(a)(ii) . . . . . Other Acquired Company Retirees
Schedule 7.1(a)(iii) . . . . Certain Acquired Company Retirees
Schedule 7.1(b) . . . . . . . Executive Officers
Schedule 7.1(c) . . . . . . . Executive Severance Agreements
Schedule 7.1(d) . . . . . . . Supplemental Benefit Agreements
EXHIBITS
Exhibit H Summary Terms of 7.0% Convertible Subordinated Notes Due
2005
Exhibit I-1 Summary Terms of Common Stock of Southwestern Financial
Corporation
Exhibit I-2 Summary Terms of Series A Preferred Stock of Southwestern
Financial Corporation
Exhibit I-3 Summary Terms of Warrants of Southwestern Financial
Corporation
Exhibit J-1 Summary Terms of Common Stock of Southwestern Life
Acquisition Corp.
Exhibit J-2 Summary Terms of 5.5% Preferred Stock of Southwestern
Life Acquisition Corp.
Exhibit K Summary Terms of SWF Registration Rights Agreement
Exhibit L Summary Terms of PennCorp Registration Rights Agreement
Exhibit M Summary Terms of Retained Company Purchase Agreement
viii
PURCHASE AGREEMENT, dated as of December 1, 1995, among I.C.H.
Corporation, a Delaware corporation ("Seller"), Facilities Management
Installation, Inc., a Delaware corporation ("FMI"), SWL Holding
Corporation, a Delaware corporation ("SWL Holding"), Care Financial
Corporation, a Delaware corporation ("CFC" and, together with FMI and SWL
Holding, the "Selling Subsidiaries"), Southwestern Financial Corporation, a
Delaware corporation ("Buyer"), Southwestern Financial Services
Corporation, a Delaware corporation and a wholly-owned direct subsidiary of
Buyer ("SWFSC"), and PennCorp Financial Group, Inc., a Delaware corporation
("PennCorp").
W I T N E S S E T H:
WHEREAS, Seller owns all of the capital stock of SWL Holding,
CFC and FMI;
WHEREAS, SWL Holding owns all of the capital stock of
Southwestern Life Insurance Company, a Texas stock life insurance company
("SWL"), and SWL owns all of the capital stock of Constitution Life
Insurance Company, a Texas life insurance company ("Constitution Life");
WHEREAS, CFC owns all of the capital stock of Union Bankers
Insurance Company, a Texas stock life insurance company ("UBIC"), and UBIC
owns all of the capital stock of Marquette National Life Insurance Company,
a Kentucky stock life insurance company ("Marquette");
WHEREAS, FMI owns certain assets and provides certain services
to SWL and UBIC and other Subsidiaries of Seller in connection with the
conduct of the Acquired Business (as hereinafter defined);
WHEREAS, prior to the Closing Date (as hereinafter defined),
Seller will cause SWL to declare and pay as a dividend to SWL Holding all
of the outstanding shares of capital stock of Constitution Life (the
"Constitution Life Shares");
WHEREAS, prior to the Closing Date, Seller will cause
Constitution Life to acquire all of the capital stock of UBIC (the "UBIC
Shares") from CFC and issue an $80.0 million surplus debenture (the
"Surplus Debenture") to CFC in consideration therefor;
1
WHEREAS, (i) Buyer desires to purchase from SWL Holding, and
SWL Holding desires to sell to Buyer, the Constitution Life Shares and all
the outstanding capital stock of SWL (the "SWL Shares") for aggregate
consideration of $180 million in cash, (ii) Buyer desires to purchase from
CFC, and CFC desires to sell to Buyer, an 87.5% undivided interest in the
Surplus Debenture for consideration of $30 million in cash plus $40 million
principal amount of Notes (as hereinafter defined), (iii) PennCorp desires
to purchase from CFC, and CFC desires to sell to PennCorp, a 12.5%
undivided interest in the Surplus Debenture in consideration of the
PennCorp Shares (as hereinafter defined), and (iv) SWFSC desires to
purchase from FMI and certain of the Retained Companies, and FMI and such
companies desire to sell and assign to SWFSC, certain assets of FMI and
other miscellaneous assets in consideration of the assumption by SWFSC of
the Assumed Liabilities, all upon the terms and conditions set forth
herein;
WHEREAS, after the Closing, Seller will retain ownership of the
Retained Companies (as hereinafter defined) and SWFSC shall provide to
Seller and certain of the Retained Companies certain of the services
formerly provided to such companies by FMI pursuant to the FMI Services
Agreement;
WHEREAS, prior to the execution and delivery of this Agreement,
Seller and each of the Selling Subsidiaries have filed 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") in the
United States Bankruptcy Court for the Northern District of Texas (the
"Bankruptcy Court"), Jointly Administered Case No. 395-36351-RCA-11 styled
In Re I.C.H. Corporation, et al (the "Case") for the purpose, in part, of
consummating the transactions contemplated by this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
1.1 Definition of Certain Terms. The capitalized terms defined
in this Section 1.1, whenever used in this Agreement (including in the
Schedules), unless otherwise defined in the Agreement, shall have the
respective meanings
2
indicated below for all purposes of this Agreement. All references herein
to a Section, Article or Schedule are to a Section, Article or Schedule of
or to this Agreement, unless otherwise indicated.
Acquired Assets: as defined in Section 2.2.
Acquired Business: the life, annuity, health and variable
insurance business and other businesses conducted by the Acquired Companies
as of the date hereof, including, but not limited to, the services
currently provided by FMI to Seller and its Subsidiaries other than non-
investment advisory services provided to Philadelphia American Life
Insurance Company.
Acquired Companies: SWL; UBIC; Marquette; Constitution
Life; I.C.H. Funding Corp., a Delaware corporation; Quail Creek Recreation,
Inc., an Arizona corporation; and Quail Creek Water Company, Inc., an
Arizona corporation.
Acquired Company Employees: as defined in Section 7.1.
Acquired Company Retirees: as defined in Section 7.1.
Acquired Insurance Companies: SWL, UBIC, Constitution Life
and Marquette.
Acquired Shares: the SWL Shares and the Constitution Life
Shares, collectively.
Acquisition Proposal: as defined in Section 5.6(b).
Additional Section 338 Form: as defined in Section
6.5(b)(iii).
Affiliate: of a Person means a Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, the first Person. "Control" (including
the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise.
3
Affiliated Group: any combined, consolidated, affiliated or
unitary Tax group of which any Acquired Company is or has been a member,
including without limitation the affiliated groups filing consolidated
returns for Federal income tax purposes, of which MAL was the common parent
for Tax years through 1991, and of which Seller was the common parent for
the Tax years after 1991.
Affiliated Tax Year: any taxable period of an Affiliated
Group during which any Acquired Company was a member of such Affiliated
Group.
Agreement: this Purchase Agreement (including the Schedules
thereto), as amended from time to time.
Amended and Restated Form A: collectively, the Amended and
Restated Form A and the Second Amended and Restated Form A of Buyer and
PennCorp as filed with the Texas Department of Insurance on or about
November 20, 1995 and December 4, 1995, respectively.
Amended Retiree Program: as defined in Section 7.5(b).
Applicable Insurance Laws: as defined in Section 4.1.12(b).
Applicable Law: all applicable provisions of all
(i) constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances, codes or orders of any Governmental
Authority and (ii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Authority.
Approval Order: as defined in Section 3.1.2(a).
Associate: as defined in Rule 12b-2 of the Exchange Act.
Assumed Contracts: as defined in Section 2.5.
Assumption Documents: as defined in Section 3.3.6.
Assumed Liabilities: as defined in Section 2.5.
Average PennCorp Trading Price: the average of the closing
sales prices of the PennCorp Common Stock on the
4
NYSE or, if the PennCorp Common Stock is not then traded on the NYSE, on
the principal national or regional stock exchange on which the PennCorp
Common Stock is listed or, if the PennCorp Common Stock is not listed on a
national or regional stock exchange, as reported by the Nasdaq Stock Market
and if not so reported, then the average of the bid and asked prices for
the PennCorp Common Stock as reported by the National Quotation Bureau
Incorporated, for each of the ten (10) trading days ending on the
penultimate trading day preceding the date on which the PennCorp
Registration Statement is declared effective by the SEC.
AVR: the asset valuation reserve required to be established
under SAP as a liability on a life insurer's SAP Statements.
Bankruptcy Code: as defined in the Recitals to this
Agreement.
Bankruptcy Court: as defined in the Recitals to this
Agreement.
Bankruptcy Resolution Date: means the date on which a Final
Order of the Bankruptcy Court has been entered dismissing, closing or
otherwise terminating the Case.
BL of NY: Bankers Life Insurance Company of New York, a New
York stock life insurance company.
Books and Records: all books, records, files and data,
certificates and other documents reasonably related to the conduct of the
Acquired Business or the ownership of the Acquired Assets, all sales and
promotional literature, or copies thereof, used or held for use in
connection with the conduct of the Acquired Business, and all applications
for policies of insurance and annuity contracts (including backup
documentation and work papers) submitted in connection with the Acquired
Business.
Bridge Period: as defined in Section 6.3.
Business Day: a day other than a Saturday, Sunday or other
day on which commercial banks in Dallas, Texas or New York City are
authorized or required to close by Applicable Law.
Business Employees: as defined in Section 4.1.19(a).
5
Buyer: as defined in the Preamble to this Agreement.
Buyer's Deposit: as defined in Section 2.11.
Buyer Indemnitees: as defined in Section 8.1(a).
Buyer Subsidiary: a wholly-owned direct or indirect
subsidiary of Buyer.
Buyer's Savings Plan: as defined in Section 7.4.
Buyer Welfare Plans: as defined in Section 7.5(a).
Case: as defined in the Recitals to this Agreement.
Cash Equivalents: (1) negotiable certificates of deposit in
a federally insured commercial bank incorporated under the laws of the
United States or any state thereof and subject to supervision and
examination by federal and/or state authorities so long as the commercial
paper or other short-term debt obligations of such commercial bank have a
short-term credit rating of at least "Prime-1" by ▇▇▇▇▇'▇ Investors
Service, Inc. ("Moody's") or "A-1" by Standard & Poor's Corporation
("S&P"), (2) commercial paper or similar obligations rated "Prime 1" by
Moody's or "A-1" by S&P, (3) obligations of or guaranteed by the United
States (one-half of the foregoing investments, measured by principal amount
at the time of investment, to have a maturity of not more than three months
from the date of investment, one-half of the foregoing investments,
measured by principal amount at the time of investment, to have a maturity
of not more than twelve months from the date of investment), (4) an
interest bearing account bearing a market rate of interest maintained at a
federally insured depositary institution or trust company incorporated
under the laws of the United States or any state thereof and subject to
supervision and examination by federal and/or state authorities so long as
the commercial paper or other short-term debt obligations of such
depositary institution or trust company have a short-term credit rating of
at least "Prime-1" by Moody's or "A-1" by S&P, (5) money market funds or
money market mutual funds (other than closed-end funds) which maintain a
constant net asset value and have at the
6
time of such investment a rating by Moody's or S&P at least equivalent to
"A", or (6) such other investment specifically approved in writing by
Buyer.
CFC: as defined in the Recitals to this Agreement.
Claim: as defined in Section 101 of the Bankruptcy Code.
Claim Notice: as defined in Section 8.1(d)(i).
Closing: as defined in Section 2.6.
Closing Date: as defined in Section 2.6.
Code: the Internal Revenue Code of 1986, as amended.
Company Return: any Tax Return required to be filed with
any taxing authority and required to include any information regarding any
member of the Related Group or the business or assets thereof (including,
without limitation, information returns and reports required to be filed
with respect to payments to employees, policyholders or other persons).
Compensation Items: as defined in Section 7.2(c)(i).
Compromise Notice: as defined in Section 8.1(d)(v).
Confidential Disclosure Schedule: as defined in Section
9.3.
Constitution Life: as defined in the Recitals to this
Agreement.
Constitution Life Shares: as defined in the Recitals to
this Agreement.
Contract Costs: as defined in Section 2.9(a).
Contracts: as defined in Section 4.1.13(a).
December 31 GAAP Statements: as defined in Section
4.1.7(a)(i).
7
December 31 SAP Statements: as defined in Section
4.1.7(a)(iii).
Deposit: as defined in Section 4.1.20(e).
Disclosure Schedule and Disclosure Schedules: as defined in
Section 9.3.
Effective Date: the date on which the PennCorp Registration
Statement is declared effective by the SEC.
Election Date: as defined in Section 8.1(d)(v).
Eligible Executive Officer: an Executive Officer who either
(i) does not receive an offer of employment with Buyer or SWFSC, effective
as of the Closing Date, or (ii) receives and rejects an offer of such
employment, which offer is (x) for a position and with duties and
responsibilities that are materially less favorable to such Executive
Officer than his position, duties and responsibilities with Seller or FMI
immediately prior to the Closing Date, (y) at a base rate of compensation
or with bonus or benefits that constitute a material reduction in the base
compensation, bonus or benefits available to such Executive Officer in
connection with his employment with Seller or FMI immediately prior to the
Closing Date or (z) subject to a requirement that such Executive Officer
relocate outside of the Dallas-Fort Worth metropolitan area.
Employees: as defined in Section 7.1.
Environmental Claim: as defined in Section 8.1(e)(ii).
Environmental Claim Notice: as defined in Section
8.1(e)(ii).
Environmental Indemnity: as defined in Section 8.1(a)(vi).
Environmental Law: any Federal, State, local or foreign
statute, law, rule, regulation, ordinance, code, permit, policy, order,
judgment, injunction, award, decree or writ or rule of common law now in
effect and in each case as amended to date and any published judicial or
administrative interpretation thereof relating to Hazardous Materials,
environmental matters, the protection of public
8
health and safety from environmental or health concerns or otherwise
relating to environmental conditions except for any such judicial or
administrative interpretation published after the Closing Date that effects
a material change in the meaning of an Environmental Law as generally
accepted as of the Closing Date.
Environmental Release: any releasing, disposing,
discharging, injecting, spilling, leaking, leaching, pumping, dumping,
emitting, escaping, emptying, seeping, dispersal, migration, transporting,
placing and the like, including without limitation, the moving of any
materials through, into or upon, any land, soil, surface water, ground
water or air, or otherwise entering into the environment.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended.
Escrow Agent: as defined in Section 8.2(a).
Escrow Agreement: as defined in Section 8.2(a).
Escrow Amount: the amount of funds deposited in the
Indemnity Escrow Account in accordance with Section 8.3.
Estate Property: as defined in Section 3.1.2(a).
Exchange Act: the Securities Exchange Act of 1934, as
amended.
Excluded Assets: as defined in Section 2.3.
Excluded Liabilities: as defined in Section 2.4.
Excluded Liabilities Indemnity: as defined in Section
8.1(a)(iii).
Exclusivity Period: the period from (and including) the
date of this Agreement to (and including) the earlier of the Closing Date
and the date of termination of this Agreement in accordance with Section
10.1.
Execution Date: the date of the execution of this
Agreement.
9
Executive Officers: as defined in Section 7.1.
Executive Severance Arrangements: as defined in Section
7.1.
Executive Severance Benefits: All compensation and benefits
(including all employment tax liabilities in respect thereof) required to
be provided under the terms of the Executive Severance Arrangements.
Executory Contracts: as defined in Section 3.1.2(b).
Existing Reinsurance Agreements: as defined in Section
4.1.21.
Failed QSP: as defined in Section 6.5(e)(ii).
Failed QSP Losses: as defined in Section 6.5(e)(ii).
Final Order: an order or judgment the operation or effect
of which has not been 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 or is pending.
First Notice: as defined in Section 5.15(b).
FMI: as defined in the Preamble to this Agreement.
FMI Services Agreement: the Amended and Substituted
Management and Service Agreement, dated September 14, 1987, by and between
SLC and FMI, as amended and as clarified.
Form 8023: as defined in Section 6.5(b)(i).
Fund: any trust, separate account or other entity
registered under the Investment Company Act which invests funds held in the
general account or the separate accounts of any member of the Related
Group, or with respect to which any member of the Related Group provides
investment advisory services, and for which prospectus or other offering
material has stated an intention to qualify as a RIC.
10
Fund America Certificates: as defined in Section 5.15(a).
Fund America Purchase Date: as defined in Section 5.15(b).
GAAP: as defined in Section 4.1.7(b).
GAAP Financial Statements: financial statements prepared in
accordance with generally accepted accounting principles which are audited
by Coopers & ▇▇▇▇▇▇▇ L.L.P. and are accompanied by their report thereon and
are included in Seller's Annual Report on Form 10-K.
GAAP Quarterly Financial Statements: financial statements
prepared in accordance with generally accepted accounting principles which
are included in Seller's Quarterly Reports on Form 10-Q.
Governmental Approvals: as defined in Section 4.1.3.
Governmental Authority: any nation or government, any State
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any court,
government authority, agency, department, board, commission or
instrumentality of the United States, any State of the United States or any
political subdivision thereof, and any tribunal or arbitrator(s) of
competent jurisdiction, and any "self-regulatory organization" as defined
in Section 3(a)(26) of the Exchange Act.
Hazardous Materials: any hazardous or toxic chemical,
waste, byproduct, pollutant; contaminant, compound, product or substance,
including, without limitation, asbestos, polychlorinated biphenyls,
petroleum (including crude oil or any fraction thereof), and any material
the exposure to, or manufacture, possession, presence, use, generation,
storage, transportation, treatment, release, disposal, abatement, cleanup,
removal, remediation or handling of which, is prohibited, controlled or
regulated by any Environmental Law, including, but not limited to
substances defined as "extremely hazardous substances," "hazardous
substances," "hazardous materials," "hazardous waste" or "toxic substances"
in the Comprehensive Environmental Response, Compensation, and Liability
Act of
11
1980, as amended, 42 U.S.C. Section 6901, et seq. (the "Superfund Law");
the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. Sections
11001-11050; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq.; the Resource Conservation and Recovery Act; 42 U.S.C.
Section 6901 et seq.; and in similar statutes promulgated by the States in
which the Real Property is located; and in the regulations adopted pursuant
to such statutes.
IMR: The interest maintenance reserve required to be
established by SAP as a liability on a life insurer's SAP Statements.
Indemnified Party: as defined in Section 8.1(d).
Indemnifying Party: as defined in Section 8.1(d).
Indemnity Escrow Account: as defined in Section 8.2(a).
Indemnity Notice: as defined in Section 8.1(d)(viii).
Initial Purchase Price: as defined in Section 2.6.3(a).
Insurance License: as defined in Section 4.1.20(a).
Integrity: Integrity National Life Insurance Company, a
Pennsylvania stock life insurance company.
Intellectual Property: all technology, know-how and trade
secrets relating to or used in the Acquired Business, including the
computer programs and software relating to or used in the Acquired
Business, together with the operating codes, source codes, updates,
upgrades, modifications, enhancements and any user and technical
documentation or utilities with respect thereto, and all patents, patent
licenses and patent applications, copyrights and copyright applications and
other intellectual property rights relating to the Acquired Business and
the trademarks, trade names, service marks and logos (including any
registration and any application for registration of any of the foregoing),
relating to or used in the Acquired Business.
12
Intellectual Property Licenses: as defined in Section
4.1.22.
Investment Advisers Act: the Investment Advisers Act of
1940, as amended.
Investment Company Act: the Investment Company Act of 1940,
as amended.
IRS: the Internal Revenue Service.
June 30 GAAP Statement: as defined in Section 4.1.7(a)(ii).
June 30 SAP Statements: as defined in Section 4.1.7(a)(iv).
Knightsbridge: Knightsbridge Capital Fund I, L.P.
Leased Real Properties: as defined in Section 4.1.10(a)(i).
Liens: liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of
trust, rights-of-way, restrictions, agreements, encroachments, licenses,
leases, permits, security agreements, or any other encumbrances or other
restrictions or limitations on the use of real or personal property or
irregularities in title thereto.
Litigation: any action, cause of action, claim, demand,
suit, proceeding, citation, summons, subpoena or investigation of any
nature, civil, criminal, regulatory or otherwise, in law or in equity,
pending by or before any Governmental Authority.
Litigation Indemnity: as defined in Section 8.1(a)(v).
Losses: any and all liabilities, obligations, commitments,
losses, fines, penalties, sanctions, costs (including court costs but
excluding costs and expenses of in-house experts and other personnel),
expenses, interest, deficiencies or damages (whether absolute, accrued,
conditional or otherwise and whether or not resulting from third-party
claims) that are quantifiable in monetary terms, including reasonable out-
of-pocket expenses and reasonable
13
fees and expenses of attorneys, accountants, consultants and expert
witnesses (excluding costs and expenses of in-house experts and other
personnel) incurred in the investigation or defense of claims asserted
against Buyer or any Acquired Company by a third party for which Seller is
obligated to indemnify Buyer or any Acquired Company pursuant to Article
VIII hereof or in asserting any of the respective rights of Buyer
Indemnitees or Seller Indemnitees under Section 8.1 or, in the case of the
Environmental Indemnity, subject to the limitations set forth in the final
paragraph of Section 8.1(a) and in Section 8.1(e), in performing pre-
remedial studies and investigations or post-remedial monitoring and care in
circumstances in which Buyer has a reasonable suspicion of an Environmental
Release or threatened Environmental Release.
MAL: Modern American Life Insurance Company, a Missouri
stock life insurance company.
March 31 GAAP Statement: as defined in Section
4.1.7(a)(ii).
March 31 SAP Statements: as defined in Section
4.1.7(a)(iv).
Marquette: as defined in the Recitals to this Agreement.
Material Adverse Effect: any event, occurrence, change in
facts, conditions or other change or effect materially adverse to the
business, operations, results of operations or condition (financial or
otherwise) of the Acquired Companies taken as a whole, provided that the
filing of the voluntary bankruptcy petition and subsequent bankruptcy
proceedings contemplated hereby shall not in and of themselves be deemed to
constitute a Material Adverse Effect.
Mortgage Loans: as defined in Section 4.1.10(b)(i).
Neutral Accountants: A neutral accounting firm of national
standing jointly designated by independent accounting firms acting for
Buyer and Seller, respectively.
New SWFSC Employees: as defined in Section 7.1.
14
Non-Assignable Assumed Contracts: as defined in Section
2.9(a).
Non-Assignable Assumed Contracts and Non-Assignable
Intellectual Property Licenses Indemnity: as defined in Section
8.1(a)(vii).
Non-Assignable Intellectual Property Licenses: as defined
in Section 2.10.
Notes: as defined in Section 2.6.3.
Note Indenture: as defined in Section 2.6.3.
Notice Period: as defined in Section 8.1(d)(ii).
NYSE: shall mean the New York Stock Exchange, Inc.
Operating Expenses: operating expenses of the Acquired
Insurance Companies of the type required to be reported on line 22 of the
Summary of Operations in the SAP Annual Statements of such companies, plus
fees of FMI for services to the Acquired Insurance Companies relating to
management of investments that conform to the category of investment
expenses included in line 11 of exhibit 2 of the SAP Annual Statements of
the Acquired Insurance Companies, to the extent such fees exceed FMI's
actual costs of providing such services.
Owned Intellectual Property: as defined in Section 4.1.22.
Owned Real Properties: as defined in Section 4.1.10(a)(i).
PennCorp Common Stock: as defined in Section 2.6.5.
PennCorp Registration Rights Agreement: the registration
rights agreement to be entered into between PennCorp, CFC, SWL Holding and
Seller as contemplated by Section 3.1.7.
PennCorp Registration Statement: the registration statement
to be filed with the SEC pursuant to the PennCorp Registration Rights
Agreement.
15
PennCorp Shares: as defined in Section 2.6.5.
Permitted Liens: (i) Liens for Taxes or assessments not yet
due and payable or which are being contested in good faith and by
appropriate proceedings and (ii) mechanics, suppliers, carriers or other
similar Liens arising in the ordinary course of the Acquired Business.
Permitted Owned Real Property Liens: as defined in Section
4.1.10(a)(i).
Permitted Real Property Liens: as defined in Section
4.1.10(a)(i).
Person: any natural person, firm, partnership, association,
corporation, company, business trust, trust, Governmental Authority or
other entity.
Phase I Report: as defined in Section 4.1.11.
Plans: as defined in Section 4.1.19(a).
Policies: as defined in Section 4.1.20(b).
Prohibited Agents: as defined in Section 5.9(a).
Purchase Price: as defined in Section 2.6.3.
Qualified Stock Purchase: a "qualified stock purchase"
within the meaning of Section 338(d)(3) of the Code.
Real Properties: as defined in Section 4.1.10(a)(i).
Reasonable Environmental Expense: as defined in Section
8.1(e).
Related Agreements: the Escrow Agreement, the SWFSC Leasing
Agreements, the Assumption Documents, the Transfer Documents, the Retained
Company Purchase Agreement, the Note Indenture, the PennCorp Registration
Rights Agreement and the SWF Registration Rights Agreement.
Related Group: the Acquired Companies, SLC Financial,
Integrity, BL of NY and FMI.
16
Related Persons: as defined in Section 4.1.19(a).
REO: REO Holding Corp., an Illinois corporation.
REO Shares: All the capital stock of REO beneficially owned
by SWL.
Response Notice: as defined in Section 8.1(d)(ii).
Retained Companies: SWL Holding; CFC; FMI; SLC Financial;
Western Pioneer Life Insurance Company, a Kentucky stock life insurance
corporation; MAL; Bankers Multiple Life Insurance Company, an Illinois
stock property and casualty insurance company; BML Agency, Inc., an
Illinois corporation; Philadelphia American Life Insurance Company, a
Pennsylvania stock life insurance corporation; Philadelphia American
Property Company, a Texas corporation; REO; and all other Subsidiaries of
Seller other than the Acquired Companies.
Retained Company Purchase Agreement: the agreement to be
entered into by Knightsbridge and Seller relating to the purchase of
certain Retained Companies.
Retention Bonus: as defined in Section 7.2(c)(i).
RIC: as defined in Section 4.1.17(c).
Sales Practices Claims: as defined in Section 8.1(a)(v).
SAP: statutory accounting practices which are prescribed or
permitted by the departments of insurance in the respective States of
domicile of each of the Acquired Insurance Companies and which are used to
prepare the SAP Annual Statements, SAP Audited Statements and SAP Quarterly
Statements filed by each of the Acquired Insurance Companies in each State
in which they are licensed.
SAP Annual Statements: financial statements prepared by an
insurance company as of each December 31 in accordance with SAP and
required to be filed on or before each March 1 with the departments of
insurance of each State in which an insurance company is licensed.
17
SAP Audited Statements: financial statements prepared by an
insurance company in accordance with SAP and audited by an independent
certified public accountant.
SAP Quarterly Statement: an abbreviated form of the SAP
Annual Statement which is required to be filed within 45 days after the end
of each of the first three calendar quarters of each calendar year.
Savings Plan Transfer Amount: as defined in Section 7.4.
Scheduled Intellectual Property: as defined in Section
2.2(b)(ii).
SEC: the Securities and Exchange Commission.
SEC Documents: as defined in Section 4.1.8(a).
Second Notice: as defined in Section 5.15(c).
Section 338 Forms: as defined in Section 6.5(b)(i).
Section 338(h)(10) Elections: as defined in Section 6.5(a).
Securities Act: the Securities Act of 1933, as amended.
Seller: as defined in the Preamble to this Agreement.
Seller Indemnitees: as defined in Section 8.1(b).
Seller Losses: any and all liabilities, obligations,
commitments, losses, fines, penalties, sanctions, costs (including court
costs but excluding costs and expenses of in-house experts and other
personnel), expenses, interest, deficiencies or damages (whether absolute,
accrued, conditional or otherwise and whether or not resulting from third-
party claims) that are quantifiable in monetary terms, including reasonable
out-of-pocket expenses and reasonable fees and expenses of attorneys,
accountants, consultants and expert witnesses (excluding costs and expenses
of in-house experts and other personnel) incurred in the investigation or
defense of claims asserted
18
against any of Seller, any Retained Company or, prior to closing, any
Acquired Company by a third party for which Buyer and/or PennCorp is
obligated to indemnify any of Seller or the Retained Companies pursuant to
Article VI, Article VIII or Article X hereof.
Seller Representatives: as defined in Section 5.6(a).
Sellers Employee Benefit Plan: as defined in Section 7.1.
Seller's Savings Plan: as defined in Section 7.4.
Seller Welfare Plans: as defined in Section 7.5(a).
Selling Subsidiaries: as defined in the Preamble to this
Agreement.
Senior Executive Retention Arrangement: as defined in
Section 7.1.
September 30 GAAP Statement: as defined in Section
4.1.7(a)(ii).
September 30 SAP Statement: as defined in Section
4.1.7(a)(iv).
Settlement Sum: as defined in Section 8.1(d)(v).
Shinnecock Purchase Agreement: means the Purchase
Agreement, dated as of October 9, 1995, as amended as of November 17, 1995,
by and among Seller, SWL Holding, CFC, FMI, Shinnecock Holdings Inc. and
Shinnecock Services Corp.
SLC Bonds: the 11 1/4% Subordinated Notes due 1996 issued
by Seller.
SLC Financial: SLC Financial Services, Inc., a Delaware
corporation.
Special Indemnities: the Tax Indemnity, the Litigation
Indemnity, the Excluded Liabilities, the
19
Environmental Indemnity and the Non-Assignable Assumed Contracts Indemnity.
Stub Period: as defined in Section 6.1(a).
Stub Period Savings: the excess, if any, of clause (ii)
over clause (i) of the definition of Stub Period Tax Amount.
Stub Period Tax Amount: the excess, if any, of (i) the
aggregate amount of the Taxes actually paid by all Affiliated Groups and,
with respect to any separate Tax Returns filed by the Acquired Companies,
by the Acquired Companies, over (ii) the aggregate amount of Taxes that
would have been paid by the Affiliated Groups and, with respect to any
separate Tax Return filed by the Acquired Companies, by the Acquired
Companies, determined without regard to Tax Items attributable to the
business operations of the Acquired Companies during the Stub Period other
than (x) Tax Items attributable to transactions not in the ordinary course
of business, (y) capital gains and losses, and (z) Tax Items attributable
to transactions that occur, or are deemed to occur, on the Closing Date.
The amounts described in clauses (i) and (ii) shall be determined with
respect to all taxable periods or portions thereof ending on or before the
Closing Date, as of the Tax Expiration Date.
Subsidiary: with respect to any person (the "parent"), any
corporation, association, joint venture, partnership or other business
entity of which securities or other ownership interests representing more
than 50% of the ordinary voting power or beneficial interest are, at the
time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent.
Supplemental Executive Arrangements: as defined in Section
7.1.
Supplemental Executive Benefits: all compensation and
benefits required to be provided under the terms of the Supplemental
Executive Arrangements that remain unpaid as of the Closing Date.
Surplus Debenture: as defined in the Recitals to this
Agreement.
20
SWF Registration Rights Agreement: the registration rights
agreement to be entered into by Buyer, CFC, SWL Holding and Seller as
contemplated by Section 3.1.7.
SWFSC: as defined in the Preamble to this Agreement.
SWFSC Leasing Agreements: the Employee Leasing and Data
Processing Capacity Agreements, to be dated as of the Closing Date, between
SWFSC and Seller and certain of the Retained Companies, each to be
substantially in the form of Exhibit B to the Shinnecock Purchase Agreement
(with such additional changes thereto as are necessary to reflect the terms
of the transactions contemplated hereby as mutually agreed by SWFSC and
Seller).
SWL: as defined in the Recitals to this Agreement.
SWL Group: as defined in Section 6.5(e).
SWL Holding: as defined in the Preamble to this Agreement.
SWL Shares: as defined in the Recitals to this Agreement.
Tax: any Federal, State, local or foreign income, profits,
capital, premium, franchise, occupational, production, severance, gross
receipts, value added, sales, use, excise, real and personal property, ad
valorem, occupancy, stamp, transfer, employment, unemployment insurance,
social security, disability, workers' compensation, withholding or other
tax, duty or other similar governmental charge (including all interest and
penalties thereon and additions thereto).
Tax Expiration Date: the expiration of the statute of
limitations for all taxable periods through the taxable period that
includes the Closing Date of any and all Affiliated Groups which file or
have filed consolidated returns for Federal income tax purposes of which
Seller or MAL is the common parent or, if earlier, the first day after
(i) the date on which all amounts due pursuant to a closing agreement under
section 7121 or 7122 of the Code with the IRS or (ii) the date on which all
amounts due pursuant to a final, nonappealable judgment issued by the
Bankruptcy Court
21
or any other court of competent jurisdiction, in each case finally
determining all Federal income tax liability of such Affiliated Groups for
all such taxable periods for which the statute of limitations remains open,
and, in each case on which all State, local or foreign Tax liabilities of
any member of such Affiliated Groups arising as a result of such closing
agreement or judgment, have been fully satisfied plus 90 days.
Tax Indemnity: as defined in Section 8.1(a)(iv).
Tax Item: any item of income, gain, loss, deduction or
credit.
Tax Return: any Federal, State, local or foreign return,
report, declaration or form (including, without limitation, information
returns) relating to Taxes.
Texas Property Tax Lien: with respect to any real or
tangible personal property, any lien that attaches to such property on
January 1 of each year under section 32.01 of the Texas Property Tax Code.
Terminated Intercompany Agreements: as defined in Section
3.2.7(a).
Third Party: as defined in Section 5.6(a).
Third Party Claim: as defined in Section 8.1(d)(i).
Transfer Documents: as defined in Section 3.2.14.
Treasury Regulations: the Treasury Regulations promulgated
with respect to Federal Taxes.
UBIC: as defined in the Recitals to this Agreement.
ARTICLE II
Sale of Stock and Assets; Closing
2.1 Pre-Closing Transactions; Sale and Purchase of the Acquired
Shares and Surplus Debenture.
(a) Prior to the Closing:
22
(i) Seller will cause SWL to distribute the Constitution
Life Shares to SWL Holding;
(ii) Seller will cause Constitution Life to distribute
$21,500,000 aggregate principal amount of SLC Bonds to SWL Holding;
(iii) Seller will cause (x) CFC to sell to Constitution
Life, and Constitution Life to purchase from CFC, the UBIC Shares and
(y) Constitution Life to issue the Surplus Debenture to CFC for and
in consideration of the UBIC Shares; and
(iv) SWL Holding will (or will cause another Retained
Company to) purchase from SWL, and Seller will cause SWL to sell, the
REO Shares for and in consideration of $4,300,000 in cash.
(b) Subject to the terms and conditions hereof, and in
reliance upon the representations, warranties and covenants contained
herein, at the Closing, the following events shall take place in the
following order:
(i) SWL Holding will sell, and Buyer will purchase, the
SWL Shares;
(ii) SWL Holding will sell, and Buyer will purchase, the
Constitution Life Shares;
(iii) CFC will sell, and Buyer will purchase, an undivided
87.5% interest in the Surplus Debenture; and
(iv) CFC will sell, and PennCorp will purchase, an
undivided 12.5% interest in the Surplus Debenture.
2.2 Sale and Purchase of Acquired Assets. Subject to the terms
and conditions hereof, and in reliance upon the representations, warranties
and covenants contained herein, at the Closing, Buyer shall cause SWFSC to
purchase, in consideration for the Assumed Liabilities, the following
tangible and intangible assets from:
(a) Seller and the Retained Companies (other than FMI),
and Seller and the Retained Companies (other than FMI) shall (and Seller
shall cause the Retained Companies (other than FMI) to) sell, convey,
transfer, assign and deliver to SWFSC, (i) all rights to causes of action,
lawsuits, judgments, claims and demands of any nature
23
available to or being pursued by Seller or any Retained Company (other than
FMI) relating to the Acquired Business or the ownership, use, function or
value of any Acquired Asset, whether arising by way of counterclaim or
otherwise, but only to the extent that such causes of action, lawsuits,
judgments, claims and demands do so relate; provided, that, except as
provided in Section 6.9, any income Tax refund claim pursued by Seller or
any Retained Company (other than FMI), in each case as common parent of an
Affiliated Group, shall not be an Acquired Asset; (ii) all guarantees,
warranties, indemnities and similar rights in favor of Seller or any
Retained Company (other than FMI) relating to an Acquired Asset, but only
to the extent such rights do so relate; (iii) all of Seller's and the
Retained Companies' (other than FMI's) right, title and interest in and to
all of the tangible and intangible assets set forth on Schedule 2.2(a); and
(iv) all rights of Seller and the Retained Companies (other than FMI) under
the Assumed Contracts; and
(b) FMI, and FMI shall (and Seller shall cause FMI to)
sell, convey, transfer, assign and deliver to SWFSC all of FMI's right,
title and interest in and to all of the tangible and intangible assets
relating to, used, or held for use, or reasonably necessary or required in
the operation of the Acquired Business, other than the Excluded Assets (all
such assets, together with the assets referred to in clause (a) above,
being the "Acquired Assets"), including, without limitation, all those
items in the following categories that conform to the definition of the
term "Acquired Assets":
(i) all computer and office equipment, inventory,
furnishings, furniture, vehicles and other tangible personal
property, including, without limitation, such tangible personal
property listed on Schedule 2.2(b)(i);
(ii) all Intellectual Property, including, without
limitation, the Intellectual Property listed on Schedule 2.2(b)(ii)
(the "Scheduled Intellectual Property");
(iii) all rights to causes of action, lawsuits,
judgments, claims and demands of any nature available to or being
pursued by FMI, relating to the Acquired Business or the ownership,
use, function or value of any Acquired Asset, whether arising by way
of counterclaim or otherwise; provided, that, except as
24
provided in Section 6.9, any income Tax refund claim pursued by FMI
as common parent of an Affiliated Group, shall not be an Acquired
Asset;
(iv) all guarantees, warranties, indemnities and
similar rights in favor of FMI relating to any Acquired Asset;
(v) all Books and Records relating to the Acquired
Business;
(vi) all personnel records and files relating to New
SWFSC Employees; and
(vii) all rights of FMI under the Assumed Contracts.
2.3 Excluded Assets. Anything herein to the contrary
notwithstanding, the Acquired Assets shall not include, and neither Buyer
nor SWFSC shall purchase, any of Seller's and any Retained Company's rights
in the following assets (the "Excluded Assets"):
(a) subject to Section 2.5(b), all cash and cash
equivalents;
(b) all casualty, liability or other insurance policies
owned by or obtained on behalf of Seller and any Retained Company and
all claims and rights under any such insurance policies in respect of
the Excluded Liabilities or Excluded Assets;
(c) any causes of action, judgments, claims or demands of
whatever nature except to the extent related to the Acquired Assets
or the Assumed Liabilities;
(d) the certificate of incorporation, By-Laws and, except
for those related to the Acquired Assets or the Assumed Liabilities,
the Books and Records of the Seller and any Retained Company;
provided that Buyer shall have reasonable access to, and shall be
entitled to make copies of, such Books and Records for reasonable
business purposes (such as litigation or tax audits) upon prior
written notice to Seller;
(e) contracts, loans, licenses and other agreements that
are not Assumed Contracts;
25
(f) subject to Section 2.5(b), all notes and accounts
receivable;
(g) all owned and leased real property;
(h) except to the extent expressly assumed by Buyer
pursuant to Article VII, all Plans and related assets and rights with
respect thereto; and
(i) assets other than the Acquired Assets, including,
without limitation, those listed on Schedule 2.3 hereof.
2.4 Excluded Liabilities. Except to the extent provided in
Section 2.5 hereof, notwithstanding anything to the contrary in this
Agreement, neither Buyer, SWFSC nor any Buyer Subsidiary or Acquired
Company shall assume any liabilities, obligations or commitments of Seller
or any Retained Company including FMI (or any predecessors thereof),
whether absolute, accrued, contingent, known or unknown or otherwise,
whether or not based on or arising out of or in connection with the
Acquired Business or Seller's or any Retained Company's including FMI's (or
such predecessors') ownership, possession, use or operation of the Acquired
Assets, on or prior to the Closing Date, including, without limitation, any
liabilities with respect to Taxes (the "Excluded Liabilities").
2.5 Assumed Liabilities; Funding of Certain Assumed Liabilities.
(a) Subject to the terms and conditions set forth herein, at the Closing,
Buyer shall cause SWFSC to assume and agree to pay, perform and discharge,
in a timely manner and in accordance with the terms thereof, all
liabilities, obligations and commitments (the "Assumed Liabilities")
(i) (A) of FMI that arise after the Closing Date under the contracts,
leases, licenses and other agreements to which FMI is a party and which are
listed in Schedule 2.5(a)(i), (B) of Seller or any Retained Company (other
than FMI) that arise after the Closing Date under the contracts, leases,
licenses and agreements listed in Schedule 2.5(a)(ii) (together with the
contracts, leases, licenses and the agreements listed in Schedule
2.5(a)(i), the "Assumed Contracts") which are assigned to SWFSC, but
excluding, in each case, any liability of Seller or such Retained Company
including FMI for breach, or for any event, occurrence, condition or act
which, with the giving of notice, the lapse of time or both, would result
in breach, of any of the Assumed Contracts to the extent such breach,
26
event, occurrence, condition or act existed on or prior to the Closing
Date, (ii) solely to the extent expressly assumed pursuant to Article VII,
of FMI in respect of New SWFSC Employees, Acquired Company Retirees and
Executive Officers, and (iii) in respect of trade accounts payable as of
the Closing Date in respect of the Acquired Business to the extent set
forth on Schedule 2.5(b) delivered at the Closing Date, and (C) with
respect to FICA Taxes but only to the extent such FICA Taxes are reserved
for on Schedule 4.1.19(d).
(b) On the Closing Date, FMI shall (or Seller shall cause
a Retained Company other than FMI to) transfer to SWFSC assets consisting
of (A) cash, (B) other liquid assets, (C) furniture, fixtures and
capitalized software of FMI at their depreciated value as of the Closing
Date, and (D) the group annuity and life insurance contracts intended to
fund the deferred compensation and life insurance liabilities assumed by
Buyer pursuant to Article VII which for purposes of this Section 2.5(b)
shall have a value equal to the cash value of all such contracts as of the
Closing Date, the sum of which equals in the aggregate the sum of (i) the
amount accrued on Schedule 4.1.19(d), updated as required under Section
7.2(c)(i), for (x) Compensation Items and (y) short-term disability
compensation or benefits in respect of the active Acquired Company
Employees who become New SWFSC Employees, and (ii) the amount accrued on
Schedule 2.5(b) for trade accounts payable as of the Closing Date in
respect of the Acquired Business.
2.6 Closing. The closing of the transactions contemplated
hereby (the "Closing") will take place at the offices of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C., 5400 Renaissance Tower, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ at 10:00 A.M. Dallas time on the first Business Day (the
"Closing Date") following the satisfaction (or waiver) of the closing
conditions set forth in Article III. At the Closing, the following shall
occur:
2.6.1 Delivery of Acquired Shares and Surplus Debenture.
SWL Holding shall deliver to Buyer stock certificates representing the
Acquired Shares, free and clear of any Liens and Claims (other than Liens
or Claims contemplated by the Assumed Liabilities or created by the Buyer),
and duly endorsed in blank or accompanied by stock powers or other
instruments of transfer duly executed in blank, and bearing or accompanied
by all requisite stock transfer stamps, all in consideration of $180
million in
27
cash. CFC shall deliver to Buyer an undivided 87.5% interest in the
Surplus Debenture, free and clear of any Liens or Claims (other than Liens
or Claims created by the Buyer), and duly endorsed in blank or accompanied
by bond powers or other instruments of transfer duly executed in blank, all
in consideration of $30 million in cash plus $40 million principal of
Notes. CFC shall deliver to PennCorp or PennCorp's designee an undivided
12.5% interest in the Surplus Debenture, free and clear of any Liens or
Claims (other than Liens or Claims created by PennCorp), and duly endorsed
in blank or accompanied by bond powers or other instruments of transfer
duly executed in blank, all in consideration for the PennCorp Shares.
2.6.2 Transfer of Acquired Assets. FMI, Seller or the
Retained Companies, as the case may be, shall transfer, convey and deliver
the Acquired Assets to SWFSC free and clear of all Liens and Claims (other
than Liens contemplated by the Assumed Liabilities, Liens otherwise created
by SWFSC and Texas Property Tax Liens on the Acquired Assets in respect of
Taxes imposed in 1995), and Buyer shall cause SWFSC to assume the Assumed
Liabilities.
2.6.3 Payment of the Purchase Price by Buyer. Buyer (a)
will cause to be issued, authenticated and delivered to CFC $40.0 million
aggregate principal amount of its 7.0% Convertible Subordinated Notes due
2005 (the "Notes"), which shall have substantially the terms set forth on
Exhibit H hereto and which shall be issued pursuant to an indenture
complying with the Trust Indenture Act between Buyer and a Trustee mutually
acceptable to Buyer and Seller (the "Note Indenture") and (b) will pay to
Seller, for the account of Seller and the appropriate Selling Subsidiaries,
by wire transfer of immediately available funds to an account designated by
Seller at least two Business Days prior to the Closing Date, an amount
equal to $210,000,000 (the principal amount of the Notes and such cash
amount collectively with the PennCorp Shares being the "Initial Purchase
Price") minus, in respect of the amount of the Initial Purchase Price
allocable to the Constitution Life Shares, an amount equal to the excess,
if any, of the sum of (A) the amount paid to FMI by the Acquired Insurance
Companies pursuant to the terms of the FMI Services Agreement during the
period from October 1, 1995 through the Closing Date, inclusive (which
charges shall in no event exceed $120,000 in the aggregate per day), and
(B) any other Operating Expenses during the period from October 1, 1995
through the Closing Date, inclusive, as set forth in the
28
updated certificate delivered by the Seller to the Buyer on the Closing
Date pursuant to Section 5.10, over the product of $98,000 and the number
of days elapsed from October 1, 1995 through the Closing Date, inclusive;
provided, that Buyer's obligation to deliver the Initial Purchase Price as
aforesaid shall be reduced by the Escrow Amount delivered pursuant to
Section 8.3. The term "Purchase Price," as used herein, shall mean the
Initial Purchase Price, as adjusted pursuant to clause (b) above. In the
event the Initial Purchase Price is reduced by any amount pursuant to the
adjustment provided above, SWFSC shall at the Closing assume any
obligations of FMI to refund any portion of the amount by which the Initial
Purchase Price is so reduced to any of the Acquired Companies under the
terms of the FMI Service Agreement and SWFSC shall cause each of the
Acquired Companies to deliver to FMI a release at the Closing, in form and
substance reasonably acceptable to Seller, with respect to such obligation.
2.6.4 Funding of Escrow Account. Buyer shall deliver to the
Escrow Agent for deposit into the Indemnity Escrow Account the Escrow
Amount, to be held by the Escrow Agent under the terms of the Escrow
Agreement as required by Article VIII.
2.6.5 Delivery of PennCorp Shares. (a) In consideration
for the sale to PennCorp of a 12.5% undivided interest in the Surplus
Debenture, PennCorp irrevocably agrees to issue (and CFC irrevocably agrees
to accept) that number of shares of common stock, par value $.01 per share,
of PennCorp (the "PennCorp Common Stock") determined by dividing (i)
$10,000,000 by (ii) the Average PennCorp Trading Price; provided, however,
that in the event the calculation set forth above would require PennCorp to
issue to CFC more than 4.9% of the number of issued and outstanding shares
(after giving effect to such issuance) of PennCorp Common Stock, excluding
treasury shares as of the Effective Date ("4.9% of the Outstanding
Shares"), PennCorp shall deliver to Seller (via wire transfer of
immediately available funds to an account designated by Seller at least two
Business Days prior to the Effective Date) cash in an amount equal to the
value (based on the Average PennCorp Trading Price) of the number of shares
of PennCorp Common Stock in excess of 4.9% of the Outstanding Shares that
otherwise would be required to be issued pursuant to this Section 2.6.5(a)
(the number of shares of PennCorp Common Stock required to be issued
pursuant to this Section 2.6.5, after giving effect to the foregoing
proviso, being the
29
"PennCorp Shares"). CFC acknowledges and agrees that it is requiring
PennCorp to file a registration statement on an appropriate form to permit,
upon the effectiveness of such registration statement, the immediate sale
of the PennCorp Shares. Consequently, CFC acknowledges and agrees that the
number of PennCorp Shares is not determinable as of the date of this
Agreement. However, the parties agree that, if the Average PennCorp
Trading Price were equal to $27.75, PennCorp would be obligated to issue
360,360 shares of PennCorp Common Stock pursuant to this Section 2.6.5(a).
PennCorp agrees that it shall give instructions to its transfer agent and
registrar for the PennCorp Common Stock to reserve 500,000 shares for
issuance to CFC upon the effectiveness of the registration statement, it
being understood and agreed, however, that CFC shall only be entitled to
receive, and PennCorp shall only be obligated to issue, that number of
shares of PennCorp Common Stock actually resulting from the calculation of
the PennCorp Shares as set forth above.
(b) Notwithstanding anything to the contrary contained
herein, PennCorp shall not be required to deliver the PennCorp Shares until
the Effective Date.
(c) In the event the Effective Date does not occur on or
prior to January 31, 1996, on the Effective Date PennCorp shall deliver to
CFC cash in an amount equal to interest accrued on the amount of
$10,000,000 at the rate of 5% per annum from and after February 1, 1996,
until the Effective Date.
2.7 [Reserved].
2.8 [Reserved].
2.9 Non-Assignable Assumed Contracts. (a) In the case of any
Assumed Contracts which are not assignable or transferable, either by their
terms or pursuant to section 365 of the Bankruptcy Code (such contracts
being the "Non-Assignable Assumed Contracts"), Seller and FMI shall use
commercially reasonable efforts to obtain, or cause to be obtained, prior
to the Closing Date, any written consents or waivers necessary to convey to
Buyer or Buyer's designee the benefit thereof. Buyer shall cooperate with
Seller and FMI at no additional cost to Buyer and/or Buyer's designee, as
the case may be, in such manner as may be reasonably requested in
connection therewith. In the event Seller and FMI shall be unable to
obtain any such consent or waiver to
30
the assignment or transfer of an Assumed Contract to Buyer or Buyer's
designee, as the case may be, prior to the Closing Date, (i) Seller shall
continue to use such commercially reasonable efforts after the Closing,
(ii) Seller and FMI shall provide to Buyer or Buyer's designee, as the case
may be, from the Closing Date, at a cost to Buyer or Buyer's designee, as
the case may be, no greater than the cost Buyer or Buyer's designee, as the
case may be, would have otherwise paid under the terms of such Non-
Assignable Assumed Contract (the "Contract Costs"), benefits substantially
equivalent to each such Non-Assignable Assumed Contract, as fully as if
such consent had been obtained, to the extent Seller or FMI is reasonably
capable of providing such benefits and (iii) at Buyer's option, Buyer or
Buyer's designee, as the case may be, may procure such equivalent benefits
from third parties and Seller shall pay Buyer or Buyer's designee, as the
case may be, the amount by which the reasonable costs to Buyer or Buyer's
designee, as the case may be, of such equivalent benefits provided by such
third party, to the extent such costs relate to benefits to be provided to
an Acquired Company or a Retained Company, exceeds the related Contract
Costs; provided, however, that (A) Buyer shall provide Seller prior written
notice of procuring any such equivalent benefits 90 days (or, if 90 days'
notice is not practicable, such notice, if any, which is practicable) prior
to obtaining such equivalent benefits pursuant to clause (a)(iii) above,
(B) Seller's responsibility for costs in excess of Contract Costs incurred
by Buyer or Buyer's designee, as the case may be, with respect to such
equivalent benefits procured from third parties as contemplated by clause
(a)(iii) above shall be limited to such excess amounts relating to the
period from the date such equivalent benefits were procured through the
date on which the Non-Assignable Assumed Contract which such equivalent
benefits replace would have by its terms terminated or entitled the other
party thereto to terminate or renegotiate the costs of such benefits, and
(C) in the event Buyer or Buyer's designee, as the case may be, procures
equivalent benefits pursuant to clause (a)(iii), Seller shall be relieved
of its obligations under this Section 2.9 with respect to the Non-
Assignable Assumed Contracts with respect to which such equivalent benefits
have been so procured by Buyer and may take any and all action available to
Seller under the Bankruptcy Code to reject or otherwise terminate its
obligations under such Non-Assignable Assumed Contracts.
31
(b) Notwithstanding the provisions of Section 2.9(a),
Seller shall have no liability to Buyer or Buyer's designee for any costs
incurred for a period of 90 days following the Closing Date with respect to
substitute equivalent benefits obtained as contemplated by Section
2.9(a)(iii) if, at the time such equivalent benefits are obtained, Seller
or FMI is providing to Buyer or Buyer's designee benefits substantially
equivalent to such substitute benefits in accordance with Section
2.9(a)(ii).
(c) Buyer agrees to pay, or reimburse Seller for, 100% of
Seller's direct cost, fees and expenses (including reasonable attorneys'
fees and reasonable fees and expenses of other professionals), actually
incurred by Seller in fulfilling its obligations of Section 2.9(a)(ii)
provided that the amount of such costs, fees and expenses, together with
the actual and estimated future costs to Buyer or Buyer designee, as the
case may be, with respect to the substitute equivalent benefits obtained by
Seller and FMI, shall not exceed the related Contract Costs. Buyer shall
make such payments to Seller within 30 days after the Seller's submission
of an itemized invoice therefor in detail reasonably sufficient to Buyer.
2.10 Non-Assignable Intellectual Property Licenses. In the event
that Seller, FMI or any Retained Company shall be unable prior to the
Closing Date, to obtain any written consent or waiver necessary for any
Intellectual Property License to be used by or on behalf of each Acquired
Company and each Retained Company to the same extent and in the same form
and manner (including the use of all modifications made prior to the
Closing Date) as such Intellectual Property License was used by or on
behalf of such companies prior to the Closing Date (the "Non-Assignable
Intellectual Property Licenses"), Buyer or Buyer's designee, as the case
may be, shall be entitled to receive from Seller or FMI, from the Closing
Date, benefits substantially equivalent to those provided under such Non-
Assignable Intellectual Property License prior to the Closing Date to the
same extent and upon the same terms as if such Intellectual Property
License were a Non-Assignable Assumed Contract under Section 2.9.
2.11 Buyer's Deposit. Not later than the first Business Day
after the date on which the Approval Order is entered, Buyer shall deliver
or cause to be delivered to Seller the sum of $26 million (such funds,
together with any interest or income accrued thereon, the "Buyer's
Deposit") (of which the parties acknowledge $5 million previously has
32
been paid) as an ▇▇▇▇▇▇▇ money deposit. Upon the closing of the
transactions contemplated hereby on or before December 31, 1995, the
Buyer's Deposit shall be applied to the cash portion of the Initial
Purchase Price to be paid by Buyer hereunder. If the transactions
contemplated hereby are not consummated on or before December 31, 1995, the
Buyer's Deposit shall be retained and disbursed as provided in Section
10.1(d) hereof.
ARTICLE III
Conditions Precedent
3.1 Conditions to the Obligations of all Parties. The
obligations of all parties hereunder to consummate the transactions
contemplated hereby are subject to the satisfaction or waiver, prior to or
at the Closing, of the following conditions:
3.1.1 Regulatory Approvals. (a) Texas. The Commissioner
of Insurance of the State of Texas shall have approved the transactions
contemplated hereby for which such approval is necessary, and none of such
approvals shall be subject to conditions that are unreasonably burdensome.
(b) Kentucky. The Commissioner of Insurance of the
Commonwealth of Kentucky shall have approved the transactions contemplated
hereby for which such approval is necessary, and none of such approvals
shall be subject to conditions that are unreasonably burdensome.
(c) Other. Such other Governmental Approvals as are listed
on Schedule 4.1.3 shall have been obtained, made or given.
3.1.2 Bankruptcy Court Approvals. (a) The sale of the
Acquired Assets, the SWL Shares, the Constitution Life Shares and the
Surplus Debenture (the "Estate Property") to Buyer, PennCorp and SWFSC
pursuant to this Agreement and the other transactions contemplated by this
Agreement and by the Related Agreements shall have been approved by the
Bankruptcy Court pursuant to section 363 of the Bankruptcy Code and orders
approving such sale in form and substance acceptable to Buyer, PennCorp and
Seller containing the provisions set forth below (the "Approval Order")
shall have been entered for a period of ten days, the effect and operation
of which shall not have been restrained, enjoined, suspended or otherwise
stayed (it being understood that certain of such provisions may be
33
contained in the findings of fact or conclusions of law to be made by the
Bankruptcy Court as part of the Approval Order). The Approval Order shall
provide, among other things, that: (i) the transfers of the Estate
Property by Seller and the Selling Subsidiaries to Buyer, PennCorp and
SWFSC (A) are or will be legal, valid and effective transfers of the Estate
Property; (B) vest or will vest Buyer, PennCorp and SWFSC with all right,
title and interest of Seller, the Selling Subsidiaries and any Retained
Company to the Estate Property free and clear of all Liens and Claims
pursuant to Section 363(f) of the Bankruptcy Code (other than Liens
contemplated by the Assumed Liabilities, Liens otherwise created by Buyer,
PennCorp or SWFSC and Texas Property Tax Liens on the Acquired Assets in
respect of Taxes imposed in 1995); and (C) constitute transfers for
reasonably equivalent value and fair consideration under the Bankruptcy
Code and the laws of the State of Texas; (ii) the creation and funding of
the Indemnity Escrow Account in accordance with Section 8.2 of this
Agreement are approved; (iii) the terms and provisions of the Escrow
Agreement pursuant to which payments may be made to Buyer by the Escrow
Agent from funds held in the Indemnity Escrow Account in accordance with
the provisions of Section 8.2 of this Agreement are approved and payments
pursuant thereto may be made without any further order of the Bankruptcy
Court; (iv) all amounts to be paid to (1) Buyer and PennCorp pursuant to
this Agreement, including without limitation the obligations of the Seller
and the Selling
34
Subsidiaries with respect to the indemnification amounts to be paid in
accordance with Article VIII, and (2) the Escrow Agent pursuant to the
Escrow Agreement, constitute administrative expenses under sections 503(b)
and 507(a)(1) of the Bankruptcy Code and are immediately payable if and
when the obligations of Seller and the Selling Subsidiaries arise under
this Agreement or the Escrow Agreement, as the case may be, without any
further order of the Bankruptcy Court; (v) all Persons are enjoined from in
any way pursuing Buyer, PennCorp or their respective Affiliates to recover
any Claim which such Person has against Seller or any of the Selling
Subsidiaries, except with respect to (1) Assumed Liabilities and (2) any
Claim which is independently assertable against Buyer, PennCorp or their
respective Affiliates; (vi) the termination of the Terminated Intercompany
Agreements is approved; (vii) the execution and delivery by Seller and each
of the Selling Subsidiaries, and the performance by each of them of their
respective obligations under, each of the Related Agreements to which they
are party is approved; (viii) the obligations of Seller and the Selling
Subsidiaries set forth in Article VI relating to Taxes shall be fulfilled
by Seller and the Selling Subsidiaries; (ix) the Seller is enjoined from
engaging in, and is enjoined from causing any member of the affiliated
group that is filing consolidated returns for Federal income tax purposes,
of which Seller is common parent, to engage in, any transaction that would
result in such affiliated group's having for the taxable year of such
affiliated group in which the Closing occurs (1) any discharge of
indebtedness income for purposes of section 108 of the Code; or (2) prior
to January 1, 1996, any taxable income, including any capital gain net
income as defined in section 1222(9) of the Code (determined without regard
to capital losses that arise from any transaction that occurs, or is deemed
to occur, or that are otherwise generated, on the Closing Date), in excess
of $15 million in the aggregate from extraordinary transactions, including
without limitation the sale of shares of capital stock, or of a business or
a substantial portion thereof, of Seller or any member of such affiliated
group; (x) the Bankruptcy Court retains exclusive jurisdiction through the
Bankruptcy Resolution Date to interpret and enforce the provisions of this
Agreement, any Related Agreement to which the Seller or any Selling
Subsidiary is party and the Approval Order in all respects, including,
without limitation, exclusive jurisdiction to determine or resolve any and
all objections to or disputes among the parties hereto regarding the escrow
arrangements and accounts established or contemplated hereunder (including
any objections or disputes regarding proposed charges against or
disbursements from any and all such accounts), and all objections or
disputes among the parties hereto with respect to claims for
indemnification or Purchase Price Adjustments hereunder or under the Escrow
Agreement (provided, however, that in the event the Bankruptcy Court
abstains from exercising or declines to exercise 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
(including, without limitation, any court referred to in Section 10.12);
(xi) the provisions of the Approval Order are nonseverable and mutually
dependent; and (xii) the transactions contemplated by this Agreement and
the Related Agreements are undertaken by Buyer, PennCorp, SWFSC, Seller and
the Selling Subsidiaries 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
35
entitled to the protections of section 363(m) of the Bankruptcy Code.
(b) Subject to Sections 2.9 and 2.10 of this Agreement,
simultaneously with the Closing, all executory contracts and unexpired
leases that are part of the Acquired Assets (collectively, the "Executory
Contracts") shall have been assumed by FMI, the Seller or any Selling
Subsidiary, as the case may be, and assigned to SWFSC and the Bankruptcy
Court in the Approval Order shall have approved such assumption and
assignment by Seller and the Selling Subsidiaries pursuant to section 365
of the Bankruptcy Code. The Approval Order shall provide that the Executory
Contracts will be transferred to, and remain in full force and effect in
accordance with their respective terms for the benefit of, SWFSC
notwithstanding any provision in such contracts or leases (including those
described in sections 365(b)(2) and (f)(1) and (3) of the Bankruptcy Code)
that prohibits such assignment or transfer.
(c) It is the intention of the parties hereto that Buyer
and PennCorp shall be entitled to, and are not waiving, the protection of
section 363(m) of the Bankruptcy Code, the mootness doctrine or any similar
statute or body of law.
3.1.3 Distributions Paid. SWL Holding shall have received
a distribution of $21,500,000 aggregate principal amount of SLC Bonds from
Constitution Life.
3.1.4 No Prohibition. Consummation of the transactions
contemplated by this Agreement and the Related Agreements shall not have
been enjoined or restrained by any order, decree or judgment of any
Governmental Authority having competent jurisdiction and there shall not
have been promulgated, entered, issued or determined to be applicable to
this Agreement or the Related Agreements any law, regulation, order,
judgment or decree making the transactions contemplated by this Agreement
or the Related Agreements illegal.
3.1.5 [Reserved].
3.1.6 Litigation. On the Closing Date, there shall not be
(a) in effect any injunction, decree or order enjoining or restraining any
of the transactions contemplated by this Agreement or the Related
Agreements, (b) pending any action or proceeding seeking an injunction,
36
decree or order enjoining or restraining any of the transactions
contemplated by this Agreement or the Related Agreements, or,
alternatively, seeking substantial damages if any of such transactions are
consummated or (c) threatened or instituted any action or proceeding by any
Governmental Authority (other than the proceeding before the Bankruptcy
Court relating to the bankruptcy case of seller and the Selling
Subsidiaries) with respect to the acquisition of the Acquired Companies or
the Acquired Assets, the execution, delivery or performance of this
Agreement or the Related Agreements or the consummation of any of the other
transactions contemplated hereby or thereby.
3.1.7 Certain Agreements. Buyer shall have executed and
delivered to Seller, SWL Holding and CFC (or the Trustee as applicable) (i)
the SWF Registration Rights Agreement containing terms and conditions
mutually agreeable to Buyer and Seller, including without limitation terms
and conditions substantially as set forth on Exhibit K attached hereto and
(ii) the Note Indenture containing terms and conditions mutually agreeable
to Buyer and Seller, including without limitation terms and conditions
substantially as set forth on Exhibit H attached hereto. PennCorp shall
have executed and delivered to Seller, SWL Holding and CFC the PennCorp
Registration Rights Agreement containing terms and conditions mutually
agreeable to PennCorp and CFC, including without limitation terms and
conditions substantially as set forth on Exhibit L hereto. Knightsbridge
(or its assignee reasonably satisfactory to Seller) and Seller shall have
executed and delivered to each other the Retained Company Purchase
Agreement containing terms and conditions mutually agreeable to
Knightsbridge and Seller, including without limitation terms and conditions
substantially as set forth on Exhibit M hereto.
3.2 Conditions to Obligations of Buyer and PennCorp. The
respective obligations of Buyer and PennCorp to consummate the transactions
contemplated hereby are subject to the satisfaction or waiver, prior to or
at the Closing, of the following further conditions:
3.2.1 Representations and Warranties. The representations
and warranties of Seller and the Selling Subsidiaries contained in Section
4.1 shall have been true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing
as though made at and as of the Closing, except that
37
any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true as of
such date or period.
3.2.2 Performance. Seller and the Selling Subsidiaries
shall have duly performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing.
3.2.3 Consents. All material consents, licenses, permits,
waivers, approvals and authorizations of any third party necessary for
consummation of the transactions contemplated hereby shall have been
obtained or made and copies thereof delivered to Buyer and PennCorp.
3.2.4 Officer's Certificates. Seller and the Selling
Subsidiaries shall have delivered to Buyer and PennCorp a certificate,
dated the Closing Date, signed by the chief executive officer and chief
financial officer of Seller and each of the Selling Subsidiaries and the
chief actuary of each of the Acquired Insurance Companies, to the effect
that each such officer is authorized to execute and deliver such
certificate, that each such officer is familiar with the transactions
contemplated by this Agreement, and that, to such officers' knowledge after
due inquiry, the conditions set forth in Sections 3.2.1, 3.2.2, and 3.2.3
have been duly performed and complied with, provided that the certification
of the chief actuary or actuaries referred to above shall be made only as
to the applicable Acquired Insurance Company.
3.2.5 Additional Regulatory Approvals. (a) The
commissioners of insurance in all jurisdictions where the Acquired
Companies are domiciled or commercially domiciled shall have, to the extent
required, approved:
(i) the entering into of all management and advisory
agreements between SWF, SWFSC or any Affiliate of Knightsbridge, on
the one hand, and the Acquired Insurance Companies, on the other
hand, substantially in the forms thereof most recently filed as an
exhibit to the Amended and Restated Form A;
(ii) the entering into of a Tax sharing agreement
among the Acquired Insurance Companies substantially in the form most
recently filed as an exhibit to the Amended and Restated Form A;
38
(iii) the removal of the material restrictions and
supervisory provisions imposed pursuant to the respective letter
agreements of SWL and UBIC with the Texas Department of Insurance,
dated September 24, 1993 and November 17, 1994 and the two letters
from the Texas Department of Insurance and the letter of SWL and UBIC
to the Texas Department of Insurance, each dated June 13, 1995;
(iv) [reserved];
(v) [reserved];
(vi) payments by the Acquired Insurance Companies to
satisfy the obligations set forth in Section 6.1(d); and
(vii) the maintenance of all books and records of
Marquette in the State of Texas.
(b) The commissioners of insurance in the jurisdictions in
which the Acquired Insurance Companies are domiciled or commercially
domiciled shall not have notified any of the Acquired Insurance Companies,
in writing or otherwise, of any proposed or requested change in the method
of calculating the carrying value of any material amount of the investment
assets held by the Acquired Insurance Companies as shown on the June 30 SAP
Statements filed with the States of domicile of each Acquired Insurance
Company.
(c) [Reserved].
(d) Seller shall have caused each Retained Company that is
an insurance company and which will enter into a SWFSC Leasing Agreement to
submit such SWFSC Leasing Agreement to the commissioner of insurance in its
respective state of domicile and such commissioner shall not have raised
any objections to such agreement.
(e) The Commissioner of Insurance of the State of Texas
and, if applicable, the commissioner of insurance of the state of domicile
of the purchaser of the REO Shares shall have approved such sale to such
purchaser on the terms set forth in Section 5.25.
(f) The regulatory approvals provided for in this Section
3.2.5 that shall have been obtained shall not be subject to conditions that
are unreasonably burdensome.
39
3.2.6 Proceedings. Subject to the provisions in Section
5.7(d), all proceedings in connection with the transactions contemplated by
this Agreement and the Related Agreements and all documents and instruments
incident thereto, shall be reasonably satisfactory in form and substance to
Buyer and PennCorp and their respective counsel, and Buyer and PennCorp and
their respective counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be
reasonably requested. All notices of any proceedings before the Bankruptcy
Court in connection with the Approval Order or before any other
Governmental Authority having jurisdiction over Seller or any of its
Subsidiaries in connection herewith shall be in form, scope and substance
reasonably satisfactory to Buyer and PennCorp.
3.2.7 Terminated Intercompany Agreements. (a) Except for
the agreements listed on Schedule 3.2.7, all intercompany agreements
between Seller or any of the Retained Companies on the one hand, and any of
the Acquired Companies on the other, including without limitation any Tax
sharing, allocation, indemnification or similar agreement or arrangement
(the "Terminated Intercompany Agreements"), shall have been terminated by
mutual consent of the parties thereto at no cost or expense to any party
hereto, except to the extent provided in Section 6.7(c) or otherwise in
Article VI with respect to Taxes, and Buyer shall have received such
instruments and documents evidencing such terminations as Buyer shall have
reasonably requested.
(b) All accounts payable owed in respect of any
intercompany agreements or other intercompany transactions between Seller
or any of the Retained Companies on the one hand and any of the Acquired
Companies on the other, as of the Closing Date shall have been paid in full
and each of the Acquired Companies shall have received a release from
Seller and from each of the Retained Company parties to such agreements
acknowledging that all such amounts have been paid in full and releasing
each Acquired Company from any further obligation for such amounts (except
for amounts in respect of Taxes, which shall be governed by the provisions
of Article VI).
3.2.8 Resignation of Directors and Officers. Such
directors and officers of each Acquired Company as shall be designated in
writing by Buyer or PennCorp to Seller at least five days prior to the
Closing Date shall
40
have submitted their resignations effective as of the Closing Date.
3.2.9 Material Adverse Effect. Since December 31, 1994,
there shall not have occurred or been threatened any Material Adverse
Effect, whether described on the Schedules furnished by Seller pursuant to
Article IV, or otherwise, and Seller shall have delivered to Buyer and
PennCorp a certificate, dated the Closing Date and signed in its name by
its duly authorized officer, confirming the foregoing, provided that
neither the matters listed on the Schedules furnished by Seller pursuant to
Article IV nor the results of operations or changes in financial condition
set forth in the September 30 GAAP Statements and the September 30 SAP
Statements shall, in and of themselves, constitute a Material Adverse
Effect.
3.2.10 Opinions of Counsel to Seller. Buyer and PennCorp
shall have received an opinion from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.,
special counsel to Seller, substantially in the form attached as Exhibit C-
1 to the Shinnecock Purchase Agreement (with such additional changes
thereto as are necessary to reflect the terms of the transactions
contemplated hereby and as are reasonably satisfactory to Buyer and
PennCorp).
3.2.11 [Reserved].
3.2.12 [Reserved].
3.2.13 Certificate of Non-Foreign Status. Seller, SWL
Holding, CFC and FMI shall each have completed and delivered to Buyer the
certification described in section 1.1445-2(b)(2)(i) of the Treasury
Regulations and any similar certification required under State law.
3.2.14 Related Agreements. Seller and each Selling
Subsidiary shall have and shall have caused each Retained Company to have
executed and delivered to Buyer each of the Related Agreements to which it
is a party, including such documents, certificates and agreements
(collectively, the "Transfer Documents") as Buyer or PennCorp shall deem
reasonably necessary to transfer to Buyer or PennCorp, indirectly or
directly as contemplated by this Agreement, the Acquired Shares and/or the
Surplus Debenture and to SWFSC the Acquired Assets, in each case free and
clear of all Liens and Claims (other than Liens and Claims contemplated by
the Assumed Liabilities and Texas
41
Property Tax Liens on the Acquired Assets in respect of Taxes imposed in
1995).
3.2.15 Section 338(h)(10) Election. Seller shall have
delivered to Buyer three executed copies of IRS Form 8023-A to effect a
joint election under section 338(h)(10) of the Code as provided in Section
6.5 for the purpose of filing that form with the IRS.
3.2.16 [Reserved].
3.2.17 Texas Property Tax Certificate. Seller shall have
delivered to Buyer certificates described in Texas Property Tax Code
section 31.08 issued by each taxing unit having the power to tax any of the
Acquired Assets or Acquired Shares with respect to such taxable Acquired
Assets and Acquired Shares showing no delinquent taxes, interest, or
penalties.
3.3 Conditions to Seller's Obligations. The obligations of
Seller to consummate the transactions contemplated hereby are subject to
the satisfaction or waiver, at or prior to the Closing, of the following
further conditions:
3.3.1 Representations and Warranties. The representations
and warranties of Buyer and PennCorp contained in Section 4.2 shall have
been true and correct in all material respects when made and shall be true
and correct in all material respects at and as of the Closing as though
made at and as of the Closing.
3.3.2 Performance. Buyer and PennCorp shall have duly
performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or
complied with by Buyer or PennCorp prior to or at the Closing.
3.3.3 Officer's Certificates. Buyer and PennCorp shall
have each delivered to Seller a certificate, dated the Closing Date, signed
by the chief executive officer and the chief financial officer of Buyer and
PennCorp, respectively, to the effect that each such officer is authorized
to execute and deliver such certificate, that each such officer is familiar
with the transactions contemplated by this Agreement, and that the
conditions and covenants set forth in Sections 3.3.1 and 3.3.2, to such
42
officer's knowledge after due inquiry, have been duly performed and
complied with.
3.3.4 Opinions of Counsel to Buyer. Seller shall have
received (i) an opinion from Weil, Gotshal & ▇▇▇▇▇▇, counsel to Buyer and
PennCorp, substantially in the form attached as Exhibit D-1 to the
Shinnecock Purchase Agreement (with such additional changes thereto as are
necessary to reflect the terms of the transactions contemplated hereby),
(ii) an opinion from Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, special Texas
counsel to Buyer, substantially in the form attached as Exhibit D-2 to the
Shinnecock Purchase Agreement (with such additional changes thereto as are
necessary to reflect the terms of the transactions contemplated hereby),
(iii) an opinion from ▇▇▇▇▇▇▇▇▇▇, Doll & ▇▇▇▇▇▇▇▇, P.L.L.C., special
Kentucky counsel to Buyer, substantially in the form attached as Exhibit D-
3 to the Shinnecock Purchase Agreement (with such additional changes
thereto as are necessary to reflect the terms of the transactions
contemplated hereby), and (iv) copies of an opinion dated on or before the
Closing Date addressed to Buyer and PennCorp from ▇▇▇▇▇▇▇ & Holland LLP,
special tax counsel to Buyer and PennCorp, and from Weil, Gotshal & ▇▇▇▇▇▇,
counsel to Buyer and PennCorp, to the effect that the purchase of the SWL
Shares as contemplated by this Agreement will constitute a Qualified Stock
Purchase.
3.3.5 Proceedings. Subject to Section 5.7(d), all
proceedings in connection with the transactions contemplated by this
Agreement and the Related Agreements, and all documents and instruments
incident thereto, shall be reasonably satisfactory in form and substance to
Seller and its counsel, and its counsel shall have received all such
documents and instruments, or copies thereof, certified if requested, as
may be reasonably requested.
3.3.6 Related Agreements. Buyer and SWFSC shall have
executed and delivered to Seller and the Selling Subsidiaries each of the
Related Agreements to which it is a party, including such documents,
certificates and agreements (collectively, the "Assumption Documents") as
Seller shall deem reasonably necessary to effect the assumption by Buyer
and SWFSC of the Assumed Liabilities SWFSC shall have executed and
delivered to Seller and the Retained Companies the respective SWFSC Leasing
Agreements.
43
3.3.7 Securities Laws Issues. Seller shall have received
either a No-Action Letter from the SEC or a reasoned opinion from Weil,
Gotshal & ▇▇▇▇▇▇, counsel to Buyer, in form and substance reasonably
satisfactory to Seller, substantially to the effect that, if the Debtor's
confirmed joint plan of reorganization provides for the distribution of the
Notes to holders of claims against or interests in the Debtors' estates,
the exemption provided by Section 1145(a) of the Bankruptcy Code from the
registration requirements of the Securities Act and state and local
securities laws is available for the offer and sale of the Notes and for
the offer and sale of the shares of Buyer Common Stock issuable upon
conversion of the Notes, in exchange for claims against or interests in the
Debtors' estates, it being agreed that such opinion of counsel may
expressly assume that the Bankruptcy Court enters a finding of fact or
conclusion of law that Buyer is a "successor to the Debtors" for purposes
of Section 1145(a)(1) of the Bankruptcy Code.
ARTICLE IV
Representations and Warranties
4.1 Representations and Warranties of Seller and Selling
Subsidiaries. Seller and each of the Selling Subsidiaries hereby jointly
and severally make the following representations and warranties to Buyer
and PennCorp:
4.1.1 Corporate Existence. Seller, each Selling Subsidiary
and each Acquired Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization
and has full power and authority to carry on its business as currently
conducted. Each Acquired Company is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which it owns or leases substantial properties or in which
the conduct of its business requires such qualification, except for such
failures to be so qualified or to be in good standing that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or materially and adversely affect the consummation of the
transactions provided for in this Agreement.
4.1.2 Authorization; Enforcement. Each of Seller and each
Selling Subsidiary has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement
in accordance
44
with their respective terms. Each of Seller and each Selling Subsidiary
has taken all necessary corporate action to duly and validly authorize its
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Each of Seller and each Retained Company
has full corporate power and authority to execute and deliver the Related
Agreements to which it is a party and the other agreements and instruments
to be executed by it pursuant hereto and to perform its obligations under
the Related Agreements to which it is a party and such other agreements and
instruments to be executed by it pursuant hereto in accordance with their
respective terms. Seller and each Retained Company have taken all
necessary corporate action to duly and validly authorize its execution and
delivery of the Related Agreements to which it is a party and the other
agreements and instruments to be executed by it pursuant hereto and the
consummation of the transactions contemplated thereby. This Agreement has
been duly executed and delivered by Seller and each Selling Subsidiary, and
this Agreement constitutes and, when executed, each of the Related
Agreements to which Seller or any Retained Company is a party will be duly
executed and will constitute, the valid and legally binding obligations of
such parties, enforceable against them in accordance with their respective
terms, except (i) to the extent that enforcement may be limited by any
bankruptcy, insolvency, reorganization, moratorium, or similar laws now or
hereafter in effect relating to or affecting creditors' rights 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
pursuant to the bankruptcy case of Seller and the Selling Subsidiaries
contemplated by this Agreement or (ii) as the remedy of specific
performance and injunctive and other forms of equitable relief are subject
to certain equitable defenses and to the discretion of the court or other
similar Person before which any proceeding therefor may be brought.
4.1.3 Governmental Approvals. Except as set forth on
Schedule 4.1.3 and except for the Approval Orders, no material consent,
approval, authorization, license or order of, or registration or filing
with, or notice to, any Governmental Authority (such consents, approvals,
authorizations, licenses, orders, registrations, filings and notices being
herein called, collectively, "Governmental Approvals") is required to be
obtained, made or given by or with respect to Seller, any Selling
Subsidiary or any of the
45
Acquired Companies in connection with the execution and delivery of this
Agreement or the Related Agreements, the performance by Seller, any Selling
Subsidiary or any of the Acquired Companies of their respective obligations
under this Agreement or the Related Agreements or the consummation of the
transactions contemplated hereunder or thereunder.
4.1.4 No Conflicts; Third Party Consents. Except for
defaults of the type referred to in section 365(b)(2) of the Bankruptcy
Code, the execution and delivery of this Agreement and the Related
Agreements, and the consummation of any of the transactions contemplated
hereunder or thereunder, will not (a) conflict with or result in a breach
of any provision of the Certificate or Articles of Incorporation or By-Laws
(or other organizational documents) of Seller, any Selling Subsidiary or
any Acquired Company of (b) except as set forth in Schedule 4.1.4, result
in any conflict with, breach of or default (with or without notice or lapse
of time or both) under, or give rise to any right of termination,
cancellation or acceleration of any obligation or loss of any benefit
under, or result in the imposition of any Liens on any of their respective
properties or assets under, or require any consent or approval from any
third party with respect to, any material loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement or instrument or
permit, concession, franchise or license to which Seller, any Selling
Subsidiary or any Acquired Company is a party or by which Seller, any
Selling Subsidiary or any Acquired Company or any of their respective
properties or assets may be bound, (c) conflict in any material respect
with any Applicable Law applicable to Seller, any Selling Subsidiary or any
Acquired Company or any of their respective properties or assets, (d)
conflict in any material respect with or result in any termination or
recapture of reinsurance ceded under any Existing Reinsurance Agreement,
except for occurrences described in clause (b) (other than with respect to
any material loan or credit agreement, note, bond, mortgage or indenture)
or (c) that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or materially and adversely
affect the consummation of the transactions provided for in this Agreement.
4.1.5 Capital Structure. Schedule 4.1.5 lists the name of
each Acquired Company, its jurisdiction of incorporation or organization,
the date of its acquisition by Seller or an Affiliate of or predecessor to
Seller, and
46
the authorized, issued and outstanding amounts of its capital stock and
Seller's direct or indirect (through another specified Subsidiary)
percentage interest therein. All the issued and outstanding shares of the
capital stock of each Acquired Company are owned of record and
beneficially, directly or indirectly, by Seller, free and clear of any
Liens. All shares of capital stock of each Acquired Company are duly and
validly issued and outstanding and all such shares are fully paid and
nonassessable. None of the outstanding capital stock of any Acquired
Company has been issued in violation of, or is subject to, any preemptive
or subscription rights. There are no warrants, options, agreements,
convertible or exchangeable securities or other commitments pursuant to
which any Acquired Company is or may become obligation to issue, sell,
purchase, retire or redeem any shares of its capital stock and there are no
standstill, voting or similar agreements or any rights of first offer or
first refusal to which Seller, any Selling Subsidiary or any Acquired
Company is a party that presently or in the future will limit any Person's
ability to acquire, vote, sell or hold shares of any Acquired Company.
4.1.6 Company Documents. Seller has made available for
inspection by Buyer prior to the date of this Agreement true, complete and
correct copies of the Articles or Certificates of Incorporation and By-laws
of Seller, each Selling Subsidiary and each Acquired Company, each of which
is in full force and effect on the date hereof. Seller has made available
for inspection by Buyer true, complete and correct copies of the minutes of
all meetings since January 1, 1990, of Seller's Board of Directors and of
each committee thereof, and of the respective boards of directors and
committees thereof of each Acquired Company and Selling Subsidiary.
4.1.7 Financial Statements and Information. (a) Seller has
made available for inspection by Buyer true and correct copies of the
following financial statements and related materials prior to the date of
this Agreement:
(i) The GAAP Financial Statements of Seller for the
years ended December 31, 1994, 1993 and 1992, together with the notes
thereto (the "December 31 GAAP Statements");
(ii) the unaudited GAAP Quarterly Financial
Statements of Seller for the quarters ended March 31, 1995 (the
"March 31 GAAP Statement") June 30, 1995 (the
47
"June 30 GAAP Statement"), and September 30, 1995 (the "September 30 GAAP
Statement") in each case together with the notes thereto and any review
reports thereon issued by Coopers & ▇▇▇▇▇▇▇ L.L.P.;
(iii) the SAP Annual Statements of each of the
Acquired Insurance Companies as filed with the departments of
insurance in the respective States of domicile of each of the
Acquired Insurance Companies for the years ended December 31, 1994,
1993 and 1992, including all exhibits, interrogatories, notes and
schedules thereto and any actuarial opinions, affirmation or
certification filed in connection therewith, including for each year
any SAP Annual Statement filed by any of the Acquired Insurance
Companies with a department of insurance and which differs from the
SAP Annual Statement filed with the insurance department of such
Acquired Insurance Company's State of domicile (the "December 31 SAP
Statements");
(iv) the SAP Quarterly Statements of each of the
Acquired Insurance Companies as filed with the departments of
insurance in the respective States of domicile of each of the
Acquired Insurance Companies for the quarters ended March 31, 1995
(the "March 31 SAP Statements"), June 30, 1995 (the "June 30 SAP
Statements") and September 30, 1995 (the "September 30 SAP
Statements") including all exhibits, interrogatories, notes and
schedules thereto;
(v) the SAP Audited Statements of each of the
Acquired Insurance Companies as of December 31, 1994, 1993 and 1992,
and the related statements of operations, capital and surplus and
cash flows, in each case, for the years then ended, together with the
notes thereto and the report of Coopers & ▇▇▇▇▇▇▇ L.L.P. thereon, as
filed with the departments of insurance in all States in which the
Acquired Insurance Companies are required to file;
(vi) the SAP Annual Statements of the separate
accounts of SWL and Constitution Life as filed with the departments
of insurance in the respective States of domicile of SWL and
Constitution Life for the years ended December 31, 1994, 1993 and
1992, including all exhibits, interrogatories, notes and schedules
48
thereto, and any actuarial opinions, affirmation or certification
filed in connection therewith; and
(vii) copies of all material correspondence to and
from any department of insurance (whether or not from the departments
of insurance of the States of domicile of the Acquired Insurance
Companies) relating to or involving material financial reporting or
accounting matters affecting the SAP financial statements identified
in paragraphs (iii) through (vi) above.
(b) Seller's GAAP Financial Statements and GAAP Quarterly
Financial Statements referenced in clauses (a)(i) and (a)(ii) above fairly
present in all material respects the financial position of Seller and its
consolidated Subsidiaries as of the respective dates thereof and the
results of their operations and the changes in their stockholder's equity
and cash flows for the respective periods then ended, in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods indicated, except for the deviations from GAAP
disclosed thereon, in the notes thereto, or set forth on Schedule 4.1.7(b)
hereto.
(c) The SAP Annual Statements, SAP Quarterly Statements
and SAP Audited Statements of each Acquired Company referenced in clauses
(a)(iii) through (a)(v) above (i) have been prepared in accordance with
SAP, applied on a consistent basis throughout the periods involved, except
as expressly set forth or disclosed in the notes thereto, (ii) fairly
present in all material respects in accordance with SAP the admitted
assets, reserves and other liabilities, capital and surplus of each of the
Acquired Insurance Companies as of the respective dates thereof and the
results of its operations and its cash flow for the respective periods then
ended subject to, in the case of SAP Quarterly Statements, normal year end
adjustments, and (iii) in the case of SAP Annual Statements and separate
accounts of each of SWL and Constitution Life, fairly present in all
material respects the admitted assets, liabilities and surplus of the
separate accounts of SWL and Constitution Life as of the respective dates
thereof and the results of operations of such separate accounts for the
respective periods then ended, in accordance with SAP. Such SAP Annual
Statements, the SAP Quarterly Statements and the SAP Audited Statements
complied in all material respects with all Applicable Laws when filed, and
no material deficiency has been asserted
49
with respect to such statements by any department of insurance with which
such statements were filed which has not been cured, waived or otherwise
resolved to the satisfaction of such department of insurance.
Notwithstanding any of the foregoing, (A) for purposes of determining
whether the condition to closing set forth in Section 3.2.1 has been
satisfied, the representations set forth in clause (ii) of this paragraph
shall be deemed to have been given as to the Acquired Insurance Companies
taken as a whole and not individually and (B) for purposes of calculating
Losses pursuant to Article VIII, any Loss attributable to the inaccuracy of
such representations shall first be reduced by the amount of any investment
asset or investment assets owned by an Acquired Insurance Company as of
September 30, 1995 that was not reflected on the September 30 Statement.
(d) [Reserved].
(e) No capital gains or losses, whether realized or
unrealized, have been recorded on the books of any Acquired Insurance
Company for the period from December 31, 1994 through September 30, 1995
except as set forth in Schedule 4.1.7(e), which schedule may be updated
prior to the delivery of the September 30 Statement to reflect capital
gains and losses for such period not recorded on the books of any Acquired
Insurance Company on or prior to the Execution Date, provided that Seller
shall update such schedule as soon as practicable after the recording of
any such capital gains and losses.
4.1.8 SEC Reports. (a) Each of the Acquired Companies has
filed all material reports, schedules, forms, statements and other
documents required to be filed by it with the SEC since January 1, 1994
(collectively, the "SEC Documents"). Except as set forth in Schedule
4.1.8(a), each of the SEC Documents has been duly and timely filed, and
when filed was in material compliance with the requirements (including
accounting requirements) of any applicable Federal securities law and the
applicable rules and regulations of the SEC thereunder, as of the date of
its filing with the SEC.
(b) None of Seller or any of the Acquired Companies has
received any material written or oral communications from the staff of the
SEC in respect of any of the SEC Documents except as set forth on Schedule
4.1.8(b) and, in the case of written communications, copies
50
of all such scheduled documents have been previously provided to Buyer.
4.1.9 Absence of Certain Changes or Events. (a) Except as
set forth in Schedule 4.1.9, or expressly disclosed in either the June 30
GAAP Statements or the June 30 SAP Statements and except for the
transactions contemplated by this Agreement and the Related Agreements and
except as permitted by the Shinnecock Purchase Agreement since December 31,
1994, FMI and each of the Acquired Companies has conducted its business
only in the ordinary course consistent with its past practices, and neither
FMI nor any of the Acquired Companies has (i) borrowed, or agreed to
borrow, funds, (ii) experienced any damage, destruction or loss that, to
the extent not covered by insurance, has had or reasonably would be
expected to have a Material Adverse Effect, (iii) declared, set aside or
paid any dividend or other distribution (whether in cash, stock or
property) in respect of its capital stock (iv) entered into any material
transaction, contract or commitment involving any director or executive
officer of Seller, FMI, any Acquired Company or any retained Company, (v)
granted or committed to grant to any officer, director or, except in the
ordinary course of business consistent with past practice, employee of
Seller, FMI, any Acquired Company or any Retained Company any material
increase in compensation or benefits, (vi) granted or committed to grant to
any officer, director or other employee of Seller, FMI, any Acquired
Company or any Retained Company, any increase in or right to severance or
termination pay or any other compensation or benefits payable upon a change
in control of any such entity, (vii) in the case of any of the Acquired
Insurance Companies, made, or agreed to make, any material change in its
underwriting, pricing, actuarial or investment practices or policies, or
made, or agreed to make, any material change in its financial, Tax or
accounting practices or policies, in either case including, without
limitation, any basis for establishing reserves or any depreciation or
amortization policies or rates, (viii) in the case of any of the Acquired
Insurance Companies, experienced any material increase or decrease in the
percentage of its reinsured business, or any material increase in its lapse
ratio, or any material decrease in the amount of its in-force business,
(ix) suffered any Material Adverse Effect or (x) taken any action that, if
taken after the date hereof, reasonably would be expected to constitute a
material breach of any of the covenants set forth in Section V.
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4.1.10 Assets. (a) Real Property. (i) An Acquired Company
is the holder of good and insurable fee simple title to all real property
owned by it in fee (the "Owned Real Properties"), free and clear of all
Liens, except for Liens (the "Permitted Owned Real Property Liens") that
are (v) Permitted Liens, (w) zoning, building or other similar governmental
restrictions, (x) easements, covenants, rights of way or other similar
restrictions or other minor imperfections of title and (y) mortgages on
such Owned Real Property as of June 30, 1995 which are set forth on
Schedule 4.1.10(a)(i) (provided that the items described in clauses (v)
through (x) do not in the aggregate materially impair the Owned Real
Properties taken as a whole or, to the knowledge of Seller and the Selling
Subsidiaries, any Owned Real Property). Except as set forth and separately
identified on Schedule 4.1.10(a)(i), no Acquired Company owns any Owned
Real Property jointly with any Retained Company or any other Person. An
Acquired Company is the holder of good and valid leasehold title to the
leasehold estate in all real property leased by any of the Acquired
Companies (the "Leased Real Properties," together with the Owned Real
Properties constituting the "Real Properties"), free and clear of all
Liens, except for Liens (together with the Permitted Owned Real Property
Liens, the "Permitted Real Property Liens") that are (v) Permitted Liens,
(w) statutory Liens of landlords, (x) mortgages and other recorded liens
and encumbrances against the fee estate in the Leased Real Properties and
(y) mortgages on the Acquired Company's leasehold interests in such Leased
Real Properties as of June 30, 1995 which are set forth on Schedule
4.1.10(a)(i) (provided that the items described in clauses (v) through (x)
do not in the aggregate materially impair the leasehold interests taken as
a whole or, to the knowledge of Seller and the Selling Subsidiaries, any
leasehold interest). Except as set forth and separately identified on
Schedule 4.1.10(a)(i), no Acquired Company leases any Leased Real Property
jointly with any Retained Company or any other Person.
(ii) The use, occupancy and condition of each Real
Property is in compliance with all Applicable Laws, except where the
failure to be so in compliance would not reasonably be expected to have a
material adverse impact on the use, occupancy, operation or market value of
the Real Properties taken as a whole and except as set forth in Schedule
4.1.10(a)(ii).
52
(iii) Except as provided in Schedule 4.1.10(a)(iii),
all material real property ad valorem and other similar Taxes due and
payable by FMI or any of the Acquired Companies have been paid or are
adequately reserved for in the financial statements referred to in Section
4.1.7, and the amount of such reserves has been determined in accordance
with accounting principles or practices applicable to such financial
statements.
(iv) Except as set forth on Schedule 4.1.10(a)(iv),
neither Seller nor any of the Selling Subsidiaries knows of any Real
Property classified as an admitted asset on the December 31 SAP Statements
for the year ended December 31, 1994 or the June 30 SAP Statements that
does not qualify as an admitted asset of the applicable Acquired Insurance
Company in accordance with Applicable Law.
(b) Mortgage Loans.
(i) Except as set forth and separately identified in
Schedule 4.1.10(b)(i), no Acquired Company owns any loan made by,
participated in, or acquired by any of the Acquired Companies (whether or
not held in the general account of any Acquired Insurance Company) that are
secured by any interest in real property (together with the note or notes
or other evidences of indebtedness evidencing such loan and the mortgage,
deed of trust or similar document securing such loan, a "Mortgage Loan")
jointly with any Retained Company or any other Person, whether directly or
through any partnership or other entity.
(ii) Since July 31, 1986, the origination and
collection practices used by the Acquired Companies with respect to each
Mortgage Loan have complied in all material respects with all Applicable
Laws except as would not, in any case or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(iii) Except as set forth on Schedule 4.1.10(b)(iii),
no payments were past due more than 60 days in respect of any Mortgage
Loans as of August 31, 1995 or, as may be set forth on an updated schedule,
as of the Closing Date or, in the event the Closing Date does not occur on
a calendar month end, the last day of the month ended immediately preceding
the Closing Date.
53
(iv) Except as set forth on Schedule 4.1.10(b)(iv),
neither Seller nor any of the Selling Subsidiaries knows of any Mortgage
Loan classified as an admitted asset on the December 31 SAP Statements for
the year ended December 31, 1994 or the June 30 SAP Statements that does
not qualify as an admitted asset of the applicable Acquired Insurance
Company in accordance with Applicable Law.
(c) Bonds. Except as set forth on Schedule 4.1.10(c),
neither Seller nor any of the Selling Subsidiaries knows of any notes,
bonds, debentures or other fixed income investments held by any of the
Acquired Companies (whether or not held in the general account of any
Acquired Insurance Company) classified as an admitted asset on the December
31 SAP Statements for the year ended December 31, 1994 or the June 30 SAP
Statements that does not qualify as an admitted asset of the applicable
Acquired Insurance Company in accordance with Applicable Law.
(d) Equities. Except as set forth on Schedule 4.1.10(d),
neither Seller nor any of the Selling Subsidiaries knows of any common
stock, preferred stock, securities convertible into or exchangeable for
capital stock (other than the capital stock of any of the Acquired
Companies or the Retained Companies), limited partnership interests or
other similar equity interests held by any of the Acquired Companies
(whether or not held in the general account of any Acquired Insurance
Company) classified as an admitted asset on the December 31 SAP Statements
for the year ended December 31, 1994 or the June 30 SAP Statements that
does not qualify as an admitted asset of the applicable Acquired Insurance
Company in accordance with Applicable Law.
(e) Ownership of Property. Except as set forth on
Schedule 4.1.10(e), FMI and each of the Acquired Companies has good and
insurable fee simple title to the Owned Real Properties, good and valid
leasehold title to the Leased Real Properties and good and indefeasible
title to all other property which it purports to own, including, but not
limited to, the Owned Real Properties, Leased Real Properties and other
property reflected on the financial statements referred to in Section 4.1.7
and any property acquired in the ordinary course of business since June 30,
1995 (in each case other than that disposed of in the ordinary course of
business since June 30, 1995), free and clear of all Liens except for
Permitted Liens and Permitted
54
Real Property Liens. The Acquired Assets and the assets owned by the
Acquired Companies (i) comprise all assets the use of which is reasonably
necessary or required for the continued conduct of the Acquired Business as
now being conducted and (ii) are and have been maintained in good condition
and are free from defects (reasonable wear and tear except) other than such
defects as would not reasonably be expected to have a Material Adverse
Effect. Pursuant to this Agreement, FMI will convey, sell, transfer,
assign and deliver to SWFSC good and valid title to all of the Acquired
Assets, free and clear of any Liens and Claims (other than the Texas
Property Tax Liens on the Acquired Assets in respect of Taxes imposed in
1995 and Assumed Liabilities or Liens otherwise created by SWFSC or
contemplated by this Agreement).
(f) Schedule 4.1.10(f) contains a true, correct and
complete list of all assets owned by any of the Acquired Companies the
value of which has been written down to zero since December 31, 1994.
4.1.11 Environmental Matters. (a) Compliance with
Environmental Law. To the knowledge of Seller and the Selling
Subsidiaries, except as set forth on Schedule 4.1.11(a) or as expressly
disclosed in Phase I Environmental Assessments, dated September 8, 1995,
prepared for G.S. Partners II, L.P. by McLaren/▇▇▇▇ Environmental
Engineering Corporation, true, correct and complete copies of which Seller
has made available for inspection by Buyer and PennCorp prior to the date
hereof (the "Phase I Report"), Seller, each Selling Subsidiary and each
Acquired Company has complied and is in compliance, in each case in all
material respects, with all applicable Environmental Laws pertaining to any
of the properties and assets of the Acquired Business (including the Real
Property) and the use and ownership thereof, and to the operation of the
Acquired Business. Except as set forth on Schedule 4.1.11(a) or as
expressly disclosed in the Phase I Report, no violation by Seller, any
Selling Subsidiary or any Acquired Company is being alleged under any
applicable Environmental Law relating to any of the properties and assets
of the Acquired Business (including the Real Property) or the use or
ownership thereof, or to the operation of the Acquired Business.
(b) Other Environmental Matters. (i) Except as set forth
on Schedule 4.1.11(b) or as expressly disclosed in the Phase I Report, none
of Seller, any Selling Subsidiary
55
or any Acquired Company or, to the knowledge of Seller or the Selling
Subsidiaries, any other Person (including any tenant or subtenant) has
caused or taken any action, and none of FMI or any Acquired Company is
aware of any environmental conditions, that reasonably would be expected to
result in, any material liability or obligation under Environmental Law on
the part of FMI or any Acquired Company relating to (x) the environmental
conditions on, under, or about the Real Property or other properties or
assets owned, leased, operated or used by FMI or any Acquired Company or
any predecessor thereto at the present time or in the past, including
without limitation, the air, soil and groundwater conditions at such
properties or (y) the past or present use, management, handling, transport,
treatment, generation, storage, disposal or Environmental Release of any
Hazardous Materials.
(ii) Seller has disclosed and made available to Buyer
the information and reports discussed in Schedule 4.1.11(a) and (b) hereto,
which include all studies, analyses and test results, in the possession,
custody or control of or otherwise known to Seller, any Selling Subsidiary
or any Acquired Company relating to (x) the environmental conditions on,
under or about the Real Property or other properties or assets owned,
leased, operated or used by Seller, any Selling Subsidiary or any Acquired
Company or any predecessor in interest thereto at the present time or in
the past, and (y) any Hazardous Materials used, managed, handled,
transported, treated, generated, stored or Released by Seller, any Selling
Subsidiary or any other Acquired Company or to the knowledge of Seller or
any Selling Subsidiary any other Person on, under, about or from any of the
Real Property, or otherwise in connection with the use of operation of any
of the properties and assets of the Acquired Business.
4.1.12 Liabilities and Reserves; No Undisclosed
Liabilities. (a) Except as disclosed in Schedule 4.1.12(a) or Schedule
4.1.17, or to the extent specifically disclosed, reflected or reserved
against in the balance sheets contained in the December 31 SAP Statements
for the year ended December 31, 1994 or the June 30 SAP Statements or the
notes, exhibits, schedules and interrogatories thereto of each Acquired
Company, none of the Acquired Companies has any material obligations or
liabilities of any nature, including without limitation any Liens (whether
accrued, absolute, contingent, known or unknown, or otherwise, and whether
or not due, or arising out of transactions entered
56
into, or any state of facts existing, prior to such date) that are not
reflected on such balance sheets or the related notes, exhibits, schedules
and interrogatories thereto except liabilities incurred since December 31,
1994, in the ordinary course of business consistent with past practice that
would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(b) The reserves and other liabilities in respect of
insurance policies, annuity contracts or guaranteed investment contracts,
whether direct or assumed by reinsurance, established or reflected in the
balance sheets contained in the respective June 30 SAP Statements of each
Acquired Insurance Company that is authorized to transact life insurance,
were determined in accordance with generally accepted actuarial standards
consistently applied, were based on actuarial assumptions that were in all
material respects and are in compliance in all material respects with the
requirements of the insurance laws, rules and regulations of their
respective jurisdictions of domicile as well as those of any other
applicable jurisdictions (collectively, "Applicable Insurance Laws").
(c) Except for regular periodic assessments in the
ordinary course of business and except as set forth in Schedule 4.1.12(c),
no claim or assessment is pending nor, to the knowledge of Seller and the
Selling Subsidiaries, threatened against any of them by any State insurance
guaranty association in connection with such association's fund relating to
insolvent insurers.
4.1.13 Contracts. (a) Schedule 4.1.13 contains a correct
and complete list of all the following contracts, licenses, leases,
agreements, commitments or arrangements, written or, to the knowledge of
Seller and the Selling Subsidiaries, unwritten (access to correct and
complete copies or, if none exist, written descriptions of which have been
made available to Buyer prior to the date of this Agreement), (i) to which
FMI or any of the Acquired Companies is a party or by which any of their
respective assets or properties are or may be bound or (ii) which are used
in the Acquired Business ("Contracts"), as such Contracts may have been
amended, modified or supplemented:
(i) all Contracts out of the ordinary course of
business representing future liabilities in excess of $50,000 that
are not terminable without penalty upon not more than 30 days'
notice;
57
(ii) all Contracts (including, without limitation,
Contracts relating to loans or advances other than margin loans made
in the ordinary course of business) calling for payments in excess of
$50,000 with or relating to any current or former officer or director
or employee of FMI or any Acquired Company, or any of the 20 highest
compensated agency managers and agents of any of the Acquired
Insurance Companies and the name and position of each such person and
the expiration date of each such Contract (and specifying whether
such Contract contains any change-in-control provisions);
(iii) all Contracts with any person containing any
provision or covenant limiting the ability of any Acquired Company to
engage in any line of business or compete with any person;
(iv) all material partnership or joint venture
Contracts with any Person;
(v) Contracts relating to nonrecourse mortgage
borrowing by any Acquired Company in the ordinary course of business
(other than guarantees thereof), and all Contracts relating to
indebtedness of or relating to any Acquired Company (other than
Contracts made in the ordinary course in which any Acquired Company
is a lender);
(vi) all leases, subleases or rental or use Contracts
with respect to real estate or material personal property used by FMI
or any Acquired Company in the conduct of its business operations or
affairs;
(vii) all Contracts with any labor union or
association;
(viii) all Contracts pursuant to which any business
unit was sold since January 1, 1989;
(ix) all Contracts pursuant to which any real
property was sold since January 1, 1989 for a price in excess of
$1,000,000;
(x) all material Contracts between FMI or any
Acquired Company and any of their Affiliates;
58
(xi) all reinsurance agreements with any Person to
which any Acquired Insurance Company is a party;
(xii) all standard forms of agency agreements
currently used by any of the Acquired Insurance Companies or to which
any Acquired Insurance Company is a party; and
(xiii) all other material Contracts to which Seller,
FMI, any other Retained Company or any Acquired Company is a party
that relate to the Acquired Business.
(b) Each of the material Contracts is legal, valid and
binding and, to the knowledge of Seller and the Selling Subsidiaries, is
enforceable in accordance with its terms against each party thereto (except
(i) as such enforcement may be limited by any bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect
relating to or affecting creditors' rights generally or (ii) as the remedy
of specific performance and injunctive and other forms of equitable relief
are subject to certain equitable defenses and to the discretion of the
court or other similar Person before which any proceeding therefor may be
brought) and is in full force and effect. To the knowledge of Seller and
the Selling Subsidiaries, none of the Contracts contains terms which would
reasonably be expected to have a Material Adverse Effect. To the knowledge
of Seller and the Selling Subsidiaries, no party to any of the Contracts
listed in Schedule 4.1.13 is in or claimed to be in material breach or
default in any respect under any term or provision of any of such
Contracts.
4.1.14 Litigation. (a) Except as set forth in Schedule
4.1.14(a) and other than Litigation (as defined below) relating to Taxes,
there is no Litigation now pending, or, to the knowledge of Seller or any
Selling Subsidiary, threatened, against or relating to Seller, any Retained
Company or any Acquired Company or its assets, properties or business (i)
involving a claim made prior to the date of this Agreement against any
Acquired Company or FMI of more than $100,000, (ii) which reasonably would
be expected to have a material adverse effect on the ability of Seller, FMI
or any Selling Subsidiary, or any Acquired Company, to consummate any of
the transactions contemplated by this Agreement, (iii) which reasonably
would be expected to have a Material Adverse Effect, (iv) involving any
former
59
officers or directors of FMI or any Acquired Company as a party adverse to
FMI or any Acquired Company, (v) involving criminal proceedings or
investigations against or targeting Seller, any Retained Company or any
Acquired Company or any of their directors or officers in their capacity as
such, (vi) involving extraordinary regulatory proceedings affecting the
Acquired Business or (vii) involving a claim made prior to the date of this
Agreement against Seller or any Retained Company of more than $250,000.
(b) Except as set forth in Schedule 4.1.14(b), neither
Seller, nor FMI nor any of the Acquired Companies nor any of their
respective officers or directors is subject to any permanent, preliminary
or temporary injunction or prohibitive order, judgment or decree of, or is
a party to any agreement with, any Governmental Authority which reasonably
would be expected to have a material adverse effect on the ability of FMI
or the Acquired Companies to consummate the transactions contemplated
hereby or which (x) restricts in any material respect the ability of FMI or
of any Acquired Company to conduct its business or to engage in any other
business, (y) enjoins or prohibits any officer or director of Seller, FMI
or of any Acquired Company from taking, or requires any of such officers or
directors to take, in his capacity as such, any action of any kind or
enjoins or prohibits any such officer or director from violating any law or
regulation.
4.1.15 Compliance with Laws, etc. Except as disclosed in
Schedule 4.1.15, Seller, the Acquired Companies and FMI have conducted, and
currently conduct, the Acquired Business in compliance with all Applicable
Laws and all licenses, approvals and permits, including, without
limitation, those relating to insurance, securities and employment
discrimination except for such noncompliances that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
4.1.16 Operations Insurance. Schedule 4.1.16 lists all
liability, property and casualty, workers' compensation, employers'
liability, directors' and officers' liability, surety bonds, key man life
insurance and other similar insurance contracts that insure the business,
properties, operations or affairs of any of the Acquired Companies
(including properties owned by FMI) or affect or relate to the ownership,
use or operations of any of the Acquired Companies' assets or properties.
Each such contract is in full force and effect and no such contract is
60
the subject of a notice of cancellation or non-renewal by the issuing
insurer.
4.1.17 Taxes. (a) All Federal and State, and, to the
knowledge of Seller and the Selling Subsidiaries, all other Company Returns
required to be filed have been accurately prepared in all material respects
and timely filed. Except for Taxes which are being, or have been,
contested in good faith and by appropriate proceedings and which are set
forth on Schedule 4.1.17 or which have otherwise been expressly disclosed
by Seller to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ (i) the following Taxes have (or by the
Closing Date will have) been duly and timely paid:(A) all material Taxes
reported as due, and to the knowledge of Seller and the Selling
Subsidiaries, reportable as due, on the Company Returns and all required or
estimated Tax payments, (B) all material deficiencies and assessments of
Taxes of which notice has (or by the Closing Date will have) been received
by any member of the Related Group or any Affiliated Group, (C) all
material Taxes reflected in settlement agreements with the IRS, including
IRS Form 870AD, or with any other taxing authority, and (D) all other
material Taxes due and payable on or before the Closing Date by any member
of the Related Group or any Affiliated Group or chargeable as a lien upon
the assets thereof, for which neither filing of returns nor notice of
deficiency or assessment is required, and (ii) all material Taxes required
to be withheld by or on behalf of any member of the Related Group or with
respect to the business or assets thereof have been withheld, and such
withheld Taxes have either been duly and timely paid to the proper
governmental agencies or authorities or (if not yet due for payment) set
aside in accounts for such purpose. For all taxable periods or portions
thereof ending on or before the Closing Date with respect to which Federal
income tax returns are not required to be filed on or before the Closing
Date, all Acquired Insurance Companies, Integrity and BL of NY were taxable
as domestic life insurance companies within the meaning of section 816 of
the Code.
(b) Except as set forth on Schedule 4.1.17, all Federal
and State Company Returns have been examined by the appropriate taxing
authority, or the statute of limitations with respect to the relevant
income or franchise tax liability has expired, for all taxable periods
through and including the taxable period listed with respect to each such
jurisdiction on Schedule 4.1.17. Except as set forth in Schedule 4.1.17,
(i) neither the IRS nor any other taxing authority has asserted in writing,
or has threatened in
61
writing to assert against any member of the Related Group or any Affiliated
Group, any deficiency or claim for additional Taxes, and (ii) no member of
the Related Group or any Affiliated Group is currently under audit by the
IRS or any other taxing authority, and no notice of commencement of any
audit has been received. Except as set forth on Schedule 4.1.17, no member
of the Related Group or any Affiliated Group has granted any waiver of any
statute of limitations with respect to, or any extension of a period for
the assessment of, any Taxes for which any member of the Related Group or
any Affiliated Group may be held liable; no power of attorney with respect
to any such Taxes has been executed or filed with any taxing authority, and
no closing agreement with respect to any material Taxes has been entered
into by or with respect to any member of the Related Group or any
Affiliated Group pursuant to section 7121 or 7122 of the Code (or any
predecessor provision) or any similar provision of any State, local, or
foreign law.
(c) Except as listed on Schedule 4.1.17, to the knowledge
of Seller and the Selling Subsidiaries, (i) the balance of the
policyholders surplus account (as defined in Section 815 of the Code) of
each Acquired Insurance Company is zero as of December 31, 1994, and the
computation and maintenance of the policyholders surplus account balances
for the taxable years subsequent to 1958 have been computed and maintained
in accordance with Section 815 of the Code and the Treasury Regulations
thereunder, (ii) the insurance reserves with respect to each Acquired
Insurance Company set forth in all Federal income Tax Returns of such
company were determined in all material respects in accordance with Section
807 of the Code, (iii) each Fund operating in the United States has elected
to be treated as a "regulated investment company" (a "RIC") under the Code
and has, for each of its taxable years since the end of the most recent
year of such Fund that has been closed and for which the statute of
limitations for assessments has expired, qualified as a RIC, (iv) all
contracts issued by each Acquired Insurance Company that are subject to
Section 817 of the Code have met the diversification requirements
applicable thereto since the issuance of the contract, and (v) the Tax
treatment under the Code of all insurance, annuity or investment policies,
plans, or contracts, all financial products, employee benefit plans,
individual retirement accounts or annuities, or any similar or related
policy, contract, plan or product, whether individual, group or otherwise
issued or sold by any of the Acquired Insurance Companies is and at all
times has been the same or not less
62
favorable to the purchaser, policyholder, or beneficiaries thereof than the
Tax treatment under the Code for which such contracts qualified or
purported to qualify or which the Acquired Insurance Companies represented
could be obtained at the time of its issuance, purchase, modification or
exchange, except to the extent that the Tax treatment of any product of any
Acquired Insurance Company is not less favorable than the Tax treatment of
substantially similar products offered by other companies. The provisions
of the Code relating to the Tax treatment of the plans, policies, contracts
and products referred to in clause (v) of the preceding sentence shall
include, but not be limited to, Sections 72, 79, 101, 104, 105, 106, 125,
130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 501, 505, 817, 818,
1035, 7702, and 7702A.
(d) Except as listed on Schedule 4.1.17, (i) none of the
Acquired Companies is a party to or is bound by any obligations under any
Tax sharing, indemnification, allocation or similar agreement or
arrangement or retains any actual or potential liability under any
agreement providing for the payment by or allocation to such company of any
Taxes assessed against any other person or entity, whether or not otherwise
related to such company, (ii) no election has been made to have the
provisions of section 341(f) of the Code apply to any of the Acquired
Companies, (iii) there are no elections in effect made by or with respect
to any of the Acquired Companies pursuant to section 338 or section 336(e)
of the Code or the Treasury Regulations thereunder, and none of the
Acquired Companies or BL of NY is subject to any constructive elections
under section 338 or section 336(e) of the Code or the Treasury Regulations
thereunder, (iv) none of the Acquired Companies or BL of NY has agreed or
is required to make, no taxing authority has proposed in writing, and no
application is pending with respect to, any adjustment under section 481 or
807(f) of the Code (or any comparable provision of State, local or foreign
law) or by reason of a change in accounting method or basis of computing
reserves or otherwise, (v) none of the Acquired Companies is a party to any
agreement or arrangement that could result, or has resulted in the past,
separately or in the aggregate in the payment of any "excess parachute
payments" within the meaning of section 280G of the Code or the payment of
excessive employee remuneration disallowed under section 162(m) of the
Code, and (vi) none of the Acquired Companies has been a member of any
Affiliated Group for any taxable period for which the statute of
limitations is open.
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(e) Except as set forth on Schedule 4.1.17, the Acquired
Insurance Companies have made adequate provision for estimated Taxes in the
June 30 SAP Statement.
(f) Except as set forth on Schedule 4.1.17, Seller, each
Affiliated Group and each member of the Related Group has made all required
estimated Tax payments sufficient to avoid any underpayment penalties.
(g) No amount payable to Seller or its Affiliates on the
Closing Date under this Agreement is subject to withholding under section
1445(a) of the Code or comparable provision of State, local or foreign law.
(h) Notwithstanding anything to the contrary in this
Section 4.1.17, to the extent the representations and warranties set forth
in this Section 4.1.17 relate to Integrity or BL of NY, such
representations and warranties are effective only for such periods prior to
(i) in the case of BL of NY, July 26, 1995, and (ii) in the case of
Integrity, September 22, 1995.
(i) Schedule 4.1.17 sets forth Seller's good faith
estimate of the total amount of Taxes, calculated on the basis of the 1994
assessments and rates, imposed in 1995 with respect to the Acquired Assets
and property held by each Acquired Company to which a Texas Property Tax
Lien has been attached, and the total amount taken into account as a
liability or otherwise specifically reserved against with respect to such
Taxes on the June 30 SAP Statements or as of such other date indicated on
such Schedule.
(j) Except as set forth on Schedule 4.1.17, (i) no
irrevocable Federal income Tax elections are in effect with respect to the
Acquired Companies (including elections under Sections 108, 168, 441, 1017,
1033 and 4977 of the Code), and (ii) no property owned by the Acquired
Companies is property that any of the Acquired Companies is required to
treat 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 Reform Act of 1986, or
is "tax-exempt use property" within the meaning of section 168(h)(1) of the
Code.
4.1.18 Affiliate Transactions. Schedule 4.1.18 contains a
brief summary of each transaction since December 31, 1994, between any
Acquired Insurance Company and Seller
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or any Affiliate of Seller (other than transactions in the ordinary course
of business under the FMI Services Agreement) and identifies which of such
transactions were neither reported to nor approved by the applicable
departments of insurance.
4.1.19 Employee Benefit Plans. (a) Employee Benefit Plans.
Schedule 4.1.19(a) lists each "employee benefit plan," as such term is
defined in section 3(3) of ERISA, and each bonus, incentive or deferred
compensation, employment, severance, termination, retention, change of
control, stock option or other equity-based, performance or other material
employee or retiree benefit or compensation plan, program, arrangement,
agreement, policy or understanding, whether written or unwritten, that
provides or may provide benefits or compensation in respect of any employee
or former employee of Seller, FMI or any Acquired Company employed or
formerly employed in connection with the operation of the Acquired Business
or the beneficiaries or dependents of any such employee or former employee
(collectively, the "Business Employees") or under which any Business
Employee is or may become eligible to participate or derive a benefit and
that is or has been maintained or established by Seller, FMI, any Acquired
Company or any other trade or business, whether or not incorporated, which,
together with Seller, FMI or any Acquired Company is treated as a single
employer under section 414 of the Code (such other trades and businesses
referred to collectively as the "Related Persons"), or the which Seller,
FMI, any Acquired Company or any Related Person contributes or is or has
been obligated or required to contribute (collectively, the "Plans"). No
Acquired Company is, or could reasonably be deemed to be, the employer or a
joint employer of any Business Employee other than those Business Employees
who are specifically identified on Schedule 4.1.19(a). Except as set forth
on Schedule 4.1.19(a), each Plan that provides retiree health or life
insurance coverage to Business Employees may be amended or terminated, in
whole or in part (including, without limitation, amended to reduce or
terminate benefits provided to retirees or to increase the contributions or
other costs required to be funded by retirees), without the consent or
approval of any participant thereunder. Except as expressly permitted
pursuant to Section 7.5(b), neither Seller, FMI nor any Acquired Company
has communicated to any Business Employee any intention or commitment to
modify any Plan or to establish or implement any new or other employee or
retiree benefit or compensation agreement or arrangement.
65
(b) Tax-exempt Status. (i) Each Plan intended to be
qualified under section 401(a) of the Code, and the trust (if any) forming
a part thereof, has received a favorable determination letter from the
Internal Revenue Service as to its qualification under the Code and to the
effect that each such trust is exempt from taxation under section 501(a) of
the Code, (ii) to the knowledge of Seller and the Selling Subsidiaries,
after due inquiry, nothing has occurred since the date of such
determination letter that reasonably would be expected to have a material
adverse effect on such qualification or Tax-exempt status and (iii) Seller
has filed within the time required to be eligible to make retroactive plan
changes as contemplated by section 401(b) of the Code an application for a
favorable determination of the IRS as to the continued qualification of
such Plan and Tax-exempt status of such related trust under sections 401
and 501 of the Code, respectively, as currently in effect.
(c) ERISA. No Plan is subject to Section 302 or Title IV
of ERISA or section 412 of the Code. Neither Seller, FMI, any Acquired
Company nor any Related Person (including for this purpose any trade or
business that has been treated as a single employer under section 414 of
the Code together with Seller, FMI or any Acquired Company as of any date
of determination occurring within the preceding six years) (i) has incurred
or reasonably expects to incur (either directly or indirectly, including as
a result of any indemnification obligation) any material liability under or
pursuant to Title I or IV of ERISA or the penalty, excise Tax or joint and
several liability provisions of the Code relating to employee benefit plans
that remains unpaid in any part and (ii) to the knowledge of Seller and
FMI, no event, transaction or condition has occurred or exists which, in
any such case under clause (i) or (ii), reasonably would be expected to
result in any such liability to any Acquired Company or, following the
Closing, Buyer or any of its Affiliates. Except as described on Schedule
4.1.19(c), each of the Plans has been operated and administered in all
respects in accordance with all Applicable Laws, including but not limited
to ERISA and the Code, except where any such noncompliance has not and
would not reasonably be expected to result in any material liability to any
Acquired Company, or, following the Closing, Buyer. There are no material
pending or, to the knowledge of Seller and FMI, threatened claims by or on
behalf of any of the Plans, by any Business Employee or otherwise involving
any such Plan or the assets of any Plan (other than routine claims for
benefits). All
66
contributions required to have been made by Seller, FMI and each Acquired
Company to any Plan under the terms of any such plan, any agreement or
Applicable Law (including, without limitation, ERISA and the Code) have
been made within the time prescribed by any such plan, agreement or law.
Except as disclosed on Schedule 4.1.19(c), no Business Employee is or may
become entitled to post-employment benefits of any kind by reason of
employment in the operation of the Acquired Business, including, without
limitation, death or medical benefits (whether or not insured), other than
(x) coverage mandated by section 4980B of the Code, (v) retirement benefits
payable under any Plan intended to qualify under section 401(a) of the Code
or (z) deferred compensation properly and adequately accrued as a liability
on Schedule 4.1.19(c). Except as contemplated by this Agreement and the
Schedules hereto, the consummation of the transactions contemplated by this
Agreement or the Related Agreements will not result in an increase in the
amount of compensation or benefits or the acceleration of the vesting or
timing of payment of any compensation or benefits payable to or in respect
of any Business Employee.
(d) Schedule 4.1.19(d) properly and adequately reflects,
and in the case of clause (ii) below, reflects in accordance with
accounting principles agreed to by Buyer and Seller and reflected on such
Schedule, any and all liabilities and obligations of Seller, any Selling
Subsidiary, any Retained Company or any Acquired Company as of June 30,
1995 (or such more recent date as is practicable) for or in respect of (i)
Compensation Items and Executive Severance Benefits, payable in respect of
any Business Employee, (ii) post-retirement welfare benefits payable in
respect of any Acquired Company Retiree and (iii) short term disability
compensation or benefits in respect of the active Acquired Company
Employees.
4.1.20 Insurance Business. (a) Each of the Acquired
Insurance Companies possesses a license, certificate of authority, permit
or other authorization to transact insurance (an "Insurance License") in
each State or other jurisdiction in which such Acquired Insurance Company
is required to possess in Insurance License, except for such failures to
have an Insurance License as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. All such
Insurance Licenses are listed in Schedule 4.1.20(a) and are in full force
and effect and neither Seller, FMI nor any such Acquired Company has
received any notice of any event, inquiry, investigation
67
or proceeding that would reasonably be expected to result in the
suspension, revocation or limitation of any such Insurance License, and to
the knowledge of Seller and the Selling Subsidiaries, there is no
sustainable basis for any such suspension, revocation or limitation.
Except as set forth in Schedule 4.1.20(a), none of the Acquired Insurance
Companies is currently the subject of any supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor is any of the Acquired Insurance Companies 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.
(b) Except as set forth in Schedule 4.1.20(b), to the
knowledge of Seller and the Selling Subsidiaries, all forms of insurance
policies, annuity contracts and guaranteed interest contracts and riders
thereto (collectively, "Policies") currently issued by any Acquired
Insurance Company are, to the extent required under Applicable Insurance
Laws and in all material respects, on forms approved by applicable
Governmental Authorities of the jurisdiction where issued or have been
filed with and not objected to by such Governmental Authorities within the
period provided for objection. All Policy applications in respect of
Policy forms currently issued and material to the operation of any Acquired
Insurance Company as of the date of this Agreement and required to be filed
with or approved by applicable Governmental Authorities under Applicable
Insurance Laws have been so filed or approved. Any premium rates with
respect to Policies currently issued required to be filed with or approved
by applicable Governmental Authorities under Applicable Insurance Laws have
been so filed or approved and premiums charged conform thereto in all
material respects. 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.
(c) Except as set forth in Schedule 4.1.20(c), to the
knowledge of Seller, each of the Acquired Insurance Companies is in
material compliance with all Applicable Insurance Laws regulating the
practices of selling life and health insurance policies, annuity contracts
and variable annuity contracts, except for such failures to be in
compliance that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect,
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including but not limited to Applicable Insurance 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 4.1.20(c), (i)
"advertisement" means any material designed to create public interest in
life and health insurance policies, annuity contracts and variable 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, annuity contract or variable 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, annuity contracts or
variable annuity contracts is to be lapsed, forfeited, surrendered, reduced
in value or pledged as collateral for greater than 25% of the loan value
set forth in the policy.
(d) The Acquired Insurance Companies have (i) timely paid
all guaranty fund assessments that are due, or claimed or asserted by any
insurance regulatory authority to be due, from the Acquired Insurance
Companies, or (ii) provided for all such assessments in their statutory
financial statements, filed with the appropriate Insurance Commissioner, to
the extent necessary to be in conformity in all material respects with SAP
for such statements.
(e) Except as set forth in Schedule 4.1.20(e), the
December 31, 1994 SAP Statements list all funds maintained in a state of
licensure by any of the Acquired Insurance Companies under any Applicable
Insurance Law (each a "Deposit"), including, without limitation, any
Deposit the beneficial interest of which may have been transferred in
connection with an Existing Reinsurance Agreement. Except as set forth in
Schedule 4.1.20(e), the December 31, 1994 SAP Statements accurately set
forth as of August 31, 1995 the dollar amount of each such Deposit and the
name of the depository in which such Deposit is maintained.
4.1.21 Reinsurance. Schedule 4.1.21 lists all contractual
treaties and agreements regarding ceded or assumed reinsurance to which any
Acquired Insurance Company is a party and under which there is liability by
either
69
party to the agreement (collectively, the "Existing Reinsurance
Agreements"). Each of the Existing Reinsurance Agreements is valid and
binding in all material respects in accordance with its terms on the
Acquired Insurance Company party thereto. To the knowledge of Seller and
the Selling Subsidiaries, amounts recoverable by any Acquired Insurance
Company pursuant to any Existing Reinsurance Agreement are collectible in
the ordinary course of business. No Acquired Insurance Company or, to the
knowledge of Seller and the Selling Subsidiaries, any other party thereto,
is in default in any material respect as to any Existing Reinsurance
Agreement and, to the knowledge of Seller and the Selling Subsidiaries,
there is no reason to believe that the financial condition of any such
other party is impaired to the extent that a default thereunder may
reasonably be anticipated. Except as disclosed in Schedule 4.1.21, to
default thereunder may reasonably be anticipated. Except as disclosed in
Schedule 4.1.21, to the knowledge of Seller and the Selling Subsidiaries,
none of the Existing Reinsurance Agreements contains any provision
providing that the other party hereto may terminate such Existing
Reinsurance Agreement, whether as a result of a change of control or
otherwise, and any Acquired Insurance Company that has ceded reinsurance
pursuant to any such Existing Reinsurance Agreement is entitled to take
full credit in its statutory financial statements filed with State
insurance regulators for such ceded reinsurance pursuant to Applicable
Insurance Laws.
4.1.22 Intellectual Property. Schedule 4.1.22(a) sets
forth a complete and correct list of all Intellectual Property that is
owned by FMI and the Acquired Insurance Companies (the "Owned Intellectual
Property"). To the knowledge of Seller and the Selling Subsidiaries, the
Owned Intellectual Property constitutes all Intellectual Property actually
used in or necessary for the conduct of the Acquired Business, except as
set forth on Schedule 4.1.22(b). Immediately after the Closing, SWFSC will
have the right to use all Intellectual Property described on Schedule
4.1.22(b) or to receive benefits substantially equivalent thereto pursuant
to Section 2.1.10 and will own all of FMI's and the Acquired Companies'
right, title and interest in the Owned Intellectual Property, free from any
Liens (other than Liens contemplated by the Assumed Liabilities or Liens
created by Buyer or SWFSC). Schedule 4.1.22(c) sets forth a complete and
correct list of all material written or, to the knowledge of Seller and the
Selling Subsidiaries, oral licenses and arrangements, (i)
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pursuant to which the use by any Person of Intellectual Property is
permitted by FMI or any of the Acquired Insurance Companies and (ii)
pursuant to which the use by FMI or any of the Acquired Insurance Companies
of Intellectual Property is permitted by any Person (collectively, the
"Intellectual Property Licenses"). All Intellectual Property Licenses are
in full force and effect in accordance with their terms, except for such
failures to be in full force and effect that would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect and
are free and clear of any Liens (other than Permitted Liens and Liens
contemplated by the Assumed Liabilities). Neither FMI nor any Acquired
Company is in default under any material Intellectual Property License, and
no such default is currently threatened. To the knowledge of Seller and
the Selling Subsidiaries, the conduct of the Acquired Business does not
infringe the rights of any third party in respect of any Intellectual
Property, and none of the Intellectual Property is being infringed in any
material respect by third parties. There is no claim or demand of any
Person pertaining to, or any proceeding which is pending or, to the
knowledge of Seller and the Selling Subsidiaries, threatened, that
challenges the rights of FMI and the Acquired Insurance Companies in
respect of any Intellectual Property, or claims that any default exists
under any Intellectual Property License. None of the Owned Intellectual
Property or the Intellectual Property Licenses is subject to any
outstanding order, ruling, decree, judgment or stipulation by or with any
court, tribunal arbitrator or other Governmental Authority. Schedule
4.1.22(d) lists all Owned Intellectual Property which has been duly
registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark Office and United States Copyright Office or
other filing offices, domestic or foreign, and identifies the office with
which such filing was made. Each such registration and filing remains in
full force and effect, and a copy of each such registration or filing is
attached to such Schedule 4.1.22(d).
4.1.23 Variable Products: Securities Law Matters:
Investment Companies: Investment Adviser. (a) The Acquired Companies and
FMI are in compliance in all material respects with the Securities Act, the
Exchange Act, the Investment Company Act, the Investment Advisers Act and
State securities laws to the extent that such Acts apply to their
operations.
71
(b) Since January 1, 1990, neither Seller nor FMI nor any
of the Acquired Companies has been enjoined, indicted, convicted or made
the subject of disciplinary proceedings, consent decrees or administrative
orders on account of any violation of the Securities Act, the Exchange Act,
the Investment Company Act or the Investment Advisers Act or State
securities laws in connection with its insurance operations or its
sponsorship, underwriting or advisory relationships with investment
companies.
4.1.24 Brokers and Finders, etc. Neither Seller nor any of
its subsidiaries, officers, directors or employees has employed any broker,
agent or finder other than ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities
Corporation, or incurred any liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated by this
Agreement, other than fees to ▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇ Securities
Corporation, which fees are obligations solely of Seller and will be duly
paid by Seller in accordance with, and subject to, approvals received from
the Bankruptcy Court.
4.1.25 Shinnecock Purchase Agreement. From the date of the
Shinnecock Purchase Agreement to the date hereof, FMI and each of the
Acquired Companies has conducted its business only in a manner complying
with the Shinnecock Purchase Agreement, without giving effect to any waiver
thereof, except for such waivers disclosed in a letter dated December 1,
1995 addressed to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ from ▇▇▇▇▇▇ ▇. ▇▇▇▇.
4.1.26 Purchase for Investment. The PennCorp Shares and
the Notes to be acquired under the terms of this Agreement will be acquired
by CFC for its own account for the purpose of investment and not with a
view to further distributions other than as contemplated by the PennCorp
Registration Rights Agreement or the SWF Registration Rights Agreement,
respectively, or pursuant to a confirmed joint plan of reorganization for
Seller and the Selling Subsidiaries under Chapter 11 of the Bankruptcy
Code. CFC will refrain from transferring or otherwise disposing of any of
the PennCorp Shares or Notes, or any interest therein, in such a manner as
to violate any provision of the Securities Act or of any applicable state
securities law regulating the disposition thereof. CFC agrees that the
certificates representing the PennCorp Shares and the Notes may bear
legends to the effect that such securities have not been registered under
the Securities Act or such other state
72
securities laws and that no interest therein may be transferred or
otherwise disposed of in violation of the provisions thereof.
4.1.27 Disclosure. No representation or warranty by Seller
or any Selling Subsidiary contained in this Agreement nor any statement or
certificate (other than the certificate delivered pursuant to Section 5.10
as to the items referenced in clause (C) thereof) furnished or to be
furnished by or on behalf of Seller or any Selling Subsidiary to Buyer or
its representatives in connection herewith or pursuant hereto contains or
will contain any untrue statement of a material fact, or, to the knowledge
of Seller and the Selling Subsidiaries, omits or will omit to state any
material fact required to make the statements contained herein or therein
not materially misleading.
4.2 Representations and Warranties of Buyer, PennCorp and SWFSC.
Each of Buyer, PennCorp and SWFSC hereby severally, each as to itself, make
the following representations and warranties to Seller:
4.2.1 Corporate Existence. Each of Buyer, PennCorp and
SWFSC is a corporation duly organized and validly existing and in good
standing under the laws of Delaware and has full power and authority to
carry on its business as currently conducted or proposed to be conducted.
Each of Buyer, PennCorp and SWFSC is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which the conduct of its business requires such
qualification, except for such failures to be so qualified or to be in good
standing that would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on it or materially and
adversely affect the consummation of the transactions provided for in this
Agreement. All of the issued and outstanding shares of capital stock of
SWFSC are owned beneficially and of record by Buyer.
4.2.2 Authorization; Enforcement. Each of Buyer, PennCorp
and SWFSC has full corporate power and authority to execute and deliver
this Agreement, the Related Agreements to which it is a party and the other
agreements and instruments to be executed by it pursuant hereto and to
perform its obligations under this Agreement, the Related Agreements to
which it is a party and such other agreements and instruments in accordance
with their respective terms. Each of Buyer, PennCorp and SWFSC has taken
all necessary
73
corporate action to duly and validly authorize its execution and delivery
of this Agreement, the Related Agreements to which it is a party and such
other agreements and instruments to be delivered pursuant hereto and
thereto and the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly executed by each of Buyer, PennCorp
and SWFSC and this Agreement constitutes and, when executed, the other
Related Agreements to which each of Buyer, PennCorp and SWFSC is a party
will constitute the valid and legally binding obligations of such parties,
enforceable against them in accordance with their terms.
4.2.3 Governmental Approvals. No material Governmental
Approval is required to be obtained, made or given by or with respect to
Buyer, PennCorp or SWFSC in connection with the execution and delivery of
this Agreement or the Related Agreements, the performance by such parties
of their respective obligations under this Agreement or the Related
Agreements or the consummation of the transactions contemplated hereunder
and thereunder, other than as set forth in Sections 3.1.1 and 3.2.5. No
Governmental Approval is required to be obtained under the ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ Antitrust Improvements Act of 1976.
4.2.4 No Conflicts. The execution and delivery of this
Agreement and the Related Agreements and the consummation of any of the
transactions contemplated hereunder or thereunder will not (a) conflict
with or result in a breach of any provision of the Certificate of
Incorporation or By-Laws of Buyer, PennCorp or SWFSC or (b) result in any
conflict with, breach of or default (with or without notice or lapse of
time or both) under, or give rise to any right of termination, cancellation
or acceleration of any obligation or loss of any benefit under, or result
in the imposition of any Liens on any of Buyer's, PennCorp's or SWFSC's
properties or assets under, or require any consent or approval from any
third party with respect to, any material loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement or instrument or
permit, concession, franchise or license to which Buyer, PennCorp or SWFSC,
as the case may be, is a party or by which Buyer or SWFSC or any of their
respective properties or assets may be bound, or (c) conflict in any
material respect with any Applicable Law applicable to Buyer, PennCorp or
SWFSC or any of their respective properties or assets, except for
occurrences described in clause (b) or (c) that would not, individually or
in the aggregate, reasonably be expected to materially and adversely affect
the consummation of the
74
transactions provided for in this Agreement or have a material adverse
effect on the ability of SWFSC to provide to Seller and the Retained
Companies the services contemplated under the SWFSC Leasing Agreement.
4.2.5 Brokers and Finders, etc. None of the Buyer,
PennCorp or SWFSC nor any of their respective subsidiaries, officers,
directors or employees has employed any broker, agent or finder other than
▇▇▇▇▇ ▇▇▇▇▇▇ Inc. and Knightsbridge Management, L.L.C., or incurred any
liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement, other than
fees to ▇▇▇▇▇ ▇▇▇▇▇▇ Inc. and Knightsbridge Management, L.L.C., which fees
are obligations solely of Buyer and/or PennCorp and will be duly paid by
Buyer and/or PennCorp.
4.2.6 [Reserved].
4.2.7 Purchase for Investment. The Acquired Shares to be
acquired under the terms of this Agreement will be acquired by the Buyer
for its own account for the purpose of investment and not with a view to
further distributions. The Buyer will refrain from transferring or
otherwise disposing of any of the Acquired Shares, or any interest therein,
in such a manner as to violate any provision of the Securities Act or of
any applicable state securities law regulating the disposition thereof.
Buyer agrees that the certificates representing the Acquired Shares may
bear legends to the effect that such shares have not been registered under
the Securities Act or such other state securities laws and that no interest
therein may be transferred or otherwise disposed of in violation of the
provisions thereof.
4.2.8 Litigation. There is no Litigation now pending or,
to its knowledge, threatened, against or relating to it or any of its
directors or officers in their capacity as such, which reasonably would be
expected to have a material adverse effect on its ability to consummate the
transactions provided for hereunder or SWFSC's ability to provide to Seller
and the Retained Companies the services contemplated under the SWFSC
Leasing Agreement.
4.2.9 Capitalization of Buyer. As of the Closing Date, the
authorized capital stock of Buyer will consist of 28,000,000 shares of
common stock ("Buyer Common Stock"), par value $.01 per share, of which (i)
18,000,000
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shares will be designated "Class A Common Stock" and (ii) 10,000,000 shares
will be designated "Class B Nonvoting Common Stock," and 500,000 shares of
preferred stock (the "Buyer Preferred Stock"), par value $.01 per share, of
which (A) 210,000 shares will be designated "Redeemable Preferred Stock"
and (B) 210,000 will be designated as "Series A Preferred Stock."
Immediately after giving effect to the consummation of the transactions
contemplated hereby, there will be (i) 3,500,000 shares of Class A Common
Stock issued and outstanding, of which 2,350,000 shares will be owned of
record and beneficially by Knightsbridge, 500,000 shares will be owned of
record and beneficially by PennCorp Southwest, Inc., a Delaware corporation
and a wholly owned subsidiary of PennCorp ("PSI"), and 650,000 shares, in
the aggregate, will be owned by Messrs. ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, respectively, (ii) 8,400,000 shares of Class B Nonvoting Common
Stock issued and outstanding, all of which will be owned of record and
beneficially by PSI, (iii) 210,000 shares of Series A Preferred Stock
issued and outstanding, all of which will be owned of record and
beneficially by PSI, and (iv) no shares of Redeemable Preferred Stock
issued and outstanding. A copy of the summary terms of each class or
series of Buyer Common Stock and Buyer Preferred Stock to be outstanding as
of the Closing Date is attached hereto as Exhibits I-1 and I-2. As of the
Closing Date, Buyer will have reserved for issuance to the holders of the
Notes (i) 800,000 shares of its Class B Nonvoting Common Stock, and
(ii) 2,400,000 shares of its Class A Common Stock. As of the Closing Date,
except for the Notes and the warrants to purchase 1,785,000 shares of
Class A Common Stock to be issued to Knightsbridge (a copy of the summary
terms of such warrants being attached hereto as Exhibit I-3), there will be
no outstanding securities of Buyer convertible into or evidencing the right
to purchase or subscribe for any shares of capital stock of Buyer, there
will be no outstanding or authorized options, warrants, calls,
subscriptions, rights, commitments or any other agreements of any character
obligating Buyer to issue any shares of its capital stock or any other
securities convertible into or evidencing the right to purchase or
subscribe for any shares of such stock and, except for the Stockholders
Agreement to be entered into between Buyer, Knightsbridge, and PSI (a copy
of which will be provided to Seller after the date hereof), there will be
no agreements or understandings with respect to the voting, sale or
transfer of any shares of capital stock of Buyer to which Buyer is a party.
76
4.2.10 Capitalization of SLAC. As of the Closing Date, the
authorized capital stock of Southwestern Life Acquisition Corp., a Delaware
corporation ("SLAC"), will consist of 1,000 shares of its common stock par
value $.01 per share ("SLAC Common Stock"), and 210,000 shares of its
preferred stock, par value $.01 per share (the "SLAC Preferred Stock"), all
of which will be designated as its 5.5% Preferred Stock. As of the Closing
Date, there will be (i) 1,000 shares of SLAC Common Stock issued and
outstanding, all of which will be owned of record and beneficially by Buyer
and (ii) 210,000 shares of 5.5% Preferred Stock issued and outstanding, all
of which will be held of record and beneficially by various insurance
subsidiaries of PennCorp. A copy of the summary terms of each class or
series of the SLAC Common Stock and the SLAC Preferred Stock is attached
hereto as Exhibits J-1 and J-2.
4.2.11 Capitalization of PennCorp. As of the date hereof,
the authorized capital stock of PennCorp consists of 50,000,000 shares of
PennCorp Common Stock and 10,000,000 shares of preferred stock, par value
$.01 per share (the "PennCorp Preferred Stock"). As of November 30, 1995,
there were (i) 22,840,458 shares of PennCorp Common Stock issued and
outstanding; (ii) 39,250 shares of PennCorp Common Stock held in the
treasury of PennCorp; (iii) 2,571,395 shares of PennCorp Common Stock
reserved for issuance upon exercise of issued and outstanding or authorized
options and warrants; and (iv) 5,088,495 shares of PennCorp Common Stock
reserved for issuance upon conversion of PennCorp's $3.375 Convertible
Preferred Stock; (v) 127,500 shares of PennCorp's Series B Preferred Stock
issued and outstanding; (vi) 178,500 shares of PennCorp's Series C
Preferred Stock issued and outstanding; and (vii) 2,300,000 shares of
PennCorp's $3.375 Convertible Preferred Stock issued and outstanding. All
of the outstanding shares of PennCorp Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights.
The PennCorp Shares to be issued pursuant to this Agreement have been
reserved for issuance and have been duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable and will not have been issued in violation of any
preemptive rights. As of the date hereof, except with respect to the
options and warrants to purchase PennCorp Common Stock described in this
Section 4.2.11 and except for the shares of PennCorp Common Stock issuable
upon conversion of PennCorp's $3.375 Convertible Preferred Stock, there are
no outstanding
77
securities of PennCorp convertible into or evidencing the right to purchase
or subscribe for any shares of capital stock of PennCorp, there are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating PennCorp to
issue any shares of its capital stock or any other securities convertible
into or evidencing the right to purchase or subscribe for any shares of
such stock and there are no agreements or understandings with respect to
the voting, sale or transfer of any shares of capital stock of PennCorp to
which PennCorp is a party.
4.2.12 SEC Reports. Each report, schedule, registration
statement and definitive proxy statement filed by PennCorp with the SEC
since January 1, 1995 (the "PennCorp SEC Documents"), as of its respective
filing date, (i) complied in all material respects with the requirements of
the Securities Act, the Exchange Act and the respective rules and
regulations of the SEC thereunder applicable to such PennCorp SEC Documents
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading. PennCorp has timely filed
all documents that it was required to file with the SEC since January 1,
1995. The consolidated balance sheets and the related consolidated
statements of operations, stockholders' equity and cash flows (including,
without limitation, the related notes thereto) of PennCorp included in the
PennCorp SEC Documents, including PennCorp's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and PennCorp's Quarterly Reports on
Form 10-Q for the three months ended March 31, 1995, for the three and six
months ended June 30, 1995, and for the three and nine months ended
September 30, 1995, complied at the time filed (or, if such reports were
amended, complied at the time such amended reports were filed) as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles and
fairly present the consolidated financial position of PennCorp and its
consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations and changes in their cash flows and
stockholders' equity for the periods then ended except, in the case of the
unaudited interim financial statements, for normal and recurring year-end
audit adjustments. Except as set forth in any PennCorp SEC Documents filed
prior to the date
78
hereof, at September 30, 1995, neither PennCorp nor any of its subsidiaries
had, and since such date neither PennCorp, nor any of such subsidiaries has
incurred, any liabilities or obligations of any nature (whether accrued,
contingent, absolute or otherwise) which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on the
condition, financial or otherwise, business, assets, properties or results
of operations of PennCorp and its subsidiaries taken as a whole. PennCorp
has delivered to Seller for review true and complete copies of each of the
PennCorp SEC Documents.
4.2.13 Knowledge of Material Adverse Effect. As of the
date hereof, none of ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ has knowledge (after due inquiry) (i) of any
event, occurrence, change in facts, condition, or other change or effect
constituting a Material Adverse Effect or that may reasonably be expected
to result in the non-satisfaction of a condition to Buyer's obligation to
consummate the transactions contemplated hereby or (ii) of any reason for
any lender to fail to provide any of the proposed financing to be utilized
by Buyer or PennCorp in connection with the transactions contemplated by
this Agreement.
4.2.14 Disclosure. No representation or warranty by Buyer,
PennCorp or SWFSC contained in this Agreement nor any statement or
certificate furnished or to be furnished by or on behalf of Buyer, PennCorp
or SWFSC to Seller or its representatives in connection herewith or
pursuant hereto contains or will contain any untrue statement of a material
fact, or, to the knowledge of Buyer, PennCorp or SWFSC, omits or will omit
to state any material fact required to make the statements contained herein
or therein not materially misleading.
ARTICLE V
Covenants
5.1 Operations in the Ordinary Course. Subsequent to the date
of this Agreement and prior to the Closing Date, except as otherwise
contemplated by this Agreement or consented to by Buyer and PennCorp in
writing (which consent shall not be unreasonably withheld), Seller shall
cause the business of FMI and of each of the Acquired Companies to be
operated in the usual, regular and ordinary course in substantially the
same manner as heretofore and in the same manner as if Seller were
operating such business for its own
79
account consistent with past practice. Seller shall comply with the
provisions of the preceding sentence even if the cost of so operating would
require an adjustment in the Initial Purchase Price because the sum of the
payments to FMI and the other Operating Expenses of the Acquired Companies
would exceed allowances provided for in Section 2.6.3(a)(iii). Except as
otherwise contemplated by this Agreement or consented to by Buyer and
PennCorp in writing (which consent shall not be unreasonably withheld),
Seller shall and shall cause FMI and each of the Acquired Companies to (i)
maintain insurance coverages (to the extent available on commercially
reasonable terms) and maintain its books, accounts and records in the usual
manner on a basis consistent with past practice; (ii) comply in all
material respects with all applicable judgments, orders, injunctions, laws,
statutes, regulations, ordinances, licenses, approvals and permits of
Governmental Authorities and use its commercially reasonable efforts to
preserve in full force and effect all Insurance Licenses held by it; (iii)
use its commercially reasonable efforts to maintain and keep its properties
and equipment in good repair, working order and condition, subject to
normal wear and tear; (iv) perform in all material respects its obligations
under all material Contracts to which it is a party or by which it is
bound, except, other than in the case of the Assumed Contracts, to the
extent such performance is excused or modified by an order of the
Bankruptcy Court or pursuant to the Bankruptcy Code; and (v) use reasonable
efforts to promote its business, maintain and preserve its business
organization, retain the services of its present officers and employees and
maintain its relationships with its agents, policyholders, suppliers and
customers.
5.2 Restrictions. Except as otherwise contemplated by this
Agreement or consented to by Buyer and PennCorp in writing (which consent
shall not unreasonably be withheld), prior to the Closing Date Seller shall
not cause or permit FMI or any of the Acquired Companies to do any of the
following:
(a) Indebtedness. (i) In the case of any Acquired
Company, incur, create or assume any indebtedness, other than short-
term indebtedness arising out of trade accounts payable incurred in
the ordinary course of
80
business consistent with past practice, or (ii) create or assume any
other liability or obligation (absolute or contingent) material to
any Acquired Company other than in the ordinary course of business
consistent with past practice, or grant or create any Lien on any of
its assets, other than Permitted Liens.
(b) Investment Policy. With respect to the investment of
assets included in the general account of any Acquired Insurance
Company, (i) make any material change in its investment practices or
policies (except to the extent such change arises from complying with
any of the restrictions of this Section 5.2), (ii) make any
investment other than purchases of publicly traded fixed income
securities having a remaining maturity at the time of purchase of no
more than 10 years and having a rating of "AA" or better from Moody's
Investor's Service, Inc. (or a substantially equivalent rating from
another nationally recognized rating agency), or (iii) sell or
dispose (other than by maturity) of any investment, except in
accordance with the description of contemplated dispositions for each
week provided to a designated representative of Buyer by 11:00 a.m.,
Dallas time, on each Monday after the Execution Date.
(c) Actuarial Accounting, etc. Policy. In the case of any
Acquired Company, make any material change in its underwriting,
pricing, actuarial practices or policies or any material change in
its financial, Tax or accounting practices or policies, including,
without imitation, any change in any basis for establishing reserves
and any depreciation policies or rates.
(d) Compensation, etc. Except as set forth on Schedule
4.1.13(a)(ii) and except as expressly provided for in an existing
Plan or agreement set forth on Schedule 4.1.19(a), grant or promise
to grant to any of its officers, directors, managerial personnel or
other employees (including leased employees, if any) or agents, any
material increase in compensation or commissions, or in severance or
termination pay, or, except as required under Section 7.5(b), adopt
or amend or promise to adopt or amend any new or existing Plan
covering any Business Employee employed or formerly employed in
connection with the business of Seller, FMI or the Acquired Companies
or amend in any material respect any Plan, unless such amendment is
required to comply with applicable law or is expressly permitted
under Section 7.5(b), or grant or promise to grant any
81
material benefits payable upon a change in control of any such
entity.
(e) Employment Contracts. Enter into any employment
agreement with any director, officer or other key employee of FMI or
any Acquired Company, except (i) those terminable without liability
to FMI or any Acquired Company on 30 days' notice or less or amend
any such agreement presently existing or (ii) with those individuals
who are not employees of FMI on the Execution Date and who will
remain employees of FMI after the Closing.
(f) Capital Stock. Authorize, issue or sell any of its
capital stock or other equity securities or any security convertible
into or exchangeable for such capital stock or other equity
securities, or any option with respect thereto.
(g) Charter, etc. Amend its Certificate or Articles of
Incorporation or By-laws without the prior approval of Buyer.
(h) Mergers. (x) Merge or consolidate with any other
person or (y) acquire all or substantially all the assets or capital
stock of any other person, except, in the case of clause (x) or (y),
to the extent that (1) such transaction results from the exercise by
Seller, FMI or any of the Acquired Companies of its remedies under
any mortgage, deed of trust or other security or collateral
agreement, or (2) such transaction is contemplated by this Agreement,
provided that clause (1) of this exception shall not permit Seller,
FMI or any Acquired Company to merge or consolidate with any other
person in any transaction in which Seller or an Acquired Company is
not the surviving corporation or which otherwise interferes with or
restricts its ability to perform its obligations under this
Agreement, or (z) sell, lease, pledge, mortgage, transfer or
otherwise dispose of (whether by bulk reinsurance or otherwise) all
or any material portion of its assets, properties or business or any
of its significant business segments, or any asset, property or
business material to FMI, Seller or any Acquired Company.
(i) Acquisition of Assets. In the case of any Acquired
Company, other than pursuant to any Contract
82
entered into prior to the date of this Agreement which has been
disclosed on a Schedule hereto, acquire from any Person any material
assets, except assets acquired in the ordinary course of business
consistent with restrictions set forth in Section 5.2(b).
(j) Insurance Licenses. Take any action to forfeit,
abandon, modify, waive, terminate or otherwise change any of its
Insurance License, except (x) as may be required in order to comply
with Applicable Law, (y) as may be contemplated by this Agreement or,
(z) such modifications or waivers of Insurance Licenses made in the
ordinary course of business of any Acquired Insurance Companies as
would not in any case or in the aggregate restrict the business or
operations of such Acquired Insurance Companies in any material
respect.
(k) Representations. Take any action, or omit to take any
commercially reasonable action, that would, or that would reasonably
be expected to, result in (i) any of the representations and
warranties of Seller and the Selling Subsidiaries set forth in
Section 4.1 becoming untrue in any material respect or (ii) any of
the conditions to the Closing set forth in Article III not being
satisfied.
(l) Affiliate Investments. In the case of any Acquired
Company, make any debt or equity investment in, or purchase any debt
or equity securities of, or make any loan or advance or capital
contribution to, any Affiliated Company or enter into any agreement
to do so.
(m) Dividends, Payments, etc. In the case of the Acquired
Companies, declare, set aside, make provision for or pay any
dividends, or make any payments to or for the benefit of Seller or
any of its Affiliates, except for (i) the distribution of
Constitution Life to SWL Holding and the distribution of the SLC
Bonds by Constitution Life to SWL Holding, as contemplated by Section
3.1.1 and 3.1.3, (ii) payments contemplated under Tax sharing or
allocation agreements between Seller and any of its affiliates and
(iii) payments made pursuant to the terms of the FMI Services
Agreement.
(n) New and Existing Policies. In the case of any
Acquired Company, issue or sell new kinds of
83
Policies, or amend existing kinds of Policies except to the extent
required to comply with Applicable Law.
(o) Regulatory. Enter into any material agreement with
any Governmental Authority except as may be contemplated by this
Agreement or except to the extent required to comply with Applicable
Law.
(p) Real Property Acquisitions. In the case of any
Acquired Company, acquire title to any real property, whether through
foreclosure or otherwise, except for the ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ through the foreclosure of Loan N.
00030549 to United States Fidelity and Guaranty Company.
(q) Reinsurance. In the case of any Acquired Company,
modify any Existing Reinsurance Agreement or enter into any new
contractual treaties and agreements regarding ceded or assumed
reinsurance except to the extent required to comply with Applicable
Law.
(r) Material Contracts. Modify any existing material
Contract or enter into any new material Contract.
(s) General. Authorize any of, or commit or agree to take
any of, the foregoing actions.
5.3 Related Matters. Seller shall promptly report to Buyer the
termination of employment of any senior officer of Seller or of any
Acquired Company.
5.4 Management of Acquired Companies. Seller shall, from the
date of this Agreement through the Closing Date, cause its management and
that of FMI to consult on a regular basis and in good faith with the
employees and representatives of Buyer concerning the management of the
Acquired Companies' businesses, including without limitation the policies
and practices of the Acquired Companies with respect to (i) the ceding or
assumption of reinsurance or the termination or modification of Existing
Reinsurance Agreements (except as contemplated by this Agreement), (ii)
significant underwriting, actuarial, Tax or accounting issues (including
matters related to Tax audits or the establishment, review and modification
of insurance and other reserves), (iii) significant matters relating to the
conditions, forms and pricing of new kinds of Policies and
84
(iv) significant matters relating to the agency force, product
distribution, commissions and similar matters.
5.5 Access to Information. (a) Subsequent to the signing of
this Agreement and prior to the Closing Date, Seller shall cause FMI and
each of the Acquired Companies to afford Buyer and PennCorp and Buyer's and
PennCorp's accountants, actuaries, counsel, financial advisers and other
representatives with full access during normal business hours to all their
respective properties, Books and Records, contracts, and commitments and
reasonable access to their officers and employees. To that end, during
such period, Seller will make a reasonable amount of office space
(including standard office equipment) at its corporate headquarters in
Dallas, Texas available to such agents, employees, advisers and other
representatives as Seller shall designate. During such period, Seller and
each of the Acquired Companies shall furnish promptly to Buyer and PennCorp
(a) a copy of each (i) SAP Annual Statement, SAP Quarterly Statement and
SAP Audited Statement filed by it during such period pursuant to the
requirements of any Federal, State or foreign insurance law or regulation
and (ii) GAAP Financial Statement and GAAP Quarterly Statement filed by it
during such period pursuant to the requirements of any Federal or State law
or regulation, (b) in the case of Seller, FMI and each of Acquired
Companies, after the end of each month, any management financial reports
(together with all accompanying documents) prepared with respect to such
month, (c) all notices to any Acquired Company with respect to any alleged
deficiency or violation material to the financial condition or operations
of such Acquired Insurance Company from any Governmental Authority, (d)
each written report on examination of financial condition or market conduct
(whether in draft or final form) of any Acquired Insurance Company issued
by any applicable Governmental Authority, (e) all material filings with
State insurance regulators made by any of the Acquired Insurance Companies
under the insurance holding company statutes of their domiciliary States,
(f) all material correspondence with, and any prepared summaries of
meetings with, representatives of the IRS or other taxing authorities,
(g) all material correspondence or communications with State insurance
regulatory authorities concerning the Acquired Companies, including without
limitation any such items relating to rehabilitation, insolvency,
liquidation, supervision, or other comparable State proceeding and (h) all
other information and documents concerning its business, properties and
personnel as Buyer and/or PennCorp may reasonably request. Seller and each
of the Selling Subsidiaries will promptly deliver to Buyer and PennCorp
such copies of all pleadings, motions, notices, statements, schedules,
applications, reports and other papers filed in the Case as Buyer and/or
PennCorp
85
may reasonably request. Subject to any applicable confidentiality
agreements, Seller and each of the Selling Subsidiaries will promptly
provide Buyer and PennCorp with all documents and materials relating to the
proposed sale of the Acquired Business or any portion thereof (whether
created before or after the Closing Date), including without limitation
with respect to competing bids, and otherwise cooperate with Buyer and
PennCorp, to the extent reasonably necessary in connection with Buyer's and
PennCorp's preparation for or participation in any part of the bankruptcy
proceedings of Seller or any of the Retained Companies in which Buyer's
and/or PennCorp's participation is necessary or required. Seller will and
will cause each Retained Company to promptly deliver to Buyer and PennCorp
all pleadings, motions, notices, statements, schedules, applications,
reports and other papers filed in any judicial or administrative proceeding
as Buyer and/or PennCorp may reasonably request. Each financial statement
provided to Buyer and/or PennCorp in accordance with subparagraph (a) above
shall be prepared on a basis consistent with that used in the preparation
of the earlier applicable financial statements described in Section 4.1.7
hereto, and shall, (x) in the case of any SAP Annual Statement, SAP
Quarterly Statement or SAP Audited Statement, fairly present in all
material respects the admitted assets, reserves, liabilities, capital and
surplus of such Acquired Insurance Company as of the date thereof and the
results of operations and cash flow for the period then ended and (y) in
the case of any GAAP Financial Statement or GAAP Quarterly Statement,
fairly present in all material respects the financial position of Seller
and its consolidated Subsidiaries as of the respective dates thereof and
the results of operations and the changes in their stockholder's equity and
cash flows for the period then ended. Records and other documents that are
subject to an attorney-client or similar privilege that protects such
documents and records from a discovery or similar disclosure report from
third parties shall not be required to be disclosed if such disclosure
would make such privilege unavailable and if the disclosing party would be
materially damaged by the loss of such privilege.
(b) From and after the Closing, Buyer will, and will cause
SWFSC and each of the Acquired Companies to, and PennCorp will use
commercially reasonable efforts to furnish
86
on a timely basis to Seller and the Retained Companies such data and other
information as Seller shall reasonably request in order to permit Seller
and the Retained Companies to (1) prepare their respective financial and
tax statements and reports, (2) prepare all forms, reports, applications
and other documents required under Applicable Law and (3) make such
filings, applications, reports and other similar matters in connection with
proceedings before the Bankruptcy Court as may be appropriate or necessary.
At Buyer's election, in lieu of providing such data and information, Buyer
may make the respective books and records of SWFSC and the Retained
Companies available to Seller and the Retained Companies and their
respective accountants, actuaries, counsel, financial advisers and other
representatives during normal business hours. Buyer, SWFSC and the
Acquired Companies shall not be obligated to provide information or access
to information pursuant to this Section 5.5(b) to the extent such
information is sought in connection with any proceeding in which Seller or
any Retained Company is disputing any matter with Buyer, PennCorp, any
Acquired Company, or any Buyer Indemnitee. Records and other documents
that are subject to an attorney/client or similar privilege that protects
such documents and records from a discovery or similar disclosure by third
parties shall not be required to be disclosed if such disclosure would make
such privilege unavailable and if the disclosing party would be materially
damaged by the loss of such privilege.
5.6 Exclusive Dealing. (a) During the Exclusivity Period,
Seller shall not, and shall not authorize or permit any of its Affiliates
or any officer, director, agent or employee of, or any investment banker,
financial advisor, attorney, accountant or other representatives retained
by Seller or any Affiliate of Seller ("Seller Representatives"), to,
directly or indirectly, solicit, initiate, seek or encourage (including by
way of furnishing information or assistance) or take other material action
to facilitate any inquiries or the making of any proposal which constitutes
or may reasonably be expected to lead to, an Acquisition Proposal (as
defined below) from any person other than Buyer (a "Third Party"), or
engage in any discussions or negotiations relating thereto or in
furtherance thereof or accept any Acquisition Proposal, and Seller shall
promptly (but in any event within one day thereafter) notify Buyer orally
(which notice shall promptly be confirmed in writing) of any Acquisition
Proposal or any inquiry with respect thereto which Seller or any of its
Affiliates or any Seller Representative may receive and
87
shall provide a copy of any written materials provided to Seller in
connection with any such Acquisition Proposal.
(b) As used in this Agreement "Acquisition Proposal" shall
mean any proposal or offer, other than a proposal or offer (1) by Buyer or
any of its Affiliates or (2) with respect to any Retained Companies, for
(i) any merger, consolidation, share exchange, business combination or
other similar transaction (including reinsurance) with Seller or any of its
Subsidiaries, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 10% or more of the assets or policies (including
through reinsurance) of Seller or any of its Subsidiaries, in a single
transaction or series of transactions (whether related or unrelated), (iii)
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 in
connection therewith, (iv) the acquisition by any 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
common stock or any class of Seller's debt securities or (v) 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.
5.7 Regulatory Filing and Compliance. (a) Seller and FMI will
furnish Buyer and PennCorp with such information as Buyer and PennCorp may
reasonably request in connection with any application, notification or
filing Buyer and/or PennCorp may make to applicable Governmental
Authorities in connection with this Agreement and the Related Agreements
including without limitation those under any Applicable Insurance Laws.
Seller will cause each of its Subsidiaries to cooperate with Buyer and
PennCorp, to the extent Buyer and/or PennCorp may reasonably request, to
enable it to make such applications, notifications or filings as promptly
as practicable.
(b) Buyer and PennCorp will furnish Seller with such
information as Seller may reasonably request in connection with any
application, notification or filing Seller may make to applicable
Governmental Authorities in connection with this Agreement and the Related
Agreements including, without limitation, those under any Applicable
88
Insurance Laws. Buyer and PennCorp will cooperate with Seller, to the
extent Seller may reasonably request, to enable it to make such
applications, notifications or filings as promptly as practicable.
(c) Buyer and PennCorp, on the one hand, and Seller, FMI
and the Acquired Companies, on the other hand, shall as soon as reasonably
practicable after the date of this Agreement prepare and file or cause to
be prepared and filed with the appropriate Governmental Authorities all
documentation and information required by law or requested by any such
Governmental Authority to be filed by Buyer, Affiliates of Buyer, PennCorp,
Affiliates of PennCorp, Seller, FMI and the Acquired Companies to permit
the consummation of the transactions provided for in this Agreement,
including, without limitation, (i) notifications and filings required to be
made under any Applicable Insurance Laws, (ii) any necessary applications,
reports or other documents to be filed with the SEC, the NYSE, the American
Stock Exchange, Inc., the National Association of Securities Dealers, Inc.,
any other regulatory or self-regulatory organization and the securities
commissions of States in which any of Seller's Subsidiaries acts as a
broker-dealer or Investment Adviser and (iii) other notifications and
filings referred to in Sections 3.1.1, 3.1.2, and 3.2.5. Seller, FMI and
the Acquired Companies shall perform all such other actions reasonably
necessary to obtain prompt favorable action from any such Governmental
Authority.
(d) Neither Seller, FMI nor any Acquired Company on the
one hand, nor Buyer, PennCorp or SWFSC on the other, shall deliver to any
Governmental Authority any material application, notification, or filing or
other document relating to the transactions contemplated by this Agreement
or any Related Agreement without affording the other a reasonable
opportunity to review and comment on such application, notification, filing
or other document and shall not make any such application, notification or
filing that describes or refers to the other or any Affiliate of the other
or the transactions contemplated hereby without the prior approval of the
other of such description or reference (which approval will not be
unreasonably withheld); provided that, subject to the last sentence of
Section 5.8 and Sections 3.1.2 and 5.12, nothing contained herein shall in
any way restrict or otherwise affect Seller's, Buyer's or PennCorp's right
to make any such application, pleading, motion or other filing with the
▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ as Seller, Buyer or PennCorp, as the case may be, deems
appropriate in its sole discretion. Each of Seller, Buyer and PennCorp
shall promptly deliver to the other copies of all applications,
notifications, filings (other than those with respect to Policy forms or
premium rates) or other documents filed with any Governmental Authority by
Seller, FMI or any of the Acquired Companies on the one hand, or Buyer,
PennCorp or SWFSC on the other, with respect to the transactions
contemplated hereby, and copies of all material correspondence to and from
such Governmental Authority in connection therewith.
5.8 Commercially Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each party will use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, to
the extent commercially reasonable, all things necessary, proper or
advisable to consummate and make effective in the most expeditious manner
practicable, the Closing, and the other transactions contemplated by this
Agreement including, without limitation, (i) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings
(including filings with Governmental Authorities, if any) and the taking of
all reasonable steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Authority,
(ii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, brought against such party challenging this
Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Authority vacated or reversed and (iii)
the execution and delivery of any additional instruments or documents or
the taking of all actions, whether prior to or after the Closing Date,
necessary to sell, convey, transfer or assign to Buyer, any Buyer
Subsidiary or PennCorp, or to enable Buyer or any Buyer Subsidiary to use,
any of the Acquired Assets or otherwise to carry out the purpose and intent
of this Agreement including, without limitation, the execution and delivery
of any additional instruments necessary to transfer ownership of all
Deposits listed on Schedule 4.1.20(e) hereto. The parties will use all
commercially reasonable efforts to obtain, or cause to be obtained, all
necessary consents, approvals or waivers from third parties in connection
with the Closing and the other
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transactions contemplated hereby. Seller and the Selling Subsidiaries
agree not to take, directly or indirectly, any action in the Bankruptcy
Court to hinder or delay the consummation of the transactions contemplated
in this Agreement, provided that this covenant shall not be deemed to have
been breached by any action taken in accordance with, or that is reasonably
responsive to an order of, the Bankruptcy Court.
5.9 Antitwisting and Antisolicitation. (a) Seller and the
Retained Companies will not, and Seller shall cause each of the Retained
Companies to agree that it will not, knowingly replace, and shall issue
instructions prohibiting any officer, employee, agent, broker or producer
of Seller, FMI or the Retained Companies (collectively, the "Prohibited
Agents") from replacing, or attempting to replace, the insurance policies,
annuity contracts or guaranteed interest contracts issued or assumed by any
of the Acquired Insurance Companies or reinsured and assumed by the
Acquired Insurance Companies with an insurance policy, annuity contract or
guaranteed investment contract issued by Seller or by any current or future
Subsidiary of Seller (other than the Acquired Insurance Companies) for a
period of two years following the Closing Date.
(b) For a period of two years from the Closing Date,
Seller will not, and Seller shall cause each of the Retained Companies to
agree that it will not, directly or indirectly, attempt to induce (i) any
person who is in the employ of Buyer, SWFSC or any of the Acquired
Companies to leave the employ of Buyer, SWFSC or any of the Acquired
Companies, or (ii) any agent, broker or producer of the Acquired Insurance
Companies to cease writing or placing insurance policies, annuity contracts
or guaranteed interest contracts issued by the Acquired Insurance
Companies.
(c) For a period of two years from the Closing Date,
Seller will not, and Seller shall cause each of the Retained Companies to
agree that it will not, directly or indirectly, sell or write insurance
policies, annuity contracts, or guaranteed interest contracts on policy
forms which are substantially the same as those being used by the Acquired
Insurance Companies on the Closing Date.
(d) For a period of two years from the Closing Date,
Seller will not, and Seller shall cause each of the Retained Companies to
agree that it will not, target any
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solicitation to current or former policyholders of the Acquired Insurance
Companies.
(e) Seller shall not sell or otherwise dispose of any of
the Retained Insurance Companies prior to the expiration of two years from
the Closing Date unless the Person acquiring the Retained Insurance Company
acknowledges to the Buyer in writing the obligation of such Retained
Insurance Company to abide by the restrictions of this Section 5.9;
provided, that, from and after the time any Retained Company ceases to be a
Subsidiary of Seller, neither Seller nor any Retained Company that is a
Subsidiary of Seller shall have any liability or obligation for any breach
of the restrictions of this Section 5.9 by such Retained Company that has
ceased to be a Subsidiary of Seller or any Prohibited Agent of such
Retained Company.
5.10 Certificate of Operating Expenses. On the date, as notified
by Buyer to Seller, that is the fifth day prior to the expected Closing
Date, Seller shall deliver to Buyer an officer's certificate certifying (A)
the amount paid to FMI by the Acquired Insurance Companies pursuant to the
terms of the FMI Services Agreement from October 1, 1995 through the
Closing Date, (B) any other Operating Expenses from October 1, 1995 through
the Closing Date, and (C) all intercompany transactions between any of the
Acquired Insurance Companies and their Affiliates between October 1, 1995
and the Closing Date. As to the matters listed in clauses (A), (B) and (C)
of the preceding sentence, such certificate(a) shall be accompanied by
detailed supporting schedules, (b) shall present amounts arising between
the date of such certificate and the Closing Date on the basis of Seller's
good faith estimate, (c) shall be updated on the Closing Date to reflect
the actual applicable amounts arising between the date of such certificate
and the Closing Date and (d) as so updated, shall fairly present the
matters listed in such clauses (A) and (B) in all material respects.
5.11 Change of Names. On or prior to the Closing Date, Seller
shall cause each of the Retained Companies to change its name to eliminate
the words "Southwestern Life," "Southwestern," "SWL," "Union Bankers" or
any derivatives thereof and thereafter not use such words in the conduct of
its business or otherwise in any way, except as may be required by
Applicable Law; provided that Buyer acknowledges and agrees that "Bankers,"
"Bankers Multiple Line," or "BML" shall not be deemed a derivative of
"Union Bankers" for purposes of this Section 5.11.
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5.12 Bankruptcy Court Approval. (a) As promptly as practicable
after the date hereof, Seller and the Selling Subsidiaries shall jointly
file a motion with the Bankruptcy Court seeking entry of the Approval Order
approving, inter alia, the sale of the Estate Property to Buyer and
PennCorp pursuant to section 363 of the Bankruptcy Code and the assumption
and assignment of all Executory Contracts pursuant to section 365 of the
Bankruptcy Code to the extent such motion shall be necessary to obtain
entry of the Approval Order. Seller and each of the Selling Subsidiaries
agrees to make promptly any filings, to take all actions and to use its
best efforts to obtain any and all other approvals and orders necessary or
appropriate for the consummation of the transactions contemplated hereby.
Prior to Closing, Seller shall comply with the provisions of section
365(b)(1) of the Bankruptcy Code with respect to the Executory Contracts.
(b) Prior to entry of the Approval Order, each of Seller,
Selling Subsidiaries, Buyer, PennCorp and SWFSC will accurately inform the
Bankruptcy Court of all material facts of which it is aware relating to
this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby. Seller, the Selling Subsidiaries, Buyer and PennCorp
will jointly endeavor to have the Bankruptcy Court make the findings of
fact and conclusions of law that Buyer and PennCorp and, if appropriate,
any Affiliates of Buyer or any Affiliates of PennCorp, Seller and, if
appropriate, any Affiliates of Seller, are each a purchaser or seller in
good faith, as the case may be, 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.
(c) If the Approval Order or any other orders of the
Bankruptcy Court relating to this Agreement, the sale, or assumption and
assignment of the Executory Contracts, shall be appealed by any party (or a
petition for certiorari or motion for hearing or reargument shall be filed
with respect thereto), Seller and each of the Selling Subsidiaries agrees
to take all steps as may be reasonable and appropriate to defend against
such appeal, petition or motion, and Buyer and PennCorp agree to cooperate
in such efforts, and each party hereto agrees to use its best efforts to
obtain an expedited resolution of such appeal; provided, however, that
nothing herein shall preclude the parties hereto from consummating the
transactions
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contemplated herein if the Approval Order shall have been entered and shall
not have been stayed.
5.13 [Reserved].
5.14 Specific Enforcement of Covenants. Seller, FMI and the
Acquired Companies acknowledge 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 the Acquired Companies and to enforce specifically the terms
and provisions thereof in any court of the United States or any State
having jurisdiction, this being in addition to any other remedy, which
shall not include the right to terminate this Agreement, to which it may be
entitled at law or in equity, it being understood that the Bankruptcy Court
shall have jurisdiction over such matters to the extent provided for in the
order of the Bankruptcy Court described in Section 3.1.2(a)(xi).
5.15 Fund America Certificates. (a) At Buyer's request at any
time and from time to time after the Closing, Seller will, and will cause
each Retained Company that owns of record or beneficially any of the Pass
Through Certificates Series 1993-C, Class B Certificates (the "Fund America
Certificates") to deliver to Buyer irrevocable proxies and other
instruments, in form and substance reasonably satisfactory to Buyer, that
confer upon Buyer or any Acquired Company designated by Buyer the right to
exercise all voting, consent or approval rights that pertain to the Fund
America Certificates in any way. Such right shall be irrevocable so long
as any Acquired Company owns, of record or beneficially, any Fund America
Certificates, provided that such irrevocable proxy shall not continue in
respect of any Fund America Certificate sold by Seller or any Retained
Company pursuant to this Section 5.15.
(b) If at any time and from time to ▇▇▇▇ ▇▇▇▇▇▇ or any
Retained Company shall decide to sell or otherwise dispose of any Fund
America Certificates, Seller shall, or shall cause the Retained Company to,
give notice (the "First Notice") to Buyer of its intention to do so. The
First Notice shall specify the principal amount of the Certificates to be
sold and a date (the "Fund America
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Purchase Date") not less than 45 days after the date the First Notice is
given, on which Buyer must purchase the Fund America Certificates or after
which Seller or the Retained Company shall be free to sell the Fund America
Certificates.
(c) If Buyer intends to purchase the Fund America
Certificates, within 20 days of the receipt of a First Notice, Buyer must
deliver a notice (the "Second Notice") to Seller informing Seller of
Buyer's election to purchase all, but not less than all, of the principal
amount of the Fund America Certificates specified in the First Notice. The
Second Notice shall list the names of five dealers in collateralized
mortgage obligations of national standing. Within five days after receipt
of the Second Notice, Seller shall select three of the dealers specified in
such Second Notice. Buyer and Seller shall jointly solicit bids from the
three dealers so specified for the Fund America Certificates proposed to be
sold. The purchase price to be paid by Buyer to Seller for the Fund
America Certificates shall be the average of the bids submitted by such
dealers. On the Fund America Purchase Date, the purchase price shall be
paid by wire transfer to Seller or one or more of the Retained Companies,
as the case may be, in immediately available funds to an account specified
by Seller or a Retained Company at least two Business Days before the Fund
America Purchase Date, against transfer of the Fund America Certificates to
be purchased free and clear of all Liens and accompanied by instruments of
transfer reasonably satisfactory to Buyer.
(d) If Buyer fails to purchase the Fund America
Certificates specified in the First Notice, Seller or the Retained
Companies, as the case may be, thereafter shall be free to sell such Fund
America Certificates free and clear of this Section 5.15.
5.16 Proceeds from BL of NY. SWL shall retain the entire amount
of proceeds obtained from the sale of BL of NY, which was consummated on
July 27, 1995, and no amount of such proceeds shall be paid by SWL, by
dividend or otherwise, to Seller or to any Retained Company.
5.17 Power of Attorney. On the Closing Date, and subject to the
terms and conditions hereof, Seller and each Retained Company will execute
and deliver to Buyer a special power of attorney in substantially the form
attached as Exhibit E to the Shinnecock Purchase Agreement (with such
additional changes thereto as are necessary to reflect the
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terms of the transactions contemplated hereby and as are reasonably
satisfactory to Seller, Buyer and PennCorp).
5.18 Notification of Developments. Each of Seller, Buyer and
PennCorp will give prompt notice in writing to the other party, of and
contemporaneously will provide such other party with true and complete
copies of any and all information or documents relating to, and will use
commercially reasonable efforts to cure before the Closing (a) any fact,
condition, event or occurrence that causes or would reasonably be expected
to cause or result in the conditions contained in Section 3.1 to fail to be
satisfied or reasonably would be expected to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time, (b) any material failure of Seller, any
Selling Subsidiary, Buyer or PennCorp, as the case may be, or any officer,
director, employee, or agent of Seller, any Selling Subsidiary, Buyer or
PennCorp to comply with or satisfy any covenant, condition, or agreement to
be complied with or satisfied by it under this Agreement, or (c) any other
fact, condition, event or occurrence that would reasonably be expected to
result in the failure of any of the other conditions of Seller in Section
3.1 or 3.2, or one of the other conditions of Buyer and PennCorp in Section
3.1 or 3.3, to be satisfied, promptly upon becoming aware of the same. No
such notification will affect the representations or warranties of the
parties or the conditions to the obligations of the parties under this
Agreement.
5.19 Surplus Debenture and UBIC Shares. Prior to the Closing
Date, CFC shall sell, assign and deliver the UBIC Shares to Constitution
Life for and in consideration of the $80,000,000 Surplus Debenture, which
shall contain substantially the terms and conditions as the form of Surplus
Debenture most recently filed as an exhibit to the Amended and Restated
Form A.
5.20 Limited Partnership Interests. Prior to the Closing Date,
Seller shall cause all limited partnership interests in Conseco Capital
Partners, ▇.▇. ▇▇ and in any limited partnership formed under ▇▇▇▇▇, Muse
Equity Fund, L.P. owned by Marquette and Constitution Life to be sold for
cash at 120% of their respective book value to Seller or one or more
Retained Companies.
5.21 Additional Acquired Assets. From and after the Closing
Date, Seller shall and shall cause the Retained
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Companies to convey, transfer, assign and deliver to SWFSC for no
additional consideration all of Seller's or any Retained Company's right,
title and interest in and to any tangible or intangible asset (other than
an Excluded Asset) relating to, used, held for use, or reasonably necessary
or required in the operation of the Acquired Business, which was not
conveyed to SWFSC on the Closing Date.
5.22 Recapture of MAL Reinsurance. Prior to the Closing Date,
Seller shall use its commercially reasonable efforts to cause the
termination of the reinsurance transaction between MAL and SWL now in
effect, such termination to include a transfer of assets to MAL consistent
with the allocation of assets for the related liabilities calculated in
accordance with SAP contained in the ▇▇▇▇▇▇▇▇▇▇▇ Report dated April 19,
1995, with the assets and the asset values to be agreed to by Buyer and
Seller, provided, however, that the mortgage loans component of such assets
will include loans number 30515 (▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇) and
number 30399 (525 ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇), which for this purpose will
be valued at $1,319,000 and $600,000 respectively.
5.23 Insurance Coverage. Buyer intends to obtain adequate
insurance coverage for the Acquired Business prior to the Closing Date. If
Buyer is unable to arrange for such adequate coverage prior to the Closing
Date, Seller will cooperate with Buyer to provide or extend coverage for
the Acquired Business, at Buyer's expense, to the same extent as such
coverage was provided prior to the Closing Date until Buyer is able to
obtain adequate insurance coverage for the Acquired Business, provided that
after the Closing Date (a) any risk of loss with respect to the Acquired
Business shall be borne by Buyer, and (b) Seller shall not be liable for
the adequacy or sufficiency of such coverage.
5.24 Transfer of Intellectual Property Licenses. Prior to the
Closing Date, Seller and FMI shall use commercially reasonable efforts to
obtain, or cause to be obtained, any written consents or waivers necessary
for each Intellectual Property License to be used by or on behalf of each
Acquired Company and each Retained Company to the same extent and in the
same form and manner (including the use of all modifications made prior to
the Closing Date) as such Intellectual Property License was used by or on
behalf of such companies prior to the Closing Date.
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5.25 REO Holding Corp. Prior to the Closing Date, Seller shall
cause the REO Shares to be sold for cash in the amount of $4,300,000 to
Seller or one or more of the Retained Companies.
5.26 [Reserved].
5.27 Intercompany Matters. Subject to the provisions of Article
VI hereof with respect to the allocation and payment of, and
indemnification with respect to, Taxes, during the period from October 1,
1995 to the Closing Date, (a) the allocation of investment expenses and
Taxes among the Acquired Insurance Companies and their Affiliates shall be
no less advantageous to the Acquired Companies than allocations according
to prior practice and (b) no Acquired Insurance Company shall assume any
liability of Seller, any Selling Subsidiary or any Retained Company except
as expressly contemplated by this Agreement.
5.28 Matters Related to Notes. Buyer agrees that, upon request
from Seller, it shall provide to Seller for inclusion in a disclosure
statement to be filed with the Bankruptcy Court with respect to the
Debtors' proposed joint plan of reorganization, such information (including
audited, unaudited and pro forma financial statements with respect to Buyer
and the Notes to the extent available to Buyer without unreasonable effort
or expense as such term is used in the rules and regulations of the SEC) as
Seller reasonably may request. Buyer agrees to cooperate in good faith
with Seller in the preparation of such disclosure statement, to the extent
that it relates to Buyer and the Notes and to provide such additional
information as Seller reasonably may request from time to time in order to
comply with any orders of the Bankruptcy Court in connection with its
ruling upon the adequacy of the disclosure contained in the disclosure
statement pursuant to Section 1125 of the Bankruptcy Code. Seller agrees
that it shall not file or mail to holders of claims or interests any
disclosure statement or proposed disclosure statement that contains any
information relating to Buyer and the Notes and without having first
furnished Buyer and its counsel with a copy of such disclosure statement
and proposed disclosure statement, affording them a reasonable period of
time (not less than three full Business Days) to review such disclosure
statement or proposed disclosure statement, and making such changes therein
with respect to Buyer and the Notes as Buyer or its counsel shall
reasonably request.
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5.29 Compliance with Securities Laws. PennCorp shall take such
actions as are reasonably necessary to cause the offer, sale and issuance
of the PennCorp Shares, and Buyer shall take such actions as are reasonably
necessary to cause the offer, sale and issuance of the Notes, pursuant to
this Agreement to be effected in accordance with applicable federal and
state securities laws.
5.30 Listing of PennCorp Shares. PennCorp shall take such action
prior to the effectiveness of the PennCorp Registration Statement as is
reasonably necessary to cause the PennCorp Shares to be issued pursuant to
this Agreement to be approved for listing on the NYSE, subject to official
notice of issuance.
5.31 Qualification of Note Indenture. Buyer shall take such
action as is reasonably necessary to cause the Note Indenture to be
qualified under the Trust Indenture Act of 1939, as amended, as soon as
practicable after the Closing and in any event prior to the confirmation of
the joint plan of reorganization of Seller and the Selling Subsidiaries in
the Case.
5.32 PennCorp Registration Statement. Unless prohibited by the
Securities and Exchange Commission, PennCorp shall indicate in a "Plan of
Distribution" section contained in the final prospectus constituting a part
of the PennCorp Registration Statement at the time it is declared effective
by the SEC that such prospectus may be delivered to holders of claims
against and interests in the Debtors' estates in connection with the
solicitation of acceptances of the Debtors' joint plan of reorganization,
and that the PennCorp Shares may be distributed by the Debtors to holders
of claims against and interests in the Debtors' estates in exchange for
such claims and interests, it being agreed by PennCorp that it shall advise
the SEC in writing (in such manner as PennCorp deems appropriate) of the
foregoing disclosure to be contained in such prospectus.
ARTICLE VI
Certain Tax Matters
6.1 Payment of Tax Liabilities. (a) Seller and the Selling
Subsidiaries, jointly and severally, will defend, indemnify and hold
harmless each Buyer Indemnitee from and against, and pay or reimburse each
Buyer Indemnitee for, any and all Losses resulting from or arising out of
(i) Taxes arising out of or relating to the business operated by,
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transactions involving, and distributions made by or to, any member of the
Related Group, or the assets of any of them, with respect to any taxable
period or portion thereof ending on or before the Closing Date, including
without limitation any Taxes asserted against Buyer or its Affiliates,
including the Acquired Companies, as a result of transferee liability at
law or equity; (ii) Taxes asserted against any member of an Affiliated
Group for any taxable period or portion thereof ending on or before the
Closing Date, including, without limitation, Taxes for which the Acquired
Companies are held liable pursuant to Treasury Regulations section 1.1502-6
or any comparable provision of State, local or foreign law; (iii) Taxes or
any other payments required to be made to secure recognition from the IRS
of the Tax treatment specified in Section 4.1.17(c) for taxable periods
ending on or before the Closing Date; (iv) any Tax sharing agreement or
arrangement with respect to which Seller has assumed the obligation of the
Acquired Companies pursuant to Section 6.7(c); and (v) Taxes asserted
against any Person for which the Buyer Indemnitees are liable under an
agreement entered into by Seller, the Retained Companies, any member of the
Related Group or any of their Affiliates on or prior to the Closing Date to
indemnify such Person; provided that Seller and the Selling Subsidiaries
shall not be liable for or obligated to indemnify any Buyer Indemnitees for
any Losses for Taxes to the extent:
(v) Buyer is obligated to indemnify Seller for such Taxes
pursuant to Section 6.5(e)(ii);
(w) such Taxes relate to the period beginning October 1,
1995 and ending on the day before the Closing Date (the "Stub
Period") and arise out of the business operated by the Acquired
Companies, or with respect to the Acquired Assets, except for Taxes
arising out of transactions not in the ordinary course of business
that were not expressly consented to in writing by Buyer;
(x) such Taxes are taken into account as a liability or
otherwise specifically reserved against in the September 30
Statement;
(y) such Taxes arise as a result of the business, affairs,
operations, transactions or actions or inactions of the Acquired
Companies after the Closing, whether on the Closing Date or at any
time thereafter; provided that this clause (y) shall not
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apply by reason of the Acquired Companies performing any obligation,
or exercising or forebearing the exercise of any right, in good
faith, under this Agreement or any Exhibit hereto; or
(z) such Taxes arise as a result of any actions or
inactions of Buyer or SWFSC (other than as required by law) or,
whether on the Closing Date or at any time thereafter, of any
Affiliate of Buyer; provided that this clause (z) shall not apply by
reason of Buyer or its Affiliates performing any obligation, or
exercising or forebearing the exercise of any right, in good faith,
under this Agreement or any Exhibit hereto.
(b) Buyer will defend, indemnify and hold harmless Seller
Indemnitees from and against, and pay or reimburse Seller Indemnitees for,
any and all Losses resulting from or arising out of Taxes arising out of,
or relating to, the business operated by, transactions involving, or
distributions made by or to, Buyer or the Acquired Companies, or the assets
of any of them, with respect to any taxable period or portion thereof
beginning after the Closing Date; provided that Buyer shall not be liable
for or obligated to indemnify any Seller Indemnitee for any Losses for
Taxes to the extent that such Losses arise as a result of (i) any
inaccuracy of any representation or warranty, or breach of any covenant or
agreement, under this Agreement (other than as required by law) by Seller
or the Selling Subsidiaries, (ii) any action or inaction of Seller or
Selling Subsidiaries at any time after the Closing Date; provided that
clause (ii) of this Section 6.1(b) shall not apply by reason of Seller or
Selling Subsidiaries performing any obligation, or exercising or
forebearing the exercise of any right, in good faith, under this Agreement
or any Exhibit hereto.
(c) Buyer or Seller, as applicable, will notify the other
party promptly of the commencement of any claim, audit, examination, or
other proposed change or adjustment by any taxing authority concerning the
Tax or other Losses covered by this Section 6.1.
(d) Any payment made by Seller or any Selling Subsidiary
to any Buyer Indemnitee, or by Buyer to any Seller Indemnitee, pursuant to
this Section 6.1 in respect of Losses shall be (i) reduced by an amount
equal to the Tax benefits, if any, attributable to, arising out of or
resulting from, such Losses, and (ii) increased by an amount
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equal to the Taxes attributable to the receipt of such indemnity payment
(not including Taxes attributable to a reduction in the purchase price for
Tax purposes), but only to the extent, and at the time, that such Tax
benefits are actually realized, or such Taxes are actually paid, as the
case may be, by Buyer, the Acquired Companies, Seller, the Retained
Companies or any consolidated, combined, affiliated or unitary Tax group of
which any such corporation is a member. To the extent that such Tax
benefits are actually realized, or such Taxes are actually paid, after such
indemnity payment is made, such reduction or increase shall be effected by
having the indemnified party or the indemnifying party, as the case may be,
pay (or cause its applicable Affiliate to pay) the appropriate amount to
the other party. For purposes of this Section 6.1(d), (x) no Tax benefit
attributable to any taxable period shall be considered to be realized prior
to the date on which the Tax liability for such taxable period is finally
determined: (1) by a closing agreement with the IRS under section 7121 or
7122 of the Code; (2) by a decision by a court of competent jurisdiction
that has become final and unappealable; or (3) by any other disposition by
reason of the expiration of the applicable statute of limitations; unless
Seller makes an election under this Section 6.1(d) to accelerate payment of
Tax benefits; and (y) the amount of Tax benefits attributable to a Loss, or
Taxes paid attributable to the receipt of an indemnity payment, shall be
calculated by comparing the actual Tax liability of the indemnified party
and any consolidated, combined, affiliated or unitary Tax group of which
the indemnified party is a member, with the Tax liability of the
indemnified party and any such group determined without regard to the item
giving rise to such Loss or payment. On or before December 31 of any year,
Seller may make a one-time election to accelerate payment of Tax benefits
under this Section 6.1(d) by providing Buyer with written notice of such
election on or prior to such date. The election shall be effective on
September 16 of the year following the year in which notice of the election
is delivered to Buyer. On the effective date of such election Buyer shall
pay to Seller the amount of such Tax benefit, determined in accordance with
clause (y) above, taking into account all taxable periods ending on or
before December 31 of the year in which notice of the election is provided
to Buyer. The amount payable pursuant to such election shall be reduced by
the amount of any Tax benefit attributable to, arising out of, or resulting
from the payment of interest to the IRS or other taxing authority for any
taxable period that remains open or otherwise subject to
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audit or examination by the IRS or other taxing authority. By making such
election Seller and Selling Subsidiaries waive any and all right to reduce
their obligation to indemnify Buyer Indemnitees for Losses by the amount
of, or to receive any payment on account of, any Tax benefit that may be
realized in taxable periods beginning after the year in which notice is
provided. Buyer's obligation to pay Tax benefits, and the amount of any
reduction, under clause (i) of, this Section 6.1(d) shall bear interest at
the overpayment rate described in section 6621(a)(1) of the Code accruing
from the date the relevant Tax Return for the taxable period in which the
Tax benefit is actually realized is due to be filed (without extension)
through the date the Tax benefit is paid or any reduction is made pursuant
to clause (i) of this Section 6.1(d).
6.2 Filing of Tax Returns. Seller and Buyer shall cause the
Acquired Companies, to the extent permitted by law, to join, for all
taxable periods ending on or prior to the Closing Date, in (a) the
consolidated Federal income tax returns of the Affiliated Group of which
Seller is the common parent and (b) the combined, consolidated or unitary
Tax Returns for State, local and foreign income taxes with respect to which
any Acquired Company (i) filed such a Tax Return for the most recent
taxable period for which such a Tax Return has been filed prior to the
Closing Date and may file such a Tax Return for subsequent taxable periods
or (ii) is required to file such a Tax Return. Seller shall file, or cause
to be filed, all other Company Returns required to be filed on or before
the Closing Date. Seller shall permit Buyer to review and comment on,
prior to filing, any Federal or State Tax Return which includes the
operations of the Acquired Companies for any period prior to the Closing
Date. Neither Seller nor any of its Affiliates will make any election to
retain losses from operations, net operating losses or capital loss
carryovers of the Acquired Companies pursuant to the procedure set forth in
Treasury Regulations section 1.1502-20(g) or any similar or successor
provision of Federal, State or local law. From and after the date hereof,
Seller shall not, and shall not permit any of its Affiliates to, amend any
Company Return previously filed, which includes information relating to one
or more of the Acquired Companies, unless prior written notice thereof has
been delivered to Buyer. Any such amended Federal or State Company Return
shall not be filed without the express written consent of Buyer if the
amendment reports an increase in Tax, taking into account all interest,
penalties and additions to Tax (unless Seller, at the time of filing
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such amended return, pays the IRS or other relevant taxing authority an
amount equal to such increase in Tax from sources other than the Indemnity
Escrow Account and such payment does not reduce the funds otherwise
provided for in this Agreement to secure the obligations of Seller and its
Affiliates under Article VIII), or would affect the liability for Taxes of
Buyer, the Acquired Companies, or any consolidated, combined, affiliated or
unitary Tax group of which any thereof is a member in a taxable period or
portion thereof beginning after the Closing Date. Buyer shall timely file
or cause to be timely filed any Company Return (including any amendments
thereto) required to be filed by an Acquired Company due after the Closing
Date (other than any Company Return described in the first sentence of this
Section 6.2 required to be filed by Seller or the Retained Companies). For
purposes of preparing all Company Returns for taxable periods up to and
including the Closing Date, the income, deductions and credits of the
Acquired Companies shall be allocated in a manner consistent with the
method provided in Section 6.3. All Company Returns filed after the
Execution Date shall, insofar as they relate to items for periods that
include days on or before the Closing Date and to the extent permitted by
applicable Tax law, be on a basis consistent with the last previous such
Tax Returns filed in respect of the Acquired Companies, and Buyer and the
Acquired Companies shall not take any action in respect of such Tax Returns
(insofar as they relate to items for periods that include days on or before
the Closing Date) which is inconsistent with or causes a challenge to such
Tax Returns and the items relating to such Tax Returns. After the Closing
Date each Tax Return filed by any Acquired Company or by Buyer with respect
to any Acquired Company for any period that includes days on or before the
Closing Date (including, without limitation, all Tax Returns prepared by
Buyer for filing by of with respect to any Acquired Company pursuant to
Section 6.2) shall be subject to pre-filing review by Seller and each Tax
Return filed by Seller, and any of the Acquired Companies or any Affiliated
Group after the Execution Date that relates to a period that ends on or
before the Closing Date shall be subject to pre-filing review by Buyer. In
the event of any disagreement between Seller and Buyer or an Acquired
Company, as the case may be, such disagreement shall be resolved on a basis
consistent with the position a reasonable person would take if such person
owned the business and assets of Seller, the Retained Companies and the
Acquired Companies, using the same procedures for Neutral Accountants
specified in Section 6.5(b)(iii), except to the extent such procedures are
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inconsistent with the timing requirements of this Section 6.2. Unless
otherwise agreed to by the parties, Tax Returns subject to such pre-filing
review shall be submitted by Buyer or Seller, as the case may be, to the
reviewing party at least 45 days prior to the due date (including
extensions) of such Tax Returns and the reviewing party shall either
approve or provide written comments on such Tax Returns within 15 days of
receipt of such Tax Returns.
6.3 Bridge Period. If, for any State, local or foreign Tax
purpose, a taxable year or taxable period of any Acquired Company which
begins before the Closing Date and ends after the Closing Date (a "Bridge
Period") does not terminate on the Closing Date, the parties hereto will,
to the extent permitted by applicable law, elect with the relevant taxing
authority to treat the portion of the Bridge Period on or before the
Closing Date and for all purposes as a short taxable period ending as of
the close of the Closing Date and such short taxable period shall be
treated as a taxable period ending on the Closing Date for purposes of this
Agreement. For purposes of preparing a Company Return for and Bridge
Period and for purposes of the Agreement, Taxes for the Bridge Period shall
be allocated between the portion of the Bridge Period ending on the Closing
Date and the portion of the Bridge Period beginning on the day after the
Closing Date using a closing of the books method and assuming that each
Acquired Company's taxable period ended at the end of the Closing Date,
except that (i) exemptions, allowances or deductions that are calculated on
an annual basis (such as the deduction for depreciation) shall (to the
extent permitted by law) be apportioned on a per diem basis, (ii) real
property Taxes shall be allocated in accordance with section 164(d) of the
Code and (iii) property Taxes that are calculated on annual basis shall be
apportioned on a per diem basis.
6.4 Audits and Other Proceedings. (a) Following the Closing
Date, Seller shall control the conduct of any audit or other administrative
of judicial proceeding with respect to Taxes of any Affiliated Group of
which Seller or any of the Retained Companies is the common parent or for
which Seller otherwise may be obligated to indemnify Buyer Indemnitees
pursuant to Section 6.1; provided, that (i) Buyer may elect to participate
in the control of such audit or proceeding jointly with Seller to the
extent such audit or proceeding relates to Taxes attributable to any
Acquired Company for a Bridge Period; (ii) Buyer, in its sole discretion,
may assume joint control of any such audit or
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proceeding for Tax years beginning before 1992 for any Affiliated Group of
which MAL was the common parent if MAL is placed under supervision by a
state regulatory authority or is subject to court supervised conservation,
rehabilitation, liquidation or similar proceeding or if there is a transfer
of control (including control of Tax audits) of MAL to a party other than
Seller or its Affiliates; (iii) Buyer shall control any audit or proceeding
to the extent (but only to the extent) such audit or proceeding relates to
(A) Taxes for which Buyer would be obligated to indemnify Seller
Indemnitees pursuant to Section 6.1 or Section 6.5(e)(ii) or (B) Taxes for
which the Seller would have been entitled to a refund but for the Failed
QSP; and (iv) Buyer shall control any audit or proceeding to the extent
(but only to the extent) such audit or proceeding relates to the
qualification of the sale of the shares of SWL as a Qualified Stock
Purchase. In the event Buyer assumes control or joint control of any audit
or administrative or judicial proceeding pursuant to this Section 6.4,
Seller shall, and shall cause MAL and the other Retained Companies to,
provide Buyer with any reasonable assistance requested by Buyer in
connection with such audit or other proceeding, including, without
limitation, executing any power of attorney or other document which is
necessary or appropriate to enable Buyer to act on behalf of, or jointly on
behalf of, Seller of MAL. Buyer shall control the conduct of all other
audits or administrative or judicial proceedings with respect to the
liability for Taxes of the Acquired Companies for any taxable period or
portion thereof. With respect to any audit or other proceeding that Seller
controls, Seller shall (1) promptly provide Buyer with, or cause to be
provided to Buyer, written notice of any claim, or of the commencement of
any audit or proceeding, regarding the liability for Taxes of any
Affiliated Group for any affiliated Tax year together with all
correspondence, notices or other documents received by Seller or any of its
Affiliates with respect thereto; (2) provide, or cause to be provided,
Buyer with notice of and an opportunity to attend any meeting with the IRS
or other taxing authorities regarding any such claim, audit or proceeding;
(3) consult with Buyer or its Tax advisors, or cause Buyer or its Tax
advisors to be consulted, with respect to any material action Seller or any
of its Affiliates may take with respect to any such claim, audit or
proceeding; (4) afford, or cause to be afforded to, Buyer and its Tax
advisors the right to participate in conferences with the relevant taxing
authorities (including, without limitation, executing any power of attorney
or other
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document that is required to enable, and, to the extent permitted by
applicable law (or by agreement between any or all of Buyer, Buyer's tax
advisors, Seller and MAL), is solely for purpose of enabling, Buyer and its
Tax advisers to so participate); (5) permit Buyer to be permitted, to
review and comment upon any material written submission to the IRS or other
taxing authorities prior to its submission; and (6) shall not, and shall
not permit any of its Affiliates to, grant any extension or waiver of any
applicable statue of limitations for any taxable period beginning after
December 31, 1992 or enter into any settlement of agreement in compromise
of any proposed adjustment with respect to the liability for Taxes of any
Affiliated Group for any affiliated tax year without the express written
consent of Buyer; provided that in the event the (w) Buyer fails to consent
to any such settlement or agreement in compromise with respect to any Taxes
for which Seller or the Seller's Subsidiaries have liability under Section
6.1 to indemnify Buyer Indemnitees; (x) such settlement or agreement would
not have the result of materially increasing the Taxes of any Buyer
Indemnitees or any consolidated, combined, or unitary group of which any
Buyer Indemnitee is a member for any taxable period or portion thereof
beginning after the Closing Date or any Taxes for which Buyer has liability
pursuant to Section 6.1(b) (in each case through the operation of the terms
of such settlement or agreement or through the potential resolutions of the
same or similar issues for any such period or portion thereof on the same
or similar basis as under such settlement or agreement); (y) Seller
identifies the sources from which Taxes due pursuant to such settlement or
agreement would be paid, including from the Indemnity Escrow Amount to the
extent permitted by Article VIII; and (z) Seller deposits in an escrow
account (subject to terms and conditions reasonably acceptable to Buyer),
any amount so identified by Seller to be funded from sources other than the
Indemnity Escrow Account, then Seller may elect to transfer complete
control of the related audit or proceeding to Buyer by providing written
notice to Buyer, in which case the amount for which Seller and the Selling
Subsidiaries shall be required to indemnify Buyer Indemnitees on account of
Taxes expressly covered by such settlement or agreement in compromise shall
be limited to the amount of such proposed settlement or agreement in
compromise plus interest, penalties and additions to Tax determined through
the date Buyer assumes control.
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(b) During the period beginning on the Execution Date and
ending on the Closing Date, none of the Seller or its Affiliates shall
enter into any settlement or agreement in compromise with respect to Taxes
with the IRS or any other taxing authority, including without limitation by
executing an IRS Form 870-AD, without the prior written consent of Buyer,
which shall not be unreasonably withheld. For purposes of the preceding
sentence, consent shall be deemed to have been reasonably withheld if Buyer
withholds consent from a settlement or agreement in compromise that would
adversely affect the protection from Losses resulting from, or arising out
of, Taxes that would otherwise have been provided to Buyer, the Acquired
Companies or an Affiliate of any thereof, by the Indemnity Escrow Account
or by funds otherwise provided for in this Agreement to secure the
obligations of Seller and its Affiliates under Article VIII, or would
otherwise result in a Material Adverse Effect to Buyer, the Acquired
Companies or any Affiliate thereof.
(c) Seller and Selling Subsidiaries shall use their best
efforts, in their reasonable business judgment, to expedite the
determination of their federal income tax liability for all taxable periods
through the Closing Date consistent with minimizing the taxes payable by
Seller and its Affiliates. Buyer shall have standing to seek to have the
Bankruptcy Court compel Seller and the Selling Subsidiaries to take such
actions as are necessary to comply with the foregoing requirement. Seller
shall provide in any plan of reorganization proposed by it for the
Bankruptcy Court to retain jurisdiction after confirmation of such plan
over resolution of disputes between Seller and the IRS regarding the
allowance or disallowance of federal income tax claims for tax periods
prior to the confirmation of such plan.
(d) All references to the right of Buyer to control or
participate in any audit or proceeding, or to consent to or approve any
settlement or agreement in compromise, and all rights granted to Buyer
under the fourth sentence of Section 6.4(a), shall extend also to PennCorp
to the extent the audit or proceeding relates to Taxes the payment of which
would be guaranteed to Seller by PennCorp (including any Taxes the refund
of which is so guaranteed). Any right to exercise control of, or to
approve or consent to, any matter covered by the preceding sentence shall
require the exercise jointly by, or require the joint consent or approval
of, Buyer and PennCorp.
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6.5 Section 338(h)(10) Election. (a) Election. Buyer and Seller
shall join in an election pursuant to Section 338(h)(10) of the Code with
respect to the purchase and sale of the shares of SWL, and in all
comparable elections under state and local Tax law with respect to the
purchase and sale of any such shares (together with the election under
section 338 (h)(10) of the Code, any additional such elections under
Section 6.5(f) and any deemed election(s) under Section 338(g) of the Code
or any comparable state and local Tax law, the "Section 338(h)(10)
Elections").
(b) Forms.
(i) Subject to Section 6.5(b)(ii), Buyer shall
prepare all forms and schedules required to be filed in connection with the
Section 338(h)(10) Elections ("Section 338 Forms"), including without
limitation IRS Form 8023-A and all attachments required to be filed
therewith pursuant to applicable Treasury Regulations and the instructions
to such form, including without limitation the allocation of deemed
purchase price among the assets of SWL ("Form 8023"). Seller shall provide
Buyer with such information and records, and shall make its employees
available for consultation under regular business hours, as Buyer
reasonably requires to prepare such Section 338 Forms. Buyer shall timely
file the Section 338 Forms with the proper taxing authorities.
(ii) At least 5 days prior to the Closing Date, Buyer
shall furnish Seller with three copies of the Form 8023 with respect to
SWL. On or before the Closing Date, Buyer and Seller shall endeavor to
agree upon the form and content of such Form 8023. If the parties are
unable to agree upon the form and content of the Form 8023, the dispute
shall be resolved after the Closing in accordance with this Section;
provided, that at the Closing, Seller shall deliver to Buyer three copies
of the Form 8023 provided by Buyer executed by the proper party on behalf
of Seller (without attachments, if such attachments have not been agreed
to).
(iii) On or before the beginning of the sixth month
after the month in which the Closing occurs Buyer shall deliver to Seller a
revised Form 8023 which reflects proposed modifications or attachments to
the form and content of the executed Form 8023, and any state or local
reports or forms that are necessary or appropriate for
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purposes of complying with the requirements for making the Section
338(h)(10) Elections (each an "Additional Section 338 Form"). Such
proposed modifications or attachments shall take into account adjustments
to the Purchase Price pursuant to Article II and any other appropriate
adjustments to reflect information available at such time. The parties
shall endeavor to agree on the Additional Section 338 Forms; provided that,
if Seller and Buyer agree upon the form and content of Form 8023 at
Closing, Seller shall be entitled to object to any proposed modifications
only on the basis that it would leave Seller and the Retained Companies in
a position less favorable than their position under the original Form 8023.
If prior to the beginning of the seventh month beginning after the month in
which the Closing occurs there remains a dispute as to the form and content
of the Additional Section 338 Forms, then the dispute shall be submitted to
the Neutral Accountants. Each party agrees to execute, if requested by the
Neutral Accountants, a reasonable engagement letter. All fees and expenses
relating to the work, if any, to be performed by the Neutral Accountants
pursuant to this Section 6.5(b)(iii) shall be borne by Seller unless more
than 50% (calculated on the basis of the dollar amounts of the disputed
items) of the disputed items submitted by Seller relating to the claimed
adjustments are sustained by the Neutral Accountants, in which case such
fees and expenses shall be paid by Buyer. The Neutral Accountants shall
act as an arbitrator to determine, based solely on presentations by Buyer
and Seller and their respective representatives, and not by independent
review, only those issues related to the formal content of the Additional
Section 338 Forms still in dispute. Buyer and Seller, and their respective
representatives, shall cooperate fully with the Neutral Accountants. The
parties hereto shall give, and shall cause their representatives to give,
the Neutral Accountants and their representatives such assistance and
access to the books and records relating to the dispute, and any work
papers, schedules and other documents as the Neutral Accountants shall
reasonably request. The Neutral Accountants' determination shall be made
within 30 days of their selection, or such other time as the parties may
agree, shall be set forth in a written statement delivered to Buyer and
Seller and shall be final, binding and conclusive on the parties hereto;
provided, that the agreement pursuant to which the Neutral Accountants are
retained shall provide that the determination of the Neutral Accountants
shall be made no later than the beginning of the ninth month after the
month in which the Closing occurs. Buyer shall prepare three copies of
Form 8023 and three
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copies of any Additional Section 338 Form, as determined according to such
procedures, and Seller shall promptly execute, or cause the proper party to
execute, such forms. The Form 8023, as determined according to such
procedures, shall supersede the original Form 8023 for all purposes of this
Agreement and shall be treated as the only Form 8023.
(c) Modification Revocation. Except as provided in this
Section, Buyer and Seller shall not take, and shall not permit any of their
Affiliates to take, any action to modify the Section 338 Forms following
the execution thereof, or to modify or revoke the Section 338(h)(10)
Elections following the filing of the Section 338 Forms, without the
written consent of Seller and Buyer.
(d) Consistent Treatment; Reporting. Buyer and Seller
shall file, and shall cause their respective Affiliates to file, all Tax
Returns in a manner consistent with the information contained in the
Section 338 Forms. Buyer and Seller shall not take, and shall not permit
any of their Affiliates to take, any position contrary to the allocations
reflected in such Section 338 Forms with any government agency or taxing
authority without the express written consent of the other party.
(e) Taxes and Expenses Resulting from Elections or Failure
to Qualify for Elections. Notwithstanding any other provision of this
Agreement, (i) Seller shall be responsible for, and shall indemnify and
hold harmless Buyer and its Affiliates from and against, all Taxes of
Seller, the Selling Subsidiaries or any Affiliated Group, arising in
taxable periods or portions thereof ending on or before the Closing Date
and resulting from the Section 338(h)(10) Elections; and (ii) in the event
that the sale of the SWL Shares to Buyer pursuant to this Agreement shall
fail to constitute a Qualified Stock Purchase in Seller's 1995 Tax year,
Buyer shall be responsible for, and shall indemnify and hold harmless
Seller Indemnitees from and against, (X) any Taxes of SWL and any other
member of any Affiliated Group of which SWL was a member on or prior to the
Closing Date (the "SWL Group") which are payable as a result of the failure
of a Qualified Stock Purchase of the SWL Shares to have occurred by
December 31, 1995 (the "Failed QSP"), (Y) any Tax refunds to which the SWL
Group would have been entitled if a Qualified Stock Purchase of the SWL
Shares occurred on December 29, 1995 and (Z) any other Seller Losses of
the SWL Group resulting from the Failed QSP (such items referred to in
clauses (X), (Y) and (Z) herein
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referred to as "Failed QSP Losses"); provided, however, that the maximum
amount payable by Buyer under this Section 6.5(e)(ii) as a result of the
Failed QSP shall not exceed $25 million. Any amount payable pursuant to
clause (ii)(Y) of the preceding sentence shall be treated for all other
purposes of this Agreement as an actual Tax refund that Seller has received
and delivered to Buyer to the extent such amount otherwise would have been
payable to or for the benefit of Buyer (and no actual cash payment shall be
required in respect thereof, but shall be taken into account as a payment
by Buyer to Seller for purposes of the $25 million maximum liability
described in the preceding sentence), and Buyer and Seller agree that any
indemnity payments by Buyer pursuant to clause (ii) of the preceding
sentence shall be treated as a purchase price adjustment.
(f) Additional Section 338(h)(10) Elections. The making
of any elections under section 338(h)(10) of the Code with respect to UBIC,
Constitution Life or other Acquired Companies except for SWL shall be
subject to the mutual agreement of Buyer and Seller.
6.6 Transfer Taxes. Seller shall pay and be responsible for all
sales, use, transfer, real property gains or transfer, stamp or other
similar Taxes and fees arising as a result of the consummation of the
transaction contemplated by this Agreement. Seller shall at its expense
timely file all necessary Tax Returns and other documentation in respect of
any such Taxes.
6.7 Cooperation. (a) Buyer and Seller shall cooperate, and
Buyer shall cause the Acquired Companies to cooperate with Seller and
Seller shall cause the Retained Companies to cooperate with Buyer, with
respect to the preparation and filing of any Tax Return (or amended Tax
Return) or the conduct of any Tax audit or other proceeding for which the
other is responsible pursuant to this Article VI. Such cooperation shall
include, without limitation, making its employees available for
consultation and making workpapers and other records available during
regular business hours, provided that each shall pay any out-of-pocket
costs incurred by the other in connection with such cooperation; provided
that records and other documents that are subject to an attorney-client or
similar privilege that protects such records and documents from a discovery
or similar disclosure request from third parties shall not be required to
be disclosed to the other party if such disclosure would make such
privilege unavailable.
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(b) Seller agrees to retain and deliver to Buyer such
records, accounts, accounting data and other information as are reasonably
necessary for determination of the Tax liabilities of the Acquired
Companies for all taxable periods or portions thereof beginning on or
before September 30, 1995 for which the statute of limitations remains open
for examination by the IRS or other pertinent taxing authorities; provided,
that records and other information of Seller or any Retained Company that
are subject to an attorney-client or similar privilege that protects such
records and other information from discovery or similar disclosure request
from third parties shall not be required to be disclosed to Buyer pursuant
to this Section 6.7(b), but only if such disclosure would make such
privilege unavailable.
(c) Seller shall assume the obligations of the Acquired
Companies, and cause the other members of the Affiliated Group to release
the Acquired Companies from their obligations, under that certain
Consolidated Tax Allocation Agreement between I.C.H. Corporation, MAL and
certain subsidiaries of MAL dated March 28, 1986, as amended by Amendment
No. 1 thereto, between I.C.H. Corporation and its subsidiaries, except as
expressly provided in this Article VI and in the September 30 Statement,
and from and after the Closing Date none of the Acquired Companies shall
have any further liability for the payment of any amount, nor shall any
Acquired Company have the right to receive any amount, pursuant to such
agreement. Seller shall provide, or cause the Retained Companies to
provide, such assistance as Buyer shall reasonably request to enable SWL to
comply with its obligations in respect of Taxes under the agreement of sale
under which BL of NY was sold.
6.8 Allocation of Purchase Price. The Initial Purchase Price
and the PennCorp Purchase Price and the Assumed Liabilities shall be
allocated between and among the shares of each Acquired Company, the
Surplus Debenture and the Acquired Assets as set forth on Schedule 6.8.
Seller and Buyer shall, and shall cause each of their Affiliates to (i)
prepare and file all statements or other information required to be
furnished to the IRS or any other taxing authority pursuant to section 1060
of the Code and the Treasury Regulations or other applicable Tax law in a
manner consistent with the allocation set forth on the final Schedule 6.8
and (ii) prepare their respective financial statements and all Tax Returns
and reports required to be filed by them in a manner consistent with such
allocation,
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and shall not take any position contrary to such allocation with any
government agency or taxing authority without the express written consent
of the other.
6.9 Tax Refunds and Credits. Any Tax refund with respect to a
taxable period or portion thereof ending on or before the Closing Date that
is not shown as an asset on the September 30 Statement shall belong to
Seller, except that the following Tax refunds shall belong to Buyer and
shall be paid promptly to Buyer: (i) any Tax refund received by Seller or
the Retained Companies generated by carrybacks of available losses or
credits arising in taxable periods or portions thereof of the Acquired
Companies beginning after the Closing Date; and (ii) any Tax refund
received by Seller or the Retained Companies for any taxable period or
portion thereof ending on or before September 30, 1995, to the extent any
Buyer Indemnitee has a claim under any of the Tax Indemnities which claim
resulted from a Tax Return position that generated such Tax refund or, in
the case of any other indemnity claim pursuant to Article VIII, an
undisputed claim, that has not been fully satisfied prior to receipt of
such tax refund due to an insufficiency of funds in the Indemnity Escrow
Account, but only to the extent of such unsatisfied claim, provided, that
no amount shall be payable pursuant to clause (ii) of this Section 6.9 to
the extent such Tax refund is due by Seller to any Retained Company under
the Tax allocation agreement referred to in Section 6.7(c). Any amount
described in clause (ii) above shall be treated as an indemnity payment
under Article VIII. In the event Seller or the Retained Companies fail to
make such payment, the Tax refund due shall be treated as a Loss to which
the Tax Indemnity shall apply subject to the provisions of Article VIII.
Buyer shall pay, or shall cause SWL to pay, promptly to Seller any amount
SWL, Buyer or any Affiliate of Buyer receives from Tenneco Inc. under that
certain Stock Purchase Agreement between Tenneco Inc. and I.C.H.
Corporation dated as of July 31, 1986; provided, that such amount shall be
retained by SWL, Buyer or such Affiliate, as the case may be, to the extent
(x) any Buyer Indemnitee has a claim under any of the Tax Indemnities or,
in the case of any other indemnity claim pursuant to Article VIII, an
undisputed claim, that has not been fully satisfied prior to the receipt of
any such amount due to an insufficiency of funds in the Indemnity Escrow
Account, and (v) such amount was paid by Tenneco Inc. in respect of a
liability for Taxes that was paid by SWL, Buyer or any Affiliate of Buyer,
after September 30, 1995.
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6.10 Elections Relating to Section 382 of the Code. Seller shall
elect under proposed Treasury Regulations section 1.1502-95 to apportion
the full amount of any prior consolidated limitation under section 382 of
the Code applicable to I.C.H. Funding Corporation or to any other Acquired
Company, to the appropriate company.
6.11 Stub-Period Taxes. (a) Promptly after the final
determination of the Stub Period Tax Amount and the Stub Period Savings
under Section 6.11(b), Buyer shall pay Seller the Stub Period Tax Amount,
if any, and Seller shall pay Buyer the Stub Period Savings, if any.
(b) Within 30 days after the Tax Expiration Date, Seller
shall provide Buyer with a preliminary calculation of the Stub Period Tax
Amount, if any, and the Stub Period Savings, if any. Buyer and Seller
shall endeavor to agree on the final calculation of the Stub Period Amount
and the Stub Period Savings. In the event of any disagreement between
Seller and Buyer, such disagreement shall be resolved using the same
procedures for Neutral Accountants specified in Section 6.5(b)(iii).
6.12 Election Out of Installment Method. If SWL Holding
recognizes a gain upon the sale of the SWL Shares, Seller and SWL Holding
shall elect out of the installment method of accounting, with respect to
the sale of the SWL Shares, for income Tax purposes.
ARTICLE VII
Employment Matters
7.1 Definitions. The terms defined in this Section 7.1,
whenever used in this Agreement or any Schedule to this Agreement, shall
have the respective meanings indicated below.
"Acquired Company Employees" mean those current employees of
FMI who perform services (1) exclusively for one or more Acquired Companies
or (ii) on a non-exclusive basis for (x) Seller or a Retained Company and
(y) an Acquired Company.
"Acquired Company Retirees" mean those retirees, other than
any such retiree whose initial absence from employment was due to such
retiree's disability, of FMI listed on Schedule 7.1(a)(i) hereto, those
retirees of an Acquired Company (or a predecessor thereto) listed on
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Schedule 7.1(a)(ii) hereto and those Acquired Company Employees (listed on
Schedule 7.1(a)(iii)) who, as of the Closing Date, have completed a number
of years of service and attained an age sufficient to satisfy the age and
service related eligibility requirements under any welfare Plan to receive
retiree medical or life coverage upon retirement, collectively.
"Employees" means collectively, (i) the Acquired Company
Employees, (ii) the Acquired Company Retirees, (iii) those current
employees of FMI who perform services exclusively for one or more of Seller
or a Retained Company and (iv) all other current and former employees
(including retirees) of Seller, FMI or any Retained Company.
"Executive Officers" mean those current senior executive
employees of FMI or Seller listed on Schedule 7.1(b) hereto.
"Executive Severance Arrangements" mean the separate
Executive Severance Benefit Agreements, dated as of March 23, 1995, between
Seller, FMI and certain Executive Officers, listed on Schedule 7.1(c)
hereto.
"New SWFSC Employees" mean those Acquired Company Employees
who accept Buyer's or a Buyer Subsidiary's offer of employment effective as
of the Closing Date in accordance with Section 7.2(b) hereof.
"Seller's Employee Benefit Plan" means the Southwestern Life
Corporation Employee Benefit Plan, as in effect on the Closing Date.
"Senior Executive Retention Arrangement" means the executive
officer incentive and retention compensation program, approved by the Board
of Directors of Seller on March 2, 1995, providing for discretionary cash
bonuses to be paid to certain Executive Officers upon the successful
completion of a capital restructuring of Seller.
"Supplemental Executive Arrangements" mean the separate
Amended and Restated Supplemental Benefit Agreements, dated as of October
10, 1994, between Seller, FMI and certain Executive Officers, listed on
Schedule 7.1(d) hereto.
7.2 Employment of Acquired Company Employees. (a) Seller shall,
and shall cause the Selling Subsidiaries
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to, use commercially reasonable efforts to cause the Acquired Company
Employees to make available their employment services to Buyer and the
Buyer Subsidiaries and, in connection therewith, during the period from the
date hereof to the Closing Date, Seller shall not, and shall not permit any
of its Subsidiaries (other than FMI) to, solicit, offer to employ or employ
any such Acquired Company Employee. For a period of two years from the
Closing Date, without Buyer's prior written consent, Seller shall not, and
shall not permit any of the Retained Companies to, solicit, offer to employ
or otherwise interfere with the relationship of Buyer or any Buyer
Subsidiary with any Person who, at any time during the six month period
preceding any such solicitation, offer or other interference, is or was an
officer or other key management employee of Buyer or any Buyer Subsidiary,
other than the solicitation of any such Person whose employment with Buyer
and the Buyer Subsidiaries has been involuntarily terminated by the Buyer
and the Buyer Subsidiaries but only to the extent such solicitation
commences following such Person's termination of employment with Buyer and
the Buyer Subsidiaries.
(b) Effective as of the Closing Date, Buyer shall, or
shall cause a Buyer Subsidiary to, offer employment to those Acquired
Company Employees selected by Buyer at wage or salary levels, as
applicable, that are substantially the same as those in effect for such
individuals immediately prior to the Closing Date and with employee
benefits that are generally comparable, in the aggregate (or as soon as
practicable with respect to benefits provided pursuant to Section 7.4), to
the employee benefits of such Acquired Company Employees in effect
immediately prior to the Closing Date. Such offers of employment shall, in
the case of an Executive Officer, be subject to the execution and delivery
by such Executive Officer of releases acceptable to Buyer, such execution
and delivery to be effected in accordance with the Older Workers Benefit
Protection Act.
(c) (i) Effective as of the Closing Date, Buyer shall,
or shall cause a Buyer Subsidiary to, assume the liabilities of FMI and
Seller to or in respect of (x) the New SWFSC Employees for accrued vacation
and sick pay, 1995 bonuses and incentive compensation, accrued but unpaid
compensation, and accrued deferred compensation and the related obligations
to provide accrued life insurance coverage equal to the excess of (A) 200%
of each covered Acquired Company Employee's base salary, over (B) such
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Acquired Company Employee's accrued deferred compensation, in each such
case under this clause (x) including all employment tax liabilities in
respect thereof (such amounts in this clause (x) referred to as
"Compensation Items") and (y) the New SWFSC Employees for short-term
disability compensation or benefits that become payable as a result of a
short-term disability of any such New SWFSC Employee that commences after
the Closing Date. Buyer hereby agrees that, effective as of the Closing
Date Buyer shall, or shall cause a Buyer Subsidiary to assume the
liabilities of FMI and Seller to or in respect of each Executive Officer
who becomes a New SWFSC Employee who is a party to an Executive Severance
Arrangement, for compensation and benefits (including all employment tax
liabilities in respect thereof) required to be provided under the terms of
the Executive Severance Arrangements. Notwithstanding the foregoing
provisions of this Section 7.2(c)(i), (x) to the extent applicable, the
assumption of liabilities pursuant to this Section 7.2(c)(i) is conditioned
upon and subject to the transfer of assets required pursuant to Section
2.5(b), (y) such assumption of liabilities for Compensation Items, in the
case of sick pay and vacation pay with respect to services rendered prior
to the last day of the calendar month immediately preceding the Closing
Date, and in the case of all other Compensation Items, with respect to
services rendered prior to the Closing Date, is expressly limited to the
amount (or in the case of accrued vacation, the number of accrued vacation
days) accrued therefor in respect of the New SWFSC Employees or, if
applicable, Acquired Company Employees on Schedule 4.1.19(d) as of the date
of this Agreement, updated as required pursuant to the immediately
succeeding sentence and (z) such assumption of liabilities for deferred
compensation and accrued life insurance coverage is conditioned upon the
transfer and assignment to Buyer, or in Buyer's sole discretion to a Buyer
Subsidiary, of all of FMI's and Seller's rights and obligations under the
portion of any group annuity contract and group term life contract intended
to fund any portion of the deferred compensation benefits of any New SWFSC
Employee. Immediately prior to the Closing, Seller shall prepare and
deliver to Buyer a revised Schedule 4.1.19(d) that has been updated, with
respect to Compensation Items, to reflect properly and adequately as of the
Closing Date the liabilities and obligations for or in respect of
Compensation Items described in Section 4.1.19(d) hereof, except that such
liabilities and obligations for vacation and sick pay shall be reflected as
of the last day of the month immediately preceding the Closing Date.
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(ii) From and after the Closing, Seller and the
Selling Subsidiaries shall, jointly and severally, remain solely
responsible for any and all claims, liabilities, obligations and
commitments (A) for Compensation Items in respect of New SWFSC Employees
and, as applicable, Acquired Company Employees to the extent such liability
is not reflected therefor on Schedule 4.1.19(d), updated as required under
the last sentence of Section 7.2(c)(i), (B) for Compensation Items in
respect of Employees other than the New SWFSC Employees, (C) for retention
bonuses payable (x) to any Acquired Company Employee or (y) to any
Executive Officer pursuant to the terms of the Seller's Senior Executive
Retention Arrangement, (D) for benefits payable pursuant to the Seller's
Supplemental Executive Arrangement, (E) for Executive Severance Benefits
payable to any Executive Officer who does not become a New SWFSC Employee,
and (F) for severance, termination or other similar compensation or
benefits (including, without limitation, claims, liabilities, obligations
and commitments to provide continuation of health coverage under any Plan
pursuant to section 4980B of the Code but excluding those liabilities to
provide retiree medical and death benefits to Acquired Company Retirees
expressly assumed by Buyer pursuant to Section 7.5(a) or expressly retained
by an Acquired Company pursuant to clause (D) of Section 7.6) which are or
may become payable in connection with (x) any actual termination of
employment of any Employee who is neither a New SWFSC Employee nor an
Executive Officer or (y) any claim of any Employee of actual or
constructive termination of employment in connection with or as a result of
the consummation of the transactions contemplated by this Agreement or the
Related Agreements, it being understood that claims of any New SWFSC
Employee of actual termination of employment from Buyer or any of the Buyer
Subsidiaries after the Closing Date shall not be included in the
liabilities, obligations and commitments retained by Seller and the Selling
Subsidiaries pursuant to the foregoing clause (F)(y). Notwithstanding any
other provision hereof, Seller and the Selling Subsidiaries shall, jointly
and severally, assume and remain responsible for any and all obligations,
liabilities and commitments in respect of amounts accrued or paid on or
after October 1, 1995 under the bonus arrangement with Mr. ▇▇▇▇▇ ▇▇▇▇ other
than in respect of bonus payments related to the sale of ▇▇▇▇▇▇ I and
▇▇▇▇▇▇ Square, which in any event shall not in the aggregate exceed
$23,500.
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(d) Nothing in this Agreement shall prejudice the right of
Buyer or any Buyer Subsidiary to amend or terminate any plan, program,
policy or arrangement applicable to any New SWFSC Employee or Acquired
Company Retiree from or after the Closing Date.
(e) [Reserved].
(f) To the extent any funds delivered to SWFSC pursuant to
Section 2.5(b)(ii)(x) are greater than the amounts in respect thereof
actually paid by Buyer or a Buyer Subsidiary to, or in the case of vacation
pay, accrued for a person for whom such amounts were accrued on Schedule
4.1.19(d), other than amounts for sick pay, Buyer or a Buyer Subsidiary
shall reimburse Seller for such excess amounts upon the earlier to occur of
(i) the determination by Buyer or any Buyer Subsidiary that the New SWFSC
Employee or Acquired Company Employee with respect to whom such amounts
were accrued on Schedule 4.1.19(d) is not entitled thereto or (ii) the
forfeiture by such New SWFSC Employee or Acquired Company Employee of such
Compensation Items in accordance with the terms pursuant to which such
Compensation Items were provided to such person.
7.3 Service Credits. Buyer shall, or shall cause a Buyer
Subsidiary to, cause the employee benefit plans, programs and policies of
Buyer and the Buyer Subsidiaries covering the New SWFSC Employees to
recognize the service of each New SWFSC Employee with Seller or any of its
Subsidiaries completed prior to the Closing Date for purposes of
eligibility to participate and vesting of benefits under such plans,
programs and policies, but not for purposes of benefit accrual under
pension plans, to the same extent such service was recognized for such
purpose as of the Closing Date under the comparable Plan in which such New
SWFSC Employee was a participant immediately prior to the Closing Date.
7.4 Savings Investment Plan. Effective as of the Closing Date,
or as soon as practicable thereafter, Buyer shall, or shall cause the Buyer
Subsidiaries to, establish a qualified defined contribution plan (the
"Buyer's Savings Plan") containing a cash or deferred arrangement within
the meaning of section 401(k) of the Code and, to the extent required to be
provided by a transferee plan pursuant to section 411(d)(6) of the Code,
containing provisions similar to the provisions of the Southwestern Life
Corporation Savings Investment Plan (the "Seller's Savings Plan"). As
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soon as reasonably practicable, but in no event later than 60 days, after
the later of (i) the establishment of Buyer's Savings Plan, (ii) the
expiration of a 30-day period following the date of filing of the required
IRS Forms 5310A, if applicable, with the IRS (which notices, if applicable,
shall be filed by Buyer and Seller no later than twenty days after notice
to Seller of the establishment of Buyer's Savings Plan) and (iii) receipt
by Seller of a favorable determination letter from the IRS regarding the
qualification of the Buyer's Savings Plan under section 401(a) of the Code,
Seller shall transfer, or cause to be transferred, to the trust or trusts,
as directed by Buyer, utilized under Buyer's Savings Plan an amount (the
"Savings Plan Transfer Amount"), in cash, equal to the fair market value as
of the date of transfer of the aggregate account balances under Seller's
Savings Plan of those New SWFSC Employees who were participants in Seller's
Savings Plan immediately prior to the Closing (including account balances
of any "alternate payee," as such term is defined in section 414(p)(8) of
the Code, with respect to any New SWFSC Employee). On or before the
Closing Date, Seller shall contribute to the accounts of the applicable New
SWFSC Employees under Seller's Savings Plan all amounts required by
Seller's Savings Plan or Applicable Law to be contributed (whether or not
vested) with respect to such New SWFSC Employees on account of any period
prior to the Closing.
7.5 Welfare, Fringe and Other Benefits. (a) Subject to
compliance with Applicable Law, the participation of the New SWFSC
Employees under those Plans that are "employee welfare benefit plans"
(within the meaning of section 3(1) of ERISA, whether or not subject to
ERISA) or other employee fringe benefit plans (the "Seller Welfare Plans")
and the participation of any Acquired Company Retirees under Seller's
Employee Benefit Plan shall cease, effective as of the Closing. As of and
immediately after the Closing, Buyer shall, or shall cause the Buyer
Subsidiaries to, provide (i) the New SWFSC Employees and their dependents
and beneficiaries coverage under welfare and fringe benefit plans,
programs, policies or arrangements established by Buyer or the Buyer
Subsidiaries (the "Buyer Welfare Plans"), (ii) those Acquired Company
Retirees who participated in the Seller's Employee Benefit Plan immediately
prior to the Closing and their beneficiaries and dependents retiree medical
and death benefit coverage under the Buyer Welfare Plans and (iii) for the
waiver under the applicable Buyer Welfare Plan of the pre-existing
condition exclusion provision thereof with respect to a pre-existing
condition
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of a New SWFSC Employee or Acquired Company Retiree (or any dependent
thereof) that would have been covered under the Seller Welfare Plan in
which such individual was an active participant immediately prior to the
Closing Date had such individual continued coverage under such Seller
Welfare Plan. On or about 15 days after the Closing Date, Buyer shall, or
shall cause a Buyer Subsidiary to, provide a written list to Seller of all
New SWFSC Employees, specifically identifying those New SWFSC Employees who
have not elected health coverage under a Buyer Welfare Plan, to the extent
election is required.
(b) Prior to the Closing, Seller shall develop a retiree
medical and death benefit program covering the Acquired Company Retirees
and their eligible dependents (the "Amended Retiree Program") (i)
containing terms substantially in accordance with those set forth on
Schedule 7.5(b) hereto, as the same may be revised by mutual agreement of
the parties hereto, and (ii) to become effective as of the earliest
practicable date. Prior to the Closing, Seller and FMI shall notify all
Acquired Company Retirees in writing of the nature of the proposed changes
to their retiree medical and death benefit coverage (including contribution
or other cost sharing rates) intended to be implemented pursuant to the
Amended Retiree Program and, to the maximum extent administratively
feasible and commercially reasonable, Seller and FMI shall take all steps
necessary or appropriate to implement such Amended Retiree Program;
provided that, in any such case, Buyer shall have approved, in writing and
in advance, all communications to the Acquired Company Retirees and all
such implementing steps.
(c) As of and immediately after the Closing, Buyer shall,
or shall cause the Buyer Subsidiaries to, provide those Acquired Company
Retirees listed on Schedule 7.1(a)(ii) who were receiving long-term
disability benefits under the Seller's Employee Benefit Plan immediately
prior to the Closing long-term disability coverage under the Buyer Welfare
Plans.
7.6 Retained Seller Liabilities. From and after the Closing,
Seller and the Selling Subsidiaries shall, jointly and severally, assume
and remain solely responsible for any and all claims, liabilities,
obligations and commitments in respect of any Employee or the beneficiary
or dependent of any Employee (including, without limitation, any Acquired
Company Employee, Acquired Company Retiree and the
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beneficiaries and dependents of any such Employee), (i) under any Plan,
(ii) otherwise in connection with the provision of, or the failure to
provide, welfare, fringe, retirement or other compensation or benefits to
or in respect of any such Employee or his or her beneficiary or dependent
or (iii) for or in respect of any and all claims for benefits or other
expense reimbursements in respect of the Employees (including, without
limitation, the New SWFSC Employees and the Acquired Company Retirees) and
their dependents and beneficiaries relating to or arising in connection
with medical, dental, vision, hospitalization or other health services,
treatments or related benefits or expense reimbursements, life, disability,
accident, tuition reimbursement, dependent care, flexible spending or other
welfare or fringe benefits or expense reimbursements which claims relate to
or are based upon an event, condition, illness, death, disability,
treatment or confinement occurring or commencing on or before the Closing
Date, in any case, whether such claim, liability, obligation or commitment
is asserted before, on or after the Closing Date, other than (A) subject to
the transfer of the Savings Plan Transfer Amount under Seller's Savings
Plan to Buyer's Savings Plan pursuant to Section 7.4, liabilities and
obligations under Seller's Savings Plan for such Savings Plan Transfer
Amount, (B) those liabilities expressly assumed by Buyer or a Buyer
Subsidiary pursuant to Section 7.2(c)(i), (C) subject to 7.6(iii)
liabilities and obligations to provide post-retirement medical and death
benefits to the Acquired Company Retirees covered under the Seller's
Employee Benefit Plan immediately prior to the Closing, (D) subject to
7.6(iii) liabilities and obligations to provide post-retirement medical and
death benefits to the Acquired Company Retirees covered under (i) the SWL
Retired Employees Plan, (ii) the SWL Retired Agents Plan or (iii) the
Bankers Life & Casualty Group Insurance Plan No. 778 described in the
Summary Plan Description entitled "Your Group Insurance Plan" delivered by
Seller to Buyer prior to the execution of this Agreement and (E) with
respect to disability benefits that become due and payable after the
Closing Date, liabilities and obligations to provide those Acquired Company
Retirees listed on Schedule 7.1(a)(ii) who were receiving long-term
disability benefits under the Seller's Employee Benefit Plan immediately
prior to the Closing Date long-term disability coverage under the Buyer
Welfare Plans.
7.7 COBRA and WARN. From and after the Closing Date, Seller and
the Selling Subsidiaries shall, jointly and
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severally, remain solely responsible for any and all claims, liabilities,
obligations and commitments relating to or arising in connection with the
requirements of Section 4980B of the Code to provide continuation of health
care coverage under any Plan in respect of (i) Employees, other than the
New SWFSC Employees and their covered dependents, and (ii) to the extent
related to a qualifying event occurring on or before the Closing Date, the
New SWFSC Employees and their covered dependents. From and after the
Closing Date, Seller and the Selling Subsidiaries shall, jointly and
severally, remain solely responsible for any and all claims, liabilities,
obligations or commitments relating to or arising in connection with
compliance with the notice requirements of the Worker Adjustment Retraining
and Notification Act (the "WARN Act") in respect of Employees other than
the New SWFSC Employees, except that Buyer shall be responsible for any
claims, liabilities, obligations or commitments relating to or arising in
connection with compliance with the notice requirements of the WARN Act
triggered by any loss of employment at the Dallas location.
ARTICLE VIII
Indemnification and Use of Escrow Fund
8.1 Indemnification. (a) By Seller and Selling Subsidiaries.
Seller and the Selling Subsidiaries, jointly and severally, will defend,
indemnify and hold harmless each of Buyer, PennCorp, the Acquired Companies
and any of their officers, directors and employees (collectively, the
"Buyer Indemnitees") from and against, and pay or reimburse Buyer
Indemnitees for, any and all Losses resulting from or arising out of:
(i) any inaccuracy of any representations or warranties
made by Seller or any Selling Subsidiary in Sections 4.1.5, 4.1.7,
4.1.8 (to the extent applicable to the Acquired Companies),
4.1.10(e), 4.1.12 and 4.1.14 of this Agreement, provided, that Seller
and the Selling Subsidiaries shall have no obligation to indemnify
the Buyer Indemnitees for any Loss arising from any inaccuracy of any
representation or warranty contained in Section 4.1.12 to the extent
that the inaccuracy asserted by the Buyer Indemnitees (A) was
actually known to ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ (x) on the Execution Date or (y)
on the Closing Date, but only if such inaccuracy was not known to any
such named person on the Execution Date and Seller was notified in
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writing by any such Persons of such inaccuracy prior to the Closing
Date, and Seller acknowledges in writing on or prior to the Closing
Date that such inaccuracy is such that the condition set forth in
Section 3.2.1 has not been satisfied, and (B) caused such Loss (it
being understood that solely for purposes of this Article VIII,
including without limitation the calculations of Losses pursuant to
the final paragraph of this Section 8.1(a), and notwithstanding
anything to the contrary contained in this Agreement, to determine if
there has been an inaccuracy of a representation or warranty and the
Losses arising from such an inaccuracy, such representation or
warranty shall be read as if it were not qualified by materiality,
including, without limitation, qualifications indicating accuracy "in
all material respects" or accuracy except to the extent the
inaccuracy will not have a "Material Adverse Effect");
(ii) any failure of Seller or any Selling Subsidiary to
perform any covenant or agreement hereunder or under the Related
Agreements or fulfill any other obligation in respect hereof or
thereof;
(iii) any and all Excluded Liabilities (the "Excluded
Liabilities Indemnity");
(iv) liabilities for Taxes as provided in Article VI (the
"Tax Indemnity");
(v) the lawsuits captioned Castle v. Modern American Life
Insurance Company, ▇▇▇▇-▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇; ▇▇▇▇▇ v. ▇▇▇ ▇▇▇▇▇▇, Director of the Missouri Department of
Insurance, ▇▇▇▇▇-▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇;
Mutual Security Life Insurance Company, By Its Liquidator, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ v. Fail, Case IP ▇▇-▇▇▇▇-▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ District Court for
the Southern District of Indiana; Mutual Security Life Insurance
Company, By Its Liquidator, ▇▇▇▇▇ ▇▇▇▇▇▇▇ v. Fail, Case No. IP 94-
▇▇▇▇-▇-▇/▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ District Court for the Southern District of
Indiana; Bluebonnet Savings Bank v. FDIC, Case No. 3:91-CV-1066-X,
United States District Court for the Northern District of Texas;
State of Arizona v. Farm and Home Life Insurance Company, No. CV
90-23436, Maricopa County, Arizona, Superior Court; Optiz ▇. ▇▇▇▇▇▇,
Civil Action No. 3-95CV-0516G, United States District Court for the
Northern District of Texas; Antonicello ▇. ▇▇▇▇▇▇▇▇▇▇,
▇▇▇
▇▇. ▇-▇▇-▇▇-▇▇▇▇-▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ District Court for the Northern
District of Texas; Sheniak v. Southwestern Life Corporation, Civil
Action No. 3-95-CV-0627G, United States District Court for the
Northern District of Texas; ▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. and ▇▇▇▇▇ ▇. ▇▇▇▇,
M.D., individually and as representatives of a class of Medigap
insurance assignees similarly situated v. Bankers Life and Casualty
Company et al., Case ▇▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇, and Golde v. ▇▇▇▇, Civil Action No. 3-95-CV-0626G,
United States District Court for the Northern District of Texas;
whether such Losses arise directly out of such lawsuits, from the
assertion of claims for contribution or indemnity in connection with
such lawsuits or from the assertion of any other claims that arise
from the matters alleged in such lawsuits, claims under the Articles
of Incorporation and Bylaws of the Acquired Companies (and the
resolutions of the respective boards of directors relating thereto)
that arise from conduct that occurred prior to the Closing Date;
claims arising from sales practices in the life insurance business of
the Acquired Insurance Companies that arise from conduct that
occurred prior to the Closing Date, except for claims arising
relating to policy forms as to which an Acquired Insurance Company
after the Closing Date has changed non-guaranteed elements of life
insurance policies other than interest rate changes, except for (A)
changes in the ICH UL business as described in correspondence between
Seller and Buyer as of the date hereof or (B) changes reasonably
justified by changes in underlying experience under applicable
actuarial principles ("Sales Practices Claims"); and claims, other
than policyholder claims and other claims in the ordinary course of
the Acquired Business, asserted after the Closing Date that arise
from conduct that occurred prior to the Closing Date, including
without limitation: indemnification obligations of SWL under the
agreement of sale under which BL of NY was sold, litigation asserting
violations of state or federal securities laws by Seller, any
Retained Company or any Acquired Company or any officer or director
of Seller, any Retained Company or any Acquired Company prior to the
filing of Seller's Chapter 11 petition under the Bankruptcy Code (the
"Litigation Indemnity");
(vi) (A) any inaccuracy of the representations and
warranties contained in Section 4.1.11 (it being
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understood that solely for purposes of this Article VIII, including
without limitation the calculations of Losses pursuant to the final
paragraph of this Section 8.1(a), and notwithstanding anything to the
contrary contained in this Agreement, to determine if there has been
an inaccuracy of a representation or warranty and the Losses arising
from such an inaccuracy, such representation or warranty shall be
read as if it were not qualified by materiality, including, without
limitation, qualifications indicating accuracy "in all material
respects" or accuracy except to the extent the inaccuracy will not
have a "Material Adverse Effect"; (B) any noncompliance by Seller or
any Selling Subsidiary with any Environmental Law on or before the
Closing Date; (C) subject to Section 8.1(e) below, any of the
following: (1) any Environmental Releases or threatened
Environmental Releases of Hazardous Materials occurring, or
environmental conditions existing, on or before the Closing Date at,
on, under, or above any of the properties and assets of the Acquired
Business (including the Real Property) or any other property
currently or previously owned, leased, operated or used by Seller or
any Selling Subsidiary; or (2) any generation, treatment, storage,
disposal, transportation, shipment offsite, or other management of a
Hazardous Material by Seller or any Selling Subsidiary on or before
the Closing Date (for purposes of this Section 8.1(a)(vi), "Seller"
and "Selling Subsidiary" shall include any predecessor or affiliate
of each of them); or (3) any amount paid by Buyer or any Buyer
Indemnitee with respect to any of the environmental matters
identified on the Phase I Report (the "Environmental Indemnity"); and
(vii) any obligations of Seller pursuant to Section 2.9 or
2.10 (the "Non-Assignable Assumed Contracts and Non-Assignable
Intellectual Property Licenses Indemnity").
Notwithstanding anything to the contrary contained in this Section 8.1,
Seller and the Selling Subsidiaries shall not have any liability referred
to: (a) solely under clause (i) above, unless the aggregate of all Losses
relating thereto for which Seller and the Selling Subsidiaries would, but
for this sentence, be liable exceeds on a cumulative basis $5 million, and
then only to the extent of the sum of (i) $2.5 million and (ii) such
excess; (b) solely under clause (vi) above, unless the aggregate of all
Losses relating thereto
127
for which Seller and the Selling Subsidiaries would, but for this sentence,
be liable exceeds on a cumulative basis $1 million, and, to the extent such
Losses exceed on a cumulative basis $1 million but are less than $11
million, only to the extent of 90% of the amount of such Losses in excess
of $1 million and (c) solely under clause (v) above with respect to Sales
Practices Claims only, unless the aggregate of all Losses relating thereto
for which Seller and the Selling Subsidiaries would, but for this sentence,
be liable exceeds on a cumulative basis $1 million; provided, that Seller
and the Selling Subsidiaries shall not have any liability under clause (a),
(b) or (c) above and the amount of any Losses shall not be aggregated with
other Losses for purposes of determining whether Losses exceed a certain
amount unless the claim for indemnification exceeds (or series of related
claims in the aggregate exceed) $50,000. Notwithstanding anything to the
contrary contained in this Agreement, the costs of pre-remedial studies and
post-remedial monitoring and care referred to in the final clause of the
definition of "Losses" shall constitute Losses only for the purpose of
determining whether the $1 million threshold set forth in the preceding
clause (b) has been satisfied. The liability of Seller and the Selling
Subsidiaries under this Section 8.1 shall not be limited by the amount of
funds deposited in the Indemnity Escrow Account or otherwise provided for
in this Agreement to secure such obligations. Notwithstanding the
provisions of Section 8.1(a), neither Seller nor any Selling Subsidiary
shall be liable to indemnify any Buyer Indemnitee for any Loss to the
extent such Losses are reserved against or otherwise expressly reflected as
a liability in the September 30 Statement. Notwithstanding any provision
of this Section 8.1, to the extent that SWL and its Affiliates or any other
Buyer Indemnitee have the right to be indemnified under the agreements
listed on Schedule 8.1 hereto (the "Fail Indemnity"), for Losses which
would otherwise be indemnifiable under this Section 8.1, the Buyer
Indemnitees shall initially make such claim under the Fail Indemnity,
provided that the Buyer Indemnitees shall initially make such claim under
the Fail Indemnity, provided that the Buyer Indemnitees shall have no
obligation to pursue collection procedures, and if any such claim is not
paid in accordance with the terms of such agreement, or does not fully
indemnify the Buyer Indemnitees for all Losses relating to such claim,
Buyer may assert such claim under this Section 8.1. To the extent that
Seller incurs expenses or Losses covered by the Fail Indemnity, the Buyer
Indemnitees shall cooperate with Seller to assist in the
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subrogation of Seller to the rights of the Buyer Indemnitees under the Fail
Indemnity. To the extent that a Buyer Indemnitee makes a claim against
Seller or the Selling Subsidiaries in respect of Losses arising out of
matters involving ▇▇▇▇▇ Fail, upon payment in full by Seller or a Selling
Subsidiary of such claim, Seller or the Selling Subsidiary shall be
subrogated to the rights of the Buyer Indemnitee against ▇▇▇▇▇ Fail and the
Buyer Indemnitee shall assign such rights to Seller or the Selling
Subsidiary, as the case may be.
(b) By Buyer. Buyer and PennCorp (but, as to PennCorp,
only with respect to clause (i) below) will defend, indemnify and hold
harmless Seller and the Retained Companies and their officers, directors
and employees (collectively, the "Seller Indemnitees") from and against,
and pay or reimburse Seller Indemnitees for, any and all Seller Losses
resulting from or arising out of:
(i) any failure of Buyer or PennCorp (but each only
as to its own failure) to perform any covenant or agreement hereunder
or under the Related Agreements or fulfill any other obligation in
respect hereof or thereof;
(ii) any and all Assumed Liabilities;
(iii) liabilities of Buyer or any Acquired Companies
for Taxes as provided in Section 6.1(b), 6.1(d), 6.3 and 6.5(e)(ii)
hereof; and
(iv) any and all Seller Losses incurred by Seller or
any Retained Company (excluding Losses for (A) liabilities for which
Seller or any Retained Company are liable under the terms of this
Agreement, including without limitation Excluded Liabilities and (B)
Losses for which Seller or any Selling Subsidiary is obligated to
indemnify Buyer Indemnitees pursuant to Section 8.1(a) hereof) that
arise or result from any actions taken by SWFSC pursuant to the
powers of attorney delivered to SWFSC as contemplated by Section 5.17
hereof.
(c) Punitive, Consequential Damages. The amount of Losses
or Seller Losses, as applicable, deemed to have been suffered by Buyer
Indemnitees or Seller Indemnitees shall not include punitive or
consequential damages (except to the extent such Losses or Seller Losses,
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as applicable, are paid to unaffiliated Third Parties); provided that out-
of-pocket expenses and reasonable fees and expenses of attorneys,
accountants, consultants and expert witnesses incurred in investigation or
defense of any claim for which Losses are asserted shall not be deemed
consequential or punitive damages.
(d) Indemnification Procedures. (i) The provisions of
this paragraph (d) are subject to those of Article VI to the extent such
Article VI provisions are applicable and inconsistent with the provisions
hereof. In the event any claim or demand for which a party to this
Agreement (an "Indemnifying Party") would be liable for Losses or Seller
Losses, as applicable, to any other Person (an "Indemnified Party") under
Section 8.1 hereof is asserted against or sought to be collected from such
Indemnified Party by a Person other than Seller, a Retained Company, Buyer
or any Affiliate of Seller, Buyer or a Retained Company (a "Third Party
Claim"), the Indemnified Party will deliver a notice (a "Claim Notice") to
the Indemnifying Party with reasonable promptness, but in any event on or
prior to the later of (x) the date 14 calendar days before the date on
which the Indemnifying Party's ability to defend against such claim is
irrevocably prejudiced by the Indemnified Party's failure to provide such
notice or (y) two Business Days after such Indemnified Party becomes aware
of any such Third Party Claim; provided, that the Indemnified Party's
failure to provide the Indemnifying Party with such Claim Notice shall not
relieve the Indemnifying Party of its obligation under this Agreement
except to the extent that such omission results in a failure of actual
notice to the Indemnifying Party and such Indemnifying Party's ability to
defend has been actually prejudiced as a result of such failure.
(ii) The Indemnifying Party will notify the
Indemnified Party with reasonable promptness after the Indemnifying Party's
receipt of a Claim Notice (such notice being a "Response Notice"), but in
any event on or prior to the seventh calendar day after receipt of the
Claim Notice (the "Notice Period"), of whether the Indemnifying Party
disputes the liability of the Indemnifying Party to the Indemnified Party
hereunder with respect to such Third Party Claim and whether the
Indemnifying Party desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim. If the Indemnifying Party notifies the Indemnified Party
within the Notice Period that the Indemnifying Party (without any
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reservation of rights) does not dispute its liability to the Indemnified
Party and that the Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim, then the Indemnifying Party
will have the right to defend, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume
the defense of, such Third Party Claim by all appropriate proceedings,
which proceedings will be diligently prosecuted by the Indemnifying Party;
provided that (i) the counsel for the Indemnifying Party who shall conduct
the defense of such claim or litigation shall be reasonably satisfactory to
the Indemnified Party, and (ii) the Indemnified Party may participate in
such defense at such Indemnified Party's expense.
(iii) As to any matters for which the Indemnifying
Party has acknowledged its liability to the Indemnified Party (without
reservation of rights) and has elected to assume the defense of such
matters, from the date of the Response Notice, the Indemnifying Party will
have full control of such defense and proceedings including, subject to
Section 8.1(d)(v), any compromise or settlement thereof, provided, that the
Indemnified Party may, at any time prior to its receipt of such notice from
the Indemnifying Party, file any motion, answer, or other pleadings that
the Indemnified Party may deem necessary or appropriate to protect its
interests or those of the Indemnifying Party and not irrevocably
prejudicial to the Indemnifying Party (it being understood and agreed that,
except as provided in Section 8.1(d)(iv) hereof, if an Indemnified Party
takes any such action that is irrevocably prejudicial and conclusively
causes a final adjudication that is adverse to the Indemnifying Party, the
Indemnifying Party will be relieved of its obligations hereunder with
respect to the portion of such Third Party Claim prejudiced by the
Indemnified Party's action); and provided, further, that if requested by
the Indemnifying Party, the Indemnified Party agrees, at the sole cost and
expense of the Indemnifying Party, to cooperate with the Indemnifying Party
and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, or, if appropriate and related to the Third Party
Claim in question, in making any counterclaim against the Person asserting
the claim, or any cross-complaint against any Person (other than the
Indemnified Party or any of its Affiliates).
(iv) If the Indemnifying Party fails to notify the
Indemnified Party that the Indemnifying Party
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(without any reservation of rights) does not dispute its liability to the
Indemnified Party and that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim, or if the
Indemnifying Party gives such notice but fails diligently and promptly to
defend the Third Party Claim, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party,
such claim by all appropriate proceedings, which proceedings will be
promptly and vigorously defended by the Indemnified Party. The Indemnified
Party will have full control of such defense and proceedings, including,
subject to Section 8.1(d)(v) any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party agrees at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting,
or, if appropriate and related to the Third Party Claim in question, in
making any counterclaim against the Person asserting the claim, or any
cross-complaint against any Person (other than the Indemnifying Party or
any of its Affiliates). The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 8.1(d)(iv), and the Indemnifying Party will bear
its own costs and expenses with respect to such participation.
(v) Except with the prior written consent of the
Indemnified Party, no Indemnified Party, in the defense of any Third Party
Claim, shall consent to entry of any judgment or enter into any settlement
that provides for injunctive or other nonmonetary relief (or, if Seller or
any Selling Subsidiary is an Indemnifying Party, for monetary relief
exceeding the sum of the amount of funds then contained in the Indemnity
Escrow Account that are not subject to claims (whether or not such claims
are Third Party Claims) for indemnification previously asserted under this
Agreement and outstanding against Seller and the Selling Subsidiaries) that
affects the Indemnified Party and does not include as an unconditional term
thereof the giving by each claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such Third Party Claim
without any payment by the Indemnified Party and the acknowledgement by the
Indemnifying Party of its liability to the Indemnified Party pursuant to
Section 8.1 hereof with respect to such Third Party Claim. Except with the
prior written consent of the Indemnifying Party, which consent
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shall not be unreasonably withheld, an Indemnified Party will not consent
to the entry of any judgment or enter into any settlement for which a claim
is being made under this Section 8.1(d) for indemnifiable Losses. In the
event that (i) a firm offer is made to compromise or settle an indemnified
Third Party Claim in a manner that will not subject the Indemnified Party
to injunctive or nonmonetary sanctions (and, if Seller or any Selling
Subsidiary is an Indemnifying Party, for monetary relief exceeding the sum
of the amount of funds then contained in the Indemnity Escrow Account that
are not subject to claims (whether or not such claims are Third Party
Claims) for indemnification previously asserted under this Agreement and
outstanding against Seller and the Selling Subsidiaries) and would not
otherwise adversely affect the rights of the Indemnified Party, which offer
includes as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with
respect to such Third Party Claim without any payment by the Indemnified
Party and the acknowledgement by the Indemnifying Party of its liability to
the Indemnified Party pursuant to Section 8.1, and (ii) all parties to such
indemnified claim (other than the Indemnified Party) deliver a notice to
the Indemnified Party setting forth the terms of the compromise or
settlement (a "Compromise Notice"), but (iii) the Indemnified Party does
not elect (within 30 calendar days after its receipt of the last of such
Compromise Notices (the "Election Date")) to accept or agree to such
compromise or settlement, then the obligation of the Indemnifying Party
arising from or relating to such Indemnified Claim will be limited to the
sum set forth in the Compromise Notice (the "Settlement Sum"), and
thereafter the Indemnified Party will reimburse the Indemnifying Party
promptly following the final, non-appealable conclusion, of such
indemnified claim for the amount by which the liability, counsel fees, and
expenses incurred by the Indemnifying Party after the Election Date exceeds
the Settlement Sum.
(vi) In the event that an Indemnified Party shall in
good faith determine that the conduct of the defense of any Third Party
Claim subject to indemnification hereunder or any proposed settlement of
any such claim by the Indemnifying Party might be expected to affect
adversely the Indemnified Party's Tax liability or ability to conduct its
business, or that the Indemnified Party may have available to it one or
more defenses or counterclaims that are inconsistent with one or more of
those that may be available to the Indemnifying Party or any other
conflicts
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of interest in respect of such claim relating thereto, the Indemnified
Party shall have the right at all times to employ separate counsel to
represent it as to any such aspect of a Third Party Claim that might so
adversely affect the Indemnified Party, or as to any such inconsistent
defenses or counterclaim, the reasonable fees of such separate counsel to
be borne by the Indemnifying Party.
(vii) In any event, the Indemnifying Party and the
Indemnified Party shall cooperate in the defense of any Third Party Claim
subject to this Section 8.1 and the records of each shall be available to
the other with respect to such defense. The provisions of Section 8.1(d)
relating to the Indemnifying Party's right to assume the defense of Third
Party Claims for which it has an indemnification obligation hereunder
shall, if Seller or any Selling Subsidiary is an Indemnifying Party, apply
only for so long as the funds contained in the Indemnity Escrow Account are
sufficient to cover all claims (whether or not such claims are Third Party
Claims) for indemnification under this Agreement then outstanding against
Seller and the Selling Subsidiaries.
(viii) In the event any Indemnified Party shall have a
claim against any Indemnifying Party hereunder that does not involve (x) a
Third Party Claim being asserted against or sought to be collected from the
Indemnified Party or (y) a claim arising under or relating to a Special
Indemnity, the Indemnified Party will notify the Indemnifying Party with
reasonable promptness after such Indemnified Party has actual knowledge of
such claim, specifying the nature of and specific basis for such claim and
the amount or the estimated amount of such claim (the "Indemnity Notice").
If the Indemnifying Party does not notify the Indemnified Party that the
Indemnifying Party disputes such claim within 10 days after the date of the
Indemnifying Party's receipt of the Indemnity Notice, the estimated amount
of such claim specified by the Indemnified Party will be conclusively
deemed a liability of the Indemnifying Party hereunder. If the
Indemnifying Party timely disputes such claim, the Indemnifying Party and
the Indemnified Party agree to proceed in good faith to attempt to
negotiate a resolution of such dispute, and if not resolved through
negotiations either party may pursue whatever remedies it may have under
Applicable Law. Claims by any Buyer Indemnitee arising under or relating
to a Special Indemnity shall not be subject to the procedures set
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forth in Section 8.1(d), but rather shall be subject to Section 8.2(d).
(e) Certain Environmental Matters. (i) The covenant to
indemnify under Section 8.1(a)(vi)(C) shall only apply to the extent that
the Loss incurred by a Buyer Indemnitee is a Reasonable Environmental
Expense, determined as follows:
(A) With respect to a Loss that does not arise from
a duty under Environmental Law, a Reasonable Environmental Expense is
an expense or other cost that is reasonably necessary for the
continued utilization of the property in a manner consistent with its
general land use type as of the Closing Date, but only to the extent
that a reasonable and prudent Person in the Buyer Indemnitee's
position (i.e., one owning or holding a security interest in real
property, as the case may be) would choose to incur such expense or
cost in order to minimize Losses to such Person that over a period of
time could arise from the relevant presence, management,
Environmental Release or threatened Environmental Release of
Hazardous Materials or other environmental condition or matter, if
such Person did not have the benefit of a contractual indemnity but
rather would be paying for such present or future Losses with its own
funds. Determining what is a Reasonable Environmental Expense with
respect to a Loss that does not arise from noncompliance with or a
duty under Environmental Law shall include consideration of factors
such as (x) the estimated cost of the contemplated current expense,
(y) the magnitude and likelihood of Losses that may result if such
expense is not incurred, and (z) the value of the property to which
the environmental expense relates. For purposes of this Section
8.1(e)(i)(A), the phrase "general land use type" shall mean
industrial use, commercial use, residential use, agricultural use, or
other generally recognized broad category of potential land uses.
(B) With respect to a Loss that arises from a duty
imposed under Environmental Law, but where applicable Environmental
Law allows the Buyer Indemnitee a range of options with significantly
differing costs as to how to comply with or discharge that duty, an
expense or cost shall be deemed a Reasonable Environmental Expense
only if it is an expense or other cost that (1) is one of such
options
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that a reasonable and prudent Person in the Buyer Indemnitee's
position (i.e., one currently or previously owning an interest in
real property) would incur to comply with or to discharge the duty
imposed under Environmental Law, if such Person did not have the
benefit of a contractual indemnity but rather would be paying for
such cost or expense with its own funds (and in a jurisdiction that
has formally adopted risk based cleanup standards for the presence of
Hazardous Materials in the soil, groundwater and other environmental
media based upon current or future land uses if such standards and
the cost of meeting them differ according to the current or future
land use type then only expenses and other costs associated with
attaining such standards applicable to the property's current land
use type as of the Closing Date use shall be deemed a Reasonable
Environmental Expense); (2) is incurred pursuant to an order by a
Governmental Authority under Environmental Law; or (3) is incurred in
order to prevent or ▇▇▇▇▇ an imminent and substantial endangerment to
human health or the environment in response to an environmental
condition, Environmental Release or threatened Environmental Release.
(C) Notwithstanding the preceding clauses (A) and
(B), with respect to any Loss, a cost or expense shall not be deemed
a Reasonable Environmental Expense to the extent such cost or
expense, or any duty under Environmental Law to undertake the
activity giving rise to such cost or expense, arises from any actual
or proposed demolition, remodeling, expansion, construction,
replacement or similar activity by or at the direction of Buyer or
any Affiliate of Buyer in, on, under or within any such property that
is neither (1) otherwise required to be undertaken under any
Environmental Law or other Applicable Law nor (2) reasonably
necessary for the continued utilization of the property in a manner
consistent with its particular use as of the Closing Date.
(ii) For a claim (an "Environmental Claim") to be a
Loss eligible for indemnification under Section 8.1(a)(vi)(C), prior to
incurring any costs or expenses for which indemnification is to be sought,
the Buyer Indemnitee shall provide Seller with a notice (an "Environmental
Claim Notice") which notice shall include documentation showing in
reasonable detail the basis for Buyer Indemnitee's assertion
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that the proposed action and the costs and expenses anticipated to be
incurred are Reasonable Environmental Expenses. The Buyer Indemnitee shall
provide, and cause its representatives to provide, Seller and Seller's
authorized representatives access to and the opportunity to review related
studies, records, sampling data, cost estimates and other related documents
utilized by the Buyer Indemnitee in connection with establishing the
Environmental Claim. Unless Seller delivers written notice to the Buyer
Indemnitee prior to the 15th day following Seller's receipt of the
Environmental Claim Notice disputing its and the Selling Subsidiaries'
liability to indemnify the Buyer Indemnitee with respect to all or part of
the Environmental Claim, which notice shall specify in reasonable detail
the basis therefor, Seller and the Selling Subsidiaries shall be deemed to
have agreed to indemnify the relevant Buyer Indemnitee in respect of such
Environmental Claim. If Seller so disputes its and the Selling
Subsidiaries' liability to indemnify the Buyer Indemnitee in respect of all
or part of an Environmental Claim, the Buyer Indemnitee and Seller shall
use reasonable efforts to resolve in good faith their differences and any
resolution by them shall be reduced to writing and signed by a duly
authorized officer of the respective parties and shall be final, binding
and conclusive. Notwithstanding any other provision of this Section
8.1(e)(ii), Buyer Indemnitee shall not be required to provide notice to
Seller before incurring any costs or expense (1) pursuant to an order by a
Governmental Authority under Environmental Law or (2) in order to prevent
or ▇▇▇▇▇ an imminent and substantial endangerment from an environmental
condition, Environmental Release or threatened Environmental Release.
(iii) If, after 10 Business Days following delivery of
the Environmental Claim Notice (or such other period as Seller and Buyer
agree) any Environmental Claim or part thereof remains in dispute, the
Environmental Claim shall be submitted for final resolution to the
Environmental Panel, consisting of one representative chosen by each of
Seller and Buyer and a third party chosen by the representatives of Seller
and Buyer ("Environmental Panel"). Each party agrees to execute, if
requested by the members of the Environmental Panel, a reasonable
engagement letter in form and substance satisfactory to such members.
Representatives on the Environmental Panel shall be competent in real
property transactions and the impact that adverse environmental conditions
may have on the value and/or use of real property. All fees and expenses
relating
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to the work, if any, to be performed by the Environmental Panel shall be
borne by Seller. The Environmental Panel shall act as an arbitrator to
determine, based solely on presentations by Buyer and Seller and their
respective representatives, and not by independent review, the
Environmental Claim, or part thereof, in dispute. Buyer and Seller, and
their respective representatives, shall cooperate fully with the
Environmental Panel. Buyer and Seller shall provide, and shall cause their
representatives to provide, the Environmental Panel and its representatives
such assistance and access to the relevant site or property that is the
basis of the claim, and any studies, reports, sampling data, cost
estimates, and other documents as the Environmental Panel shall reasonably
request. The Environmental Panel's determination shall be based upon
majority vote, shall be made within 30 days of its selection, or at such
other time as Buyer, Seller and the Environmental Panel may mutually agree,
shall be set forth in a written statement delivered to Buyer and Seller and
shall be final, binding and conclusive on Buyer, any other Buyer
Indemnitee, Seller and the Selling Subsidiaries.
(iv) Upon the payment to Buyer Indemnitee for any
Loss arising out of an Environmental Claim, Seller shall be subrogated to
all rights and causes of action which Buyer Indemnitee may have against any
third party to the extent of such Loss.
(v) Notwithstanding any provision to the contrary in
this Agreement, the Buyer Indemnitees shall not be entitled to recover for
any Loss arising out of an Environmental Claim with respect to any property
subject to a Mortgage Loan for any amount exceeding the amount designated
for such Mortgage Loan in correspondence between Seller and Buyer as of the
date hereof less the amount of any principal repayments in respect of such
Mortgage Loan after June 30, 1995.
(f) Time Limitation. All claims for indemnification under
clause (i) of the first sentence of Section 8.1(a) must be asserted on or
prior to the date of termination of the respective survival periods set
forth in Section 8.1(h). All claims for indemnification under clause (ii)
of the first sentence of Section 8.1(a) or under clause (i) of Section
8.1(b), to the extent that such claims relate to covenants and agreements
that, by their terms, are to be performed or complied with at or before the
Closing, must be asserted on or prior to July 31, 1996. To the extent that
138
such claims relate to covenants and agreements that, by their terms, are to
be performed or complied with after the Closing, such claims must be
asserted on or prior to the expiration of all applicable statutes of
limitations (including without limitation, all periods of extension,
whether automatic or permissive) affecting any such covenant or agreement;
provided, however, that if any such covenant or agreement that specifies a
term or period expiring before the expiration of all applicable statutes of
limitations, such claims must be asserted on or prior to the 180th day
following the end of such period. Any other claims for indemnification
hereunder may be asserted indefinitely subject to any applicable statute of
limitations with respect to such matters. If a claim for indemnification
is made before the expiration of the applicable survival period referred to
above, then (notwithstanding the expiration of such survival period) the
representation, warranty, covenant or agreement applicable to such claim
shall survive until, but only for purposes of, the resolution of such
claim.
(g) Remedies. For so long as funds remain in the
Indemnity Escrow Account, Buyer's and PennCorp's sole remedy for breaches
of representations, warranties and covenants hereunder shall be pursuant to
this Article VIII except to the extent any such claims, in the aggregate,
exceed or may exceed such amounts. Subject to the preceding sentence, the
rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in
equity. The parties acknowledge and agree that any payments made to one
party pursuant to the provisions of Section 2.9 shall not preclude such
party from being indemnified or recovering damages for breaches of
representations, warranties or any other covenant or agreement made in this
Agreement, nor shall any such indemnification or recovery of damages
preclude a party from receiving any payments due to it under Section 2.7,
2.8 or 2.9.
(h) Survival of Representations and Warranties. No
representation or warranty contained in this Agreement shall survive the
Closing Date, except as specified below:
(i) the representations and warranties contained in
Sections 4.1.5, 4.1.8 (to the extent applicable to the Acquired
Companies), 4.1.10(e), 4.1.11, 4.1.12 and 4.1.14 shall survive until
July 31, 1997;
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(ii) the representations and warranties contained in
Section 4.1.7 shall survive until July 31, 1996;
(iii) the representations and warranties contained in
Section 4.1.17 shall survive for so long as any applicable statute of
limitations remains open, in whole or in part, including without
limitation by reason of waiver of such statute of limitations.
8.2 Provisions Regarding Escrow Account. (a) Creation of Escrow
Account. At the Closing, Buyer, Seller, the Selling Subsidiaries, and an
escrow agent mutually acceptable to the parties hereto (the "Escrow Agent")
shall enter into an escrow agreement, substantially in the form of
Exhibit F to the Shinnecock Purchase Agreement (subject to such mutually
agreeable changes thereto as shall, in the reasonable judgment of Buyer and
Seller, reflect the terms of the transactions contemplated by this
Agreement (the "Escrow Agreement"), pursuant to which an escrow account
will be established (the "Indemnity Escrow Account") to secure the
indemnification obligations of Seller and the Selling Subsidiaries under
Section 8.1.
(b) [Reserved].
(c) Payments from Indemnity Escrow Account. Subject to
Section 8.2(d), the Buyer Indemnitees shall be entitled to receive payments
from the Indemnity Escrow Account by wire transfer in immediately available
funds promptly upon delivery to the Escrow Agent of (i) a written
instruction executed jointly by Seller and Buyer setting forth the amounts
to be paid to the Buyer Indemnitees or (ii) a written instruction or order
issued by a court of competent jurisdiction setting forth the amount to be
paid to the Buyer Indemnitees. On the later of (x) August 31, 1997, (y)
disposal or settlement of all Claims by the Bankruptcy Court and (z) the
first day after the Tax Expiration Date all cash amounts remaining in the
Indemnity Escrow Account (subject to application of Section 8.2(d) or as
set forth in correspondence between Seller and Buyer as of the date hereof)
shall be paid to Seller for distribution in accordance with the Debtors'
confirmed plan of reorganization; provided that, in the event that a Buyer
Indemnitee has a pending claim or claims against Seller or the Selling
Subsidiaries for indemnification under this Agreement, funds from the
Indemnity Escrow Account in the amount of such claims shall be retained by
the Escrow Agent
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until it has received (A) a written instruction directing payment of such
retained amount executed jointly by Seller and Buyer or (B) a written
instruction or order issued by the Bankruptcy Court or, if the Bankruptcy
Court is no longer the court of jurisdiction, any other court of competent
jurisdiction directing payment of such remaining amount.
(d) Special Indemnity Payments. The Buyer Indemnitees
shall be entitled to receive Special Indemnity payments from the Indemnity
Escrow Account by wire transfer in immediately available funds promptly
upon delivery by Buyer to the Escrow Agent of a certificate, executed by a
senior financial officer of Buyer, (i) in the case of amounts owed to any
Buyer Indemnitee under the Tax Indemnity, setting forth the amount of Taxes
paid, or (provided such amounts are then due and payable) to be paid, by
Buyer or any of its Affiliates, (ii) in the case of amounts owed to any
Buyer Indemnitee under the Litigation Indemnity (provided that Seller or a
Selling Subsidiary has previously declined to dispute its liability for,
and has assumed the defense of, the underlying claim pursuant to Section
8.1(d)(ii)), attaching thereto a copy of the court order, judgment or
settlement agreement pursuant to which such Buyer Indemnitee has incurred a
Loss, (iii) in the case of amounts owed to any Buyer Indemnitee for
Excluded Liabilities (provided that Seller or a Selling Subsidiary has
previously declined to dispute its liability for, and has assumed the
defense of, the underlying claim pursuant to Section 8.1(d)(ii)), setting
forth the amounts paid, or to be paid, by the Buyer Indemnitee as a result
of such Excluded Liabilities, (iv) in the case of amounts owed to any Buyer
Indemnitee under the Environmental Indemnity, the amounts paid or then due
and payable by the Buyer Indemnitee, attaching the written statement of the
Environmental Panel delivered pursuant to Section 8.1(e)(iii), if
applicable, and (v) in the case of the Non-Assignable Assumed Contracts
Indemnity, setting forth the costs incurred by any Buyer Indemnitee
pursuant to Section 2.10, plus, in each case other than clause (v), any
penalties and interest with respect thereto and the amount of any out-of-
pocket costs (including the fees and expenses of Buyer Indemnitee's
attorneys, actuaries, accountants and other advisors) incurred by the Buyer
Indemnitees in connection therewith. A copy of the certificate referred to
in the preceding sentence shall be delivered by Buyer to Seller no later
than ten days before delivery of such certificate to the Escrow Agent, but
the related payments
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from the Escrow Account shall not be subject to the prior approval of
Seller. Upon request by Seller, Buyer shall direct the Escrow Agent to
disburse from the Indemnity Escrow Account, to the extent there are cash
funds available in the Indemnity Escrow Account, or if there are no such
cash funds, Buyer shall pay or cause to be paid, on behalf of the
applicable taxpayer, directly to the IRS or any other taxing authority in
respect to Taxes to the following extent: (a) up to $67 million less any
reduction in funding under Section 8.3(ii), in respect to Taxes of any
Affiliated Group for the Tax years 1986 through 1989 and (b) up to an
additional $21 million in respect of other Taxes of any Affiliated Group.
If any amounts are disbursed from the Indemnity Escrow Account under clause
(b) of this Section 8.2(d), and a refund of Taxes attributable to taxable
periods, or portions thereof beginning on or after January 1, 1992 and
ending on or before the Closing Date is thereafter received by Seller that
is not otherwise payable to a Retained Company pursuant to the tax
allocation agreement referred to in Section 6.7(c) or to any Buyer
Indemnitee, Seller shall deposit in the Indemnity Escrow Account so much of
such refund as is necessary to restore any amounts previously disbursed
under clause (b) of this Section 8.2(d), together with any interest
received thereon.
8.3 Funding of Escrow Accounts. On the Closing Date, Buyer
shall fund the Indemnity Escrow Account with cash that equals the lesser of
(i) $167 million and (ii) $167 million minus the amount, up to $67 million,
of any payments of Taxes made to the IRS after the Execution Date but
before the Closing Date in respect of Taxes of any Affiliated Group for the
Tax years 1986 through 1989 pursuant to a settlement agreement reflected in
an IRS Form 870-AD delivered to Buyer by Seller; provided, that Buyer has
received evidence reasonably satisfactory to it of any such payment of
Taxes.
8.4 Tax Treatment of Escrow. Seller and Buyer agree that for
income tax purposes Seller shall treat the taxable income of the Indemnity
Escrow Account as includable in the Tax Returns of Seller, and
distributions from the Escrow Accounts to Buyer and Buyer Indemnitees and
indemnity payments pursuant to this Article VIII shall be treated as
adjustments to Purchase Price.
8.5 Escrow Payments at Buyer's Direction. At any time following
the later of the Closing Date and the date that is four months after the
Execution Date, Buyer may,
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five Business Days after notice to Seller, pay or direct the Escrow Agent
to pay, or deposit with, the IRS or any other taxing authority, on behalf
of the applicable taxpayer, the amount of Taxes that would be due in
accordance with the settlement agreement with the IRS reflected on IRS Form
870-AD delivered to Buyer on or before the Execution Date for Tax years
1986 through 1989 with respect to the affiliated group filing consolidated
returns for Federal income tax purposes of which Seller or MAL is the
common parent; provided that Buyer shall not make such payment or give such
direction for so long as (a) Seller contributes, on a quarterly basis,
additional funds to the Indemnity Escrow Account equal to the amount of
interest, penalties and additions to Tax attributable to such Taxes and (b)
the amount in the Indemnity Escrow Account at such time is at least equal
to the sum of (i) $67 million less any reduction in such amount pursuant to
clause (a) of Section 8.2(d) and (ii) the amount of interest, penalties and
additions to Tax attributable to such Taxes since the Closing Date.
8.6 [Reserved].
ARTICLE IX
Further Agreements
9.1 Public Announcements. Buyer, Seller, FMI and the Selling
Subsidiaries will consult with each other before issuing any press release
or otherwise making any 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 or, after such
consultation, if any party is not reasonably satisfied with the text of
such release or statement, except as may otherwise be required by
applicable law.
9.2 Limited Guaranty. PennCorp hereby unconditionally
guarantees the prompt payment by Buyer of the indemnity obligation of Buyer
set forth in Section 6.5(e)(ii) of this Agreement; provided that in no
event shall PennCorp's obligation under this guaranty exceed $25 million.
9.3 Matters Relating to Schedules. Notwithstanding any other
provision in this Agreement to the contrary, Buyer and Seller agree that
all schedules to this Agreement shall refer to that (i) certain Disclosure
Schedule to the Shinnecock Purchase Agreement (the "Disclosure Schedule")
and (ii) that certain Confidential Disclosure Schedule to
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the Shinnecock Purchase Agreement (the "Confidential Disclosure Schedule,"
and together with the Disclosure Schedule, the "Disclosure Schedules,").
The parties agree, in good faith, to discuss and agree (promptly, but in no
event later than 5 days after the date hereof) to such mutually agreeable
changes, modifications, deletions and additions to the Disclosure Schedules
as may be necessary to accurately reflect the transactions contemplated by
this Agreement; provided that any such changes, modifications, deletions
and additions (except with respect to Schedule 6.8) shall not affect in any
manner the Buyer Indemnitees right to seek indemnification hereunder with
respect to matters disclosed on such updated schedules but not disclosed on
the Disclosure Schedules, it being the intention of the parties that for
purposes of determining whether any representation, warranty, covenant or
agreement has been breached, the Disclosure Schedules to the Shinnecock
Purchase Agreement shall be operative subject to any changes to Schedule
4.2.3 reasonably necessary to reflect the structure of the transactions
contemplated by this Agreement.
ARTICLE X
Miscellaneous
10.1 Termination. (a) This Agreement may be terminated at any
time, but not later than the Closing Date, by Buyer and Seller mutually
agreeing in writing to terminate this Agreement. Notwithstanding the
proviso to the first sentence of Section 10.1(d) below, if this Agreement
is terminated by mutual agreement of the parties, neither party shall be
entitled to assert that the other party has breached any of the terms and
conditions of this Agreement, and any such breach shall by such mutual
termination be irrevocably waived.
(b) This Agreement shall terminate (without any action or
notice (in writing or otherwise) by any of the parties hereto) unless Buyer
in its sole and absolute discretion shall have extended in writing any of
the dates or any of the periods set forth in this Section 10.1(b) (or any
of the extended dates or periods):
(i) if the Approval Order has not been entered by
the Bankruptcy Court within 10 days of the date hereof; or
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(ii) if a supervisor, conservator, rehabilitator,
liquidator, receiver or other Person in a similar capacity shall be
appointed for any of the Acquired Insurance Companies 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 any of the Acquired Insurance Companies.
(c) Buyer (for itself, SWFSC and PennCorp) or Seller (for
itself and the Selling Subsidiaries) shall have the right to terminate this
Agreement if the Closing Date shall not have occurred on or prior to
December 31, 1995.
(d) Except as expressly set forth in this Agreement, in
the event of the termination of this Agreement, this Agreement shall
forthwith become void and have no effect and there shall be no obligation
or liability on the part of any party hereto or its Affiliates, directors,
officers or shareholders; provided that neither any provision herein nor
the termination of this Agreement pursuant to Section 10.1(c) shall relieve
any party hereto from any liability for any breach hereof or for any
obligation of any party under this Section 10.1(d). Notwithstanding
anything to the contrary contained herein, in the event the transactions
contemplated by this Agreement are not consummated on or before December
31, 1995, for any reason other than (i) the failure of the condition set
forth in Section 3.2.9 hereof to have been satisfied or (ii) the willful
breach by Seller or any of the Selling Subsidiaries of any of their
respective representations, warranties, covenants or agreements contained
herein, the result of which prevents Buyer from consummating the
transactions contemplated by this Agreement, then: (A) Seller shall be
permitted to retain the Buyer's Deposit and neither Buyer, PennCorp nor any
other Person (other than Seller or its designees) shall have any Claim with
respect thereto, and (B) Buyer and PennCorp, jointly and severally, shall
be liable for, and shall indemnify and hold harmless Seller Indemnities
from and against (1) any Failed QSP Losses (without any limitations to
Buyer's or PennCorp's liability thereto) and (2) such other Seller Losses
resulting from or arising out of any failure of Buyer or PennCorp to
perform any covenant or agreement hereunder or fulfill any other obligation
in respect hereof, but only to the extent such Failed QSP Losses and Seller
Losses specified in this clause (B), in the aggregate, exceed the amount of
the Buyer
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Deposit; provided, that Buyer and Seller shall use commercially reasonable
efforts to (i) minimize the amount of Taxes and Seller Losses resulting
from a failure of the transactions described above to constitute a
Qualified Stock Purchase and to seek the largest Tax refunds to which they
are entitled in light of the facts and circumstances and (ii) minimize the
amount of Seller Losses resulting from or arising out of any failure of
Buyer or PennCorp to perform any covenant or agreement hereunder or fulfill
any other obligation in respect thereto. Notwithstanding anything to the
contrary contained herein, neither Buyer nor PennCorp shall have any
liability under this Agreement if the transactions contemplated hereby are
not consummated due to (1) failure of the condition set forth in Section
3.2.9 hereof to have been satisfied or (2) a willful breach by Seller or
any of the Selling Subsidiaries of any of their representations,
warranties, covenants or agreements, which prevents Buyer from consummating
the transactions contemplated by this Agreement, in which event Buyer shall
be entitled to return of the Buyer's Deposit immediately by wire transfer
of immediately available funds.
10.2 Severability. If any provision of this Agreement is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions of this Agreement shall remain in full force
and effect. The parties shall endeavor in good faith negotiations to
replace any invalid, illegal or, unenforceable provision with a valid,
legal and enforceable provision, the economic effect of which comes as
close as possible to that of the invalid, illegal or unenforceable
provision.
10.3 Agreement; No Third-Party Beneficiaries. This Agreement,
together with those certain letters of even date herewith executed by Buyer
and Seller discussing various matters relevant hereto, and the other
documents and instruments referred to herein (a) constitutes the entire
agreement and understanding and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof, and (b) except as otherwise expressly specified
herein, are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder. The only representations and
warranties made by the parties hereto with respect to the subject matter
hereof are the representations and warranties contained in this Agreement.
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10.4 Expenses. Except as otherwise specifically provided for in
this Agreement, Seller and the Selling Subsidiaries, on the one hand, and
Buyer on the other hand, shall bear their respective expenses, costs and
fees (including attorneys', auditors' and financing commitment fees) in
connection with the transactions contemplated hereby, including the
preparation, execution and delivery of this Agreement and the Related
Agreements and compliance herewith and therewith, whether or not the
transactions contemplated hereby shall be consummated.
10.5 Assignment. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written
consent of the other parties hereto, and any purported assignment or other
transfer without such consent shall be void and unenforceable; provided,
that Buyer may assign this Agreement to any Subsidiary of Buyer, or to any
lender to Buyer or any Subsidiary or Affiliate thereof as security for
obligations to such lender, and provided, further, that no assignment to
any such lender shall in any way affect Buyer's obligations or liabilities
under this Agreement.
10.6 Notices. Any notice, demand, election, request, consent or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) when personally delivered or delivered
by telecopy on a Business Day during normal business hours (at the place of
receipt) at the address or number designated below or (b) on the second
Business Day following the date of mailing by overnight courier, fully
prepaid, addressed to such address, whichever shall first occur. The
addresses for such communications shall be:
If to Seller:
I.C.H. Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Executive Vice President
and General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to Buyer or to SWFSC:
Southwestern Financial Corporation
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Weil, Gotshal & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to PennCorp:
PennCorp Financial Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
PennCorp Financial, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Weil, Gotshal & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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Any party hereto may from time to time change its address for
communications under this Section 10.6 by giving at least 5 days' notice of
such changed address to the other party hereto.
10.7 Amendments and Waivers. This Agreement may not be amended,
supplemented or discharged, and none of its provisions may be modified,
except expressly by an instrument in writing signed by the party to be
charged. The parties hereto may amend this Agreement without notice to or
the consent of any third party. Any term or provision of this Agreement
may be waived, but only in writing by the party which is entitled to the
benefit of that provision. No waiver by any party of any default with
respect to any provision, condition or requirement hereof shall be deemed
to be a continuing waiver in the future thereof or a waiver of any other
provision, condition or requirement hereof; nor shall any delay or omission
of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts, which together shall constitute but one instrument. It shall
not be necessary for each party to sign each counterpart so long as each
party has signed at least one counterpart.
10.9 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns.
10.10 Interpretation. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
10.11 Schedules. The Schedules to this Agreement form an integral
part hereof. Capitalized terms defined in one Schedule are used as so
defined in all Schedules (unless the context requires otherwise), and
capitalized terms used in the Schedules without definition are used as
defined in this Agreement. The fact that any matter is disclosed in any
Schedule shall not be construed to mean that such disclosure is required by
this Agreement, including, without limitation, in order to render any
representation or warranty true or correct or in order to permit any action
or
149
event to take place consistent with any covenant or agreement.
10.12 GOVERNING LAW. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(b) THE PARTIES SUBMIT TO THE EXCLUSIVE JURISDICTION OF
THE BANKRUPTCY COURT AS CONTEMPLATED BY THE ORDER REFERRED TO IN SECTION
3.1.2.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR
VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO
REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH
SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.12.
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IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.
I.C.H. CORPORATION
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
Title: Chairman and Chief, Executive Officer
SWL HOLDING CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Executive Vice President
FACILITIES MANAGEMENT INSTALLATION, INC.
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Executive Vice President
CARE FINANCIAL CORPORATION
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Executive Vice President
151
SOUTHWESTERN FINANCIAL CORPORATION
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President and
General Counsel
SOUTHWESTERN FINANCIAL SERVICES CORPORATION
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President
PENNCORP FINANCIAL GROUP, INC.
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President, General Counsel
and Secretary
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