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MERGER AGREEMENT
Among
THE GUARANTEE LIFE COMPANIES INC.,
GUARANTEE SUBSIDIARY, INC.,
and
PFG, INC.
As of October 17, 1997
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6
MERGER AGREEMENT
TABLE OF CONTENTS
Page
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RECITALS..................................................................... 1
ARTICLE I
DEFINITIONS
Section 1.1. Definitions................................................. 2
Section 1.2. Interpretation.............................................. 9
ARTICLE II
THE MERGER
Section 2.1. The Merger.................................................. 10
Section 2.2. Effect of the Merger........................................ 10
Section 2.3. The Closing................................................. 11
Section 2.4. The Effective Time.......................................... 12
Section 2.5. Articles of Incorporation and Bylaws........................ 12
Section 2.6. Conversion of Securities.................................... 12
Section 2.7. Merger Consideration........................................ 13
Section 2.8. Closing of Company Transfer Books........................... 13
Section 2.9. Surrender of Certificates, Stock Options and Warrants
and Payment of Merger Consideration......................... 13
Section 2.10. Letter to Stockholders of the Company....................... 15
Section 2.11. Funding of Paying Agent..................................... 15
Section 2.12. Dissenting Stockholders..................................... 16
Section 2.13. Actions of Directors and Stockholders....................... 17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY
Section 3.1. Organization and Qualification.............................. 19
Section 3.2. Capitalization; Title to Stock.............................. 22
Section 3.3. Authorization and Effect.................................... 23
Section 3.4. No Violation................................................ 24
Section 3.5. Consents and Approvals...................................... 25
Section 3.6. Financial Statements; Undisclosed Liabilities.............. 26
Section 3.7. Reserves................................................... 27
Section 3.8. Absence of Certain Changes or Events....................... 28
Section 3.9. Taxes and Tax Returns...................................... 28
Section 3.10. Proceedings................................................ 31
Section 3.11. Compliance With Law........................................ 32
Section 3.12. Employment Matters......................................... 33
Section 3.13. 401(k) Plan................................................ 34
Section 3.14. Welfare Benefit Plans...................................... 36
Section 3.15. Employee Benefit Plans..................................... 39
Section 3.16. Assets..................................................... 40
Section 3.17. Operations Insurance....................................... 42
Section 3.18. Brokerage Fees............................................. 43
Section 3.19. Environmental Matters...................................... 43
Section 3.20. Contracts.................................................. 44
Section 3.21. Insurance Issued by AGL.................................... 49
Section 3.22. Threat of Cancellation..................................... 50
Section 3.23. Accounting Practices....................................... 50
Section 3.24. State Insolvency Funds..................................... 50
Section 3.25. Persons Entitled to Merger Consideration................... 50
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GUARANTEE
Section 4.1. Organization............................................... 51
Section 4.2. Authorization of Agreement................................. 51
Section 4.3. Consents and Approvals; No Violations...................... 52
Section 4.4. Purchase Price Funding..................................... 52
Section 4.5. Commissions................................................ 52
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWCO
Section 5.1. Organization............................................... 53
Section 5.2. Authorization of Agreement................................. 53
Section 5.3. Consents and Approvals; No Violations...................... 54
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.1. Expenses................................................... 54
ii
Section 6.2. Further Assurances......................................... 54
Section 6.3. Consents................................................... 55
Section 6.4. Announcements or Communications............................ 55
Section 6.5. Access..................................................... 56
Section 6.6. Conduct of the Company's Business.......................... 57
Section 6.7. Notification............................................... 60
Section 6.8. Other Transactions......................................... 60
Section 6.9. Tax Elections, Etc......................................... 63
Section 6.10. Benefits................................................... 63
Section 6.11. September 30, 1997 Financial Statements.................... 64
Section 6.12. Deferred Compensation...................................... 64
Section 6.13. Life Insurance Program..................................... 64
ARTICLE VII
CLOSING DATE CONDITIONS
Section 7.1. Conditions to Each Party's Obligations..................... 65
Section 7.2. Conditions to the Obligations of the Company............... 66
Section 7.3. Conditions to the Obligations of Guarantee and Newco....... 68
ARTICLE VIII
TERMINATION
Section 8.1. Termination of This Agreement.............................. 70
Section 8.2. Effect of Termination...................................... 71
ARTICLE IX
INDEMNIFICATION
Section 9.1. Indemnification............................................ 72
Section 9.2. Notice of Claim............................................ 73
Section 9.3. Limitation on Indemnification Obligation................... 73
Section 9.4. Survival of Indemnification................................ 74
ARTICLE X
SURVIVAL OF REPRESENTATIONS; EFFECT OF CERTIFICATES
Section 10.1. Survival of Representations, Warranties, Covenants,
Conditions and Agreements.................................. 74
Section 10.2. Effect of Certificates..................................... 75
iii
Section 10.3. Reliance................................................... 75
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Amendment and Modification................................. 75
Section 11.2. Waiver of Compliance; Consents............................. 76
Section 11.3. Notices.................................................... 76
Section 11.4. Assignment................................................. 77
Section 11.5. No Third-Party Beneficiaries............................... 77
Section 11.6. Confidentiality of Information and Documents............... 78
Section 11.7. Governing Law.............................................. 78
Section 11.8. Jurisdiction; Agents for Service of Process................ 78
Section 11.9. Counterparts............................................... 79
Section 11.10. Headings................................................... 79
Section 11.11. Knowledge of the Company................................... 79
Section 11.12. Entire Agreement........................................... 79
Section 11.13. Indemnification of Officers and Directors.................. 80
SCHEDULES
Schedule 2.7 Merger Consideration
Schedule 3.1(a) Good Standing
Schedule 3.1(b) Subsidiaries
Schedule 3.1(c) Licenses, Permits, Etc.
Schedule 3.1(d) Articles/Bylaws
Schedule 3.2 Capitalization
Schedule 3.4 No Violation
Schedule 3.5 Company Consents and Approvals
Schedule 3.6 Financial Statements; Undisclosed Liabilities
Schedule 3.7 Reserves
Schedule 3.8 Absence of Changes
Schedule 3.9 Taxes
Schedule 3.10 Proceedings
Schedule 3.11 Compliance With Law
Schedule 3.12 Employment Matters
Schedule 3.14 Welfare Benefit Plans
Schedule 3.15 Employee Benefit Plans
Schedule 3.16 Assets
Schedule 3.17 Operations Insurance
Schedule 3.18 Brokerage Fees
Schedule 3.19 Environmental Matters
Schedule 3.20 Contracts
iv
Schedule 3.21 Insurance Issued by AGL
Schedule 3.22 Threat of Cancellation
Schedule 3.23 Accounting Practices
Schedule 3.24 State Insolvency Funds
Schedule 4.3 Guarantee Consents and Approvals
Schedule 5.3 Newco Consents and Approvals
EXHIBITS
Exhibit A Form of Paying Agent Agreement
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MERGER AGREEMENT
PREAMBLE
THIS MERGER AGREEMENT (this "Agreement") is made and entered into as of
October 17, 1997 by and among The Guarantee Life Companies Inc., a company
organized and existing under the laws of the State of Delaware ("Guarantee"),
Guarantee Subsidiary, Inc., a company organized and existing under the laws of
the Commonwealth of Pennsylvania and a wholly owned subsidiary of Guarantee
("Newco"), and PFG, Inc., a company organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Boards of Directors of Newco and the Company have by majority
vote determined that it is advisable for Newco to be merged with and into the
Company as described herein (the "Merger"), as a result of which all of the
Company's outstanding common stock, par value $.10 per share, and the Series B
Convertible Preferred Shares and Series C Convertible Preferred Shares (the
"Stock") will be converted into the right to receive an aggregate consideration
of $37,250,000 (subject to adjustment pursuant to Section 2.7 hereof), all on
the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Boards of Directors of Newco and the Company have by majority
vote and by resolutions duly adopted, approved this Agreement and the Merger on
the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants and agreements herein contained, the parties, intending to be legally
bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. In addition to other terms that are defined
herein, the following terms shall have the definitions set forth in this
Section:
"Affiliate" means any Person which directly or indirectly controls, or is
controlled by, or is under common control with, such other Person, including
without limitation, its direct or indirect parent and subsidiary entities. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"AGL" means AGL Life Assurance Company, a life insurance company organized
and existing under the laws of the Commonwealth of Pennsylvania, which is a
wholly owned subsidiary of the Company.
"Agreement" means this Merger Agreement, as defined in the Preamble hereto.
"Annual Statements" shall mean annual Financial Statements prepared in
accordance with SAP and filed pursuant to state insurance laws.
"Assets" shall mean all rights, titles, franchises and interests in and to
every species of property, real, personal and mixed, tangible and intangible,
and things in action thereunto belonging, including, without limitation, cash
and cash equivalents, securities (including, without limitation, exempted
securities under the Securities Act of 1933), receivables, recoverables (from
reinsurance and otherwise), deposits and advances, loans, agent balances, real
property (together with buildings, structures and the improvements thereon,
fixtures contained therein and appurtenances thereto and easements and other
rights relating thereto), machinery, equipment,
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furniture, fixtures, leasehold improvements, vehicles and other Assets or
property, leases, Licenses, permits, approvals, Authorizations, joint venture
agreements, contracts or commitments, whether written or oral, policy forms,
training materials, underwriting manuals, lists of policyholders and agents,
processes, trade secrets, know-how, software, computer programs and source
codes, protected formulae, all other Intellectual Property, research, goodwill,
prepaid expense, books of account, records, files, invoices, data, rights,
claims and privileges and any other Assets whatsoever.
"Authorization" shall have the meaning set forth in Section 3.12(b) hereof.
"Business Day" means any day other than a Saturday, Sunday, federal holiday
or any other day on which banking institutions in the State of Nebraska are
authorized by law, or by executive order, to be closed.
"Closing" shall have the meaning set forth in Section 2.3 hereof.
"Closing Date" means the date on which the Closing described in Section 2.3
hereof takes place.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means PFG, Inc., a company organized and existing under the laws
of the Commonwealth of Pennsylvania, and shall include each of its Subsidiaries,
as an entirety, unless and except to the extent expressly indicated otherwise or
the context otherwise requires, and representations as to the Company contained
herein shall be deemed to mean the Company and each of its Subsidiaries, both
separately and together as a consolidated whole, unless and except to the extent
expressly indicated otherwise or as the context otherwise requires.
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"Company Operating Facility" shall mean any operating facility which is
owned or leased by the Company or its Subsidiaries or in the management of which
the Company or its Subsidiaries actively participates.
"Constituent Corporations" shall mean Newco and the Company.
"Dissenting Stockholder" shall have the meaning set forth in Section 2.12
hereof.
"DOL" shall mean the United States Department of Labor.
"Effective Time" shall have the meaning set forth in Section 2.4 hereof.
"Employee Benefit Plans" means all (a) "employee benefit plans," as defined
in Section 3(3) of ERISA, and (b) other plans providing money, services,
property or other benefits, in respect of any present or former employees,
directors, officers, shareholders, consultants or independent contractors of the
Company.
"Environmental Claim" shall mean any written notice by a Person alleging
actual or potential liability (including, without limitation, potential
liability for any investigatory cost, clean-up cost, governmental response cost,
natural resources damage, property damage, personal injury or penalty) arising
out of, based on or resulting from (a) the presence, transport, disposal,
discharge or release of any materials of Environmental Concern at any location,
whether or not owned by the Company or its Subsidiaries, or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.
"Environmental Laws" shall mean all federal, state, local and foreign laws
relating to pollution or to protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases, or the presence
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of Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, existence, treatment, storage, disposal,
transport, recycling, reporting or handling of Materials of Environmental
Concern.
"ERISA" means Employee Retirement Income Security Act of 1974, as amended.
"Financial Statements" means the balance sheet(s) and the related
statements of income, stockholders' equity and cash flows, including the notes
appended thereto, prepared on a statutory basis in accordance with SAP, with
respect to AGL, and in accordance with GAAP with respect to the Company and each
noninsurance Subsidiary, consistently applied as of the dates indicated therein;
provided, however, unaudited financial statements need not include statements of
cash flows or notes and will be subject to normal year-end adjustments.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis, subject to, in the case of unaudited Interim Financial
Statements, normal year-end adjustments and, in the case of all unaudited
Financial Statements, the absence of footnote disclosure.
"Guarantee" means The Guarantee Life Companies Inc., a company organized
and existing under the laws of the State of Delaware, and its successors and
permitted assigns.
"HSR Act" means The ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended.
"Insurance Policies" means all insurance policies and annuity contracts
issued by AGL.
"Intellectual Property" means all patents and patent rights, trademarks and
trademark rights, trade names and trade name rights, service marks and service
▇▇▇▇ rights, service names and service name rights, brand names, inventions,
processes, formulae, copyrights and copyright
5
rights, business and product names, logos, slogans, trade secrets, processes,
designs, methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing, know-how and all
pending applications for and registrations of patents, trademarks, service marks
and copyrights.
"IRS" shall mean the Internal Revenue Service.
"Knowledge of the Company" shall have the meaning set forth in Section
11.11 hereof.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to become
due), including, but not limited to, any liability related to any assumption
reinsurance or the sale or purchase of any Assets or subsidiary.
"License" means a license, certificate of authority, permit or other
authorization to transact an activity or business issued or granted by a
governmental entity.
"Material Adverse Effect" means a material adverse effect on the business,
operations, property or financial condition of the Company.
"Materials of Environmental Concern" shall mean chemical, pollutants,
contaminants, wastes, toxic or hazardous substances, petroleum and petroleum
products.
"Merger Consideration" shall have the meaning set forth in Section 2.7(a)
hereof.
"NAIC" means the National Association of Insurance Commissioners.
"Newco" means Guarantee Subsidiary, Inc., a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania.
"Paying Agent" means a financial institution mutually acceptable to the
Company and Guarantee.
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"Paying Agent Agreement" shall have the meaning set forth in Section 2.11
hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pennsylvania Commissioner" means the Commissioner of the Pennsylvania
Insurance Department.
"Pennsylvania Law" shall mean the Pennsylvania Business Corporation Law of
1988, as amended.
"Pension Benefit Plan" shall mean any plan as defined in Section 3(2) of
ERISA.
"Permitted Liens" shall mean, as to any Person, (i) all liens on Assets of
such Person approved in writing by Guarantee, (ii) statutory liens arising out
of operation of law with respect to a liability which is incurred in the
ordinary course of business and can be paid without interest or penalty, (iii)
such liens and other imperfections of title as do not materially detract from
the value or impair the use of the Assets subject thereto or (iv) such liens on
the Assets of such Person as may result on or after the Closing Date from any
action or inaction by Guarantee or its Subsidiaries or such liens which
otherwise become applicable to the Assets of Guarantee on or after the Closing
Date.
"Person" means any natural Person, corporation, firm, partnership,
association, government, governmental agency or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Proceedings" shall mean audits, hearings, investigations and examinations
(by whatever name or title) by governmental entities and actions, suits and
claims (by whatever name or title) by any Person.
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"Purchase Price" means the amount to be paid by Newco to stockholders and
stock option and warrant holders of the Company as consideration for the Merger
in accordance with Section 2.7(a) of this Agreement.
"Quarterly Statements" shall mean the quarterly Financial Statements of AGL
prepared in accordance with SAP and filed pursuant to state insurance law.
"SAP" shall mean accounting practices required or permitted by applicable
insurance governmental entities applied on a consistent basis, subject to, in
the case of unaudited Interim Financial Statements, normal year-end adjustments
and, in the case of all unaudited Financial Statements, the absence of
interrogatories or footnote disclosure to the extent so required or permitted.
"SAP Statements" shall mean Financial Statements prepared in accordance
with SAP.
"Software" shall mean, whether used separately or as part of any other
defined term, any program or algorithm, whether in source code or object code,
and in whatever form or media stored, used in connection with the computer
processing and storage of data.
"Stock" means the shares of common stock, $.10 par value, and the Series B
Convertible Preferred Shares and Series C Convertible Preferred Shares of the
Company.
"Subsidiaries" means the Subsidiaries listed on Schedule 3.1(b).
"Surviving Corporation" means the Company after the Effective Time.
"Tax" or "Taxes" means any and all taxes imposed by any United States
federal, state or local taxing authority, or by any foreign taxing authority,
including, without limitation, all income, gross receipts, sales, use, personal
property, use and occupancy, business, occupation, mercantile, ad valorem,
transfer, License, withholding, payroll, employment, excise, premium,
8
real estate, environmental, capital stock, franchise, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalties (including information reporting penalties) or other additions
thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Welfare Benefit Plans" shall mean any plan defined in Section 3(1) of
ERISA, any cafeteria plan under Section 125 of the Code, any dependent care
assistance plan under Section 129 of the Code and any educational assistance
plan under Section 127 of the Code.
Section 1.2. INTERPRETATION. In this Agreement, unless a clear contrary
intention appears:
(a) the singular includes the plural and vice versa;
(b) reference to any Person includes such Person's successors and
assigns;
(c) reference to any gender includes the other gender;
(d) reference to any agreement (including this Agreement and the
Schedules and Exhibits), document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to
time in accordance with the terms thereof;
(e) reference to any Article, Section, Schedule or Exhibit means such
Article or Section hereof or Schedule or Exhibit hereto;
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(f) "hereunder," "hereof," "hereto" and words of similar import shall
be deemed references to this Agreement as a whole and not to any particular
Article, Section or other provision hereof;
(g) "including" (and, with correlative meaning, "include") means
including without limiting the generality of any description preceding such
term; and
(h) relative to the determination of any period of time, "from" means
"from and including" and "to" means "to and including."
ARTICLE II
THE MERGER
Section 2.1. THE MERGER. At the Effective Time (as defined in Section
2.4), pursuant to and in accordance with the Pennsylvania Law and this
Agreement, Newco shall be merged with and into the Company. As a result of the
Merger (i) the separate existence of Newco shall cease, and (ii) the Company
shall continue as the surviving corporation. The Company, in its capacity as
the corporation surviving the Merger, is hereinafter referred to as the
"Surviving Corporation."
Section 2.2. EFFECT OF THE MERGER. The Surviving Corporation shall, at
and after the Effective Time, possess all the rights, privileges and franchises
possessed by each of Newco and the Company (collectively, the "Constituent
Corporations") prior to the Effective Time and all the property, real, personal
and mixed, of each of the Constituent Corporations, and all debts due on
whatever account to either of them, including, without limitation, premiums on
existing policies, and other choses in action belonging to either of the
Constituent Corporations shall be taken and deemed to be transferred to and
invested in the Surviving Corporation without further
10
act or deed; the Surviving Corporation shall be responsible for all the
liabilities and obligations of each of the Constituent Corporations in
accordance with the terms of this Agreement; but the rights of the creditors of
each of the Constituent Corporations, or of any Persons dealing with such
corporations, shall not be impaired by the Merger, and any claim existing or
action or Proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the Merger had not taken place,
or the Surviving Corporation may be proceeded against or substituted in its
place.
Section 2.3. THE CLOSING. Upon the terms and subject to the conditions
contained in this Agreement, the closing (the "Closing") of the transactions
contemplated by this Agreement will take place on a date (the "Closing Date")
and at a location mutually agreed upon by the parties at 11:00 a.m. or at such
other time and place as soon as reasonably practicable following the date
hereof, but in no event shall the Closing Date be later than December 31, 1997,
unless such date is extended by mutual agreement of the Company and Newco;
provided, however, either the Company or Newco may extend the Closing Date
pursuant to this Section 2.3 for one 30-day period, provided the extending party
is not in breach or default under the terms of this Agreement and the conditions
to the Closing set forth in Article VII have not been satisfied. At the Closing
Date, (a) the Company will deliver to Guarantee and Newco the various
agreements, certificates, instruments and documents to be delivered pursuant to
Section 7.3, (b) Guarantee and Newco will deliver to the Company the various
agreements, certificates, instruments and documents to be delivered pursuant to
Section 7.2 and (c) the parties hereto shall cause the Articles of Merger to be
delivered to the Pennsylvania Department of State for filing in accordance with
the Pennsylvania Law.
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Section 2.4. THE EFFECTIVE TIME. The Merger shall be effective when the
Agreement has been approved and the Articles of Merger have been filed in the
office of the Pennsylvania Department of State, which will occur on the Closing
Date, and such time is referred to herein as the "Effective Time."
Section 2.5. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and the Bylaws of Newco, as in effect immediately prior to the
Effective Time, shall, from and after the Effective Time, be the Articles of
Incorporation and Bylaws of the Surviving Corporation and thereafter shall
continue to be its Articles of Incorporation and Bylaws until amended as
provided therein and under the laws of the Commonwealth of Pennsylvania.
Section 2.6. CONVERSION OF SECURITIES. At the Effective Time, by virtue
of the Merger and without any action on the part of Guarantee, Newco, the
Company or the holder of any of the following securities:
(a) each share of Stock issued and outstanding immediately prior to
the Effective Time (excluding shares to be cancelled pursuant to Section
2.6(b) and shares subject to rights of appraisal as set forth in Section
2.12) shall be cancelled and extinguished and shall be converted into and
become a right to receive from Newco the Merger Consideration (as defined
in Section 2.7(a)) for each share of Stock in accordance with Section 2.9,
and no other rights;
(b) each share of Stock held in the treasury of the Company
immediately prior to the Effective Time shall automatically be cancelled
and retired, and no payment shall be made with respect thereto; and
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(c) each share of Newco's common stock, $.10 par value, issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable share of common
stock, $.10 par value, of the Surviving Corporation, and shall constitute
all of the issued and outstanding capital stock of the Surviving
Corporation immediately after the Effective Time.
Section 2.7. MERGER CONSIDERATION. (a) The "Merger Consideration" for
each holder of Stock, stock options or warrants of the Company is set forth on
Schedule 2.7(a) and totals $37,250,000 (the "Purchase Price").
(b) The parties hereto agree that the Company will pay, prior to the
Closing Date, all actual expenses and costs incident to the transactions
contemplated by this Agreement, including, among other things, audit, legal (not
in excess of $125,000 in legal expenses and costs), tax and advisory or
investment banking fees incurred by the Company or include accruals for such
expenses and costs.
Section 2.8. CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time,
the stock transfer books of the Company shall be closed with respect to shares
of Stock issued and outstanding prior to the Effective Time, and no further
transfer of such shares shall thereafter be made on such transfer books. If,
after the Effective Time, valid certificates previously representing any such
shares are presented to the Surviving Corporation or the Paying Agent, such
certificates shall be exchanged as provided in Section 2.9.
Section 2.9. SURRENDER OF CERTIFICATES, STOCK OPTIONS AND WARRANTS AND
PAYMENT OF MERGER CONSIDERATION. (a) The Paying Agent shall exchange the
Merger Consideration for certificates which, immediately prior to the Effective
Time, represented shares of Stock and
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stock options and warrants entitled to payment pursuant to Section 2.6(a).
After the Effective Time, upon the surrender by a holder of a certificate or the
stock option or warrant, the Paying Agent shall pay to such holder its pro rata
share of the Merger Consideration (less its pro rata share of the $1,000,000)
(the "Initial Distribution"). Payment shall be in the form of certified checks
or bank cashier's checks or wire transfers payable to the order of such holder.
Upon surrender of a holder's certificate or the stock option or warrant, such
certificate or the stock option or warrant shall forthwith be cancelled. In the
event the Closing does not occur and this Agreement is terminated, the Paying
Agent shall return any certificates or the stock option or warrant in its
possession to its holder. Within five business days of the earlier of March 31,
1998 or five business days after the delivery of audited Financial Statements
for the Company for the period ended December 31, 1997 together with a report
from KPMG Peat Marwick LLP thereon, the Paying Agent will pay to each Person who
received an Initial Distribution its pro rata share of the balance of the
Purchase Price ($1,000,000 plus interest) less any amounts paid to or held for
the account of Guarantee in satisfaction of any indemnification claims under
Article IX (the "Final Distribution") in accordance with the Paying Agent
Agreement attached hereto as Exhibit A. Guarantee will deliver a copy of such
audited Financial Statements for the Company to the Agents as defined in Section
2.9(d) as soon as practicable after receipt by Guarantee.
(b) For purposes of this Section 2.9, the pro rata shares of the Merger
Consideration for any holder shall be as set forth on Schedule 2.7(a).
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(c) Until surrendered and exchanged, each such certificate shall represent
solely the right to receive the Merger Consideration into which the shares of
Stock it theretofore represented shall have been converted pursuant to Section
2.6(a).
(d) Each Person who accepts Merger Consideration (collectively, the
"Sellers") shall be deemed to appoint ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇. and ▇▇▇▇▇▇ ▇. ▇▇▇▇ or any of them (and any replacement selected by the
holders of a majority of the Stock), as the Sellers' agents (the "Agents"). The
Agents are hereby authorized to receive on behalf of the Sellers all notices to
be delivered pursuant to Section 4 of the Paying Agent Agreement. In addition,
the Agents are hereby authorized to review all such notices and to dispute or
object to any such claims as they determine in their sole discretion and to
resolve, through negotiation or arbitration, all disputed claims. The Agents
are hereby authorized to retain any professionals or experts they deem
reasonably necessary to assist the Agents in the performance of their duties
under the Paying Agent Agreement, and all reasonable fees and expenses of such
Agents, or any third parties retained by the Agents in connection therewith,
shall be paid out of the $1,000,000 Holdback Escrow (as the same is defined in
the Paying Agent Agreement).
Section 2.10. LETTER TO STOCKHOLDERS OF THE COMPANY. Provided the Merger
is approved by stockholders of the Company at the stockholders' meeting to be
convened pursuant to Section 2.13, the Company shall promptly thereafter mail to
all stockholders and stock option and warrant holders a letter indicating that
the Merger has been approved by stockholders of the Company and describing the
timing and procedures for payment of the Merger Consideration.
Section 2.11. FUNDING OF PAYING AGENT. (a) Guarantee shall cause Newco to
transmit or deliver to the Paying Agent the Purchase Price pursuant to the terms
of the Paying Agent
15
Agreement, substantially in the form of Exhibit A hereto (the "Paying Agent
Agreement"). The Paying Agent shall hold such funds in trust in an account
described in the Paying Agent Agreement.
(b) Any portion of the funds held by the Paying Agent which has not been
paid to holders of Stock, stock options or warrants pursuant to Section 2.9
within one year after the Effective Time (or such longer period as agreed
between Guarantee and the Paying Agent) shall promptly be paid or returned to
the Surviving Corporation, and, thereafter, holders of certificates, stock
options or warrants who have not theretofore complied with Section 2.9 shall
look solely to either the Surviving Corporation or Guarantee for payment of any
Merger Consideration, without interest, to which they are entitled pursuant to
this Agreement. Such holders shall have no greater rights against the Surviving
Corporation or Guarantee than may be accorded to general creditors of the
Surviving Corporation under applicable law.
Section 2.12. DISSENTING STOCKHOLDERS. Notwithstanding anything in this
Agreement to the contrary, to the extent required by the Pennsylvania Law,
shares of Stock held by any stockholder who validly asserts and perfects
appraisal rights pursuant to (S)(S) 1571-1580 of the Pennsylvania Law
("Dissenting Stockholder") shall not be converted into the right to receive the
Merger Consideration as provided in Section 2.6(a), unless and until such
Dissenting Stockholder shall have effectively withdrawn its demand for payment
under (S) 1574 of the Pennsylvania Law. If such Dissenting Stockholder shall
have effectively withdrawn its demand for payment, its shares shall thereupon be
deemed to have been converted as of the Effective Time into only the right to
receive, at the Effective Time, the Merger Consideration. From and after the
Effective Time, no Dissenting Stockholder shall be entitled to vote his or its
shares for any purpose or to
16
receive payment of dividends or other distributions with respect to such shares.
The Company shall immediately notify Guarantee and the Paying Agent in writing
of each Dissenting Stockholder. Upon payment by the Surviving Corporation to a
Dissenting Stockholder of the agreed or awarded price of its shares of Stock,
such Dissenting Stockholder shall forthwith surrender his or its Stock
Certificates to the Surviving Corporation.
Section 2.13. ACTIONS OF DIRECTORS AND STOCKHOLDERS. (a) In accordance
with the laws of the Commonwealth of Pennsylvania (including the Pennsylvania
Law) and the Company's Articles of Incorporation and Bylaws, the Company shall
convene a meeting of its stockholders as soon as reasonably practicable after
the date hereof but in no event later than November 30, 1997 to consider and,
vote upon this Agreement and the Merger. In connection therewith, the Company
shall mail to all holders of record of Stock entitled to vote at such meeting a
letter which shall indicate that the Board of Directors of the Company has
approved by a majority vote the Merger on the terms and subject to the
conditions set forth in this Agreement.
Certain Stockholders of the Company, by execution of Attachment A to this
Agreement agree that they will vote to approve the Merger on the terms and
subject to the conditions set forth in this Agreement at the stockholders'
meeting to be convened pursuant to this Section 2.13. Execution of Attachment A
is solely for the purpose of approving the Merger, and no other purpose and none
of the parties shall assert or imply any other purpose.
(b) In accordance with the laws of the Commonwealth of Pennsylvania and
Newco's Articles of Incorporation and Bylaws, the Board of Directors of Newco
and Guarantee as the sole stockholder of Newco have approved this Agreement and
the Merger.
17
(c) If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full right, title and possession to all Assets,
property, rights, privileges, powers and franchises of either or both of the
Constituent Corporations, the senior officers and directors of the Surviving
Corporation are fully authorized in the name of either or both of the
Constituent Corporations or otherwise to take, and shall take, all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to Guarantee that the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be correct and complete in all material respects as of the
Closing Date (except that any representation or warranty that is given as of a
particular date and relates solely to a particular date or period is given as of
such date or period). Nothing in a schedule attached to this Agreement shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, unless the schedule identifies the exception with particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). If and to
the extent any information required to be furnished in any Section of any
Schedule hereto is contained in another Section of such schedule or in any other
Schedule hereto, such information will be deemed to be included in all Sections
of each Schedule in which such information is required to be included, but only
if and
18
to the extent such disclosure appropriately refers to the other Section(s) or it
is clearly apparent from the disclosure that it would apply to another schedule
as well. All representations as to the Company shall be deemed to mean the
Company and each of its Subsidiaries, both separately and together as a
consolidated whole, unless the context otherwise requires, and any specific
references to Subsidiaries are for emphasis and convenience only. The Company
hereby represents and warrants to Guarantee as follows:
Section 3.1. ORGANIZATION AND QUALIFICATION.
(a) Company. The Company is duly incorporated and remains a
subsisting corporation under the laws of the Commonwealth of Pennsylvania
and has all corporate power and authority necessary to own its Assets and
to conduct its business as it is currently being conducted, or, assuming
all actions contemplated by this Agreement to be taken by the Closing Date
have been so taken, as it will be conducted as of the Closing Date. The
Company is duly qualified to do business, and is in good standing as a
foreign corporation, in each jurisdiction where, due to the character of
its Assets owned or leased or the nature of its business, the failure to be
so qualified and in good standing would materially and adversely affect the
consummation or the validity of the transactions provided for in this
Agreement. Schedule 3.1(a) sets forth for the Company the states in which
it is qualified or authorized to do business as a foreign corporation.
(b) Subsidiaries. Each Subsidiary of the Company is duly incorporated
and if it is a Pennsylvania corporation, a subsisting corporation under the
laws of the Commonwealth of Pennsylvania or if it is incorporated in other
jurisdictions in good standing under the laws of their respective states of
incorporation and each has all
19
corporate power and authority necessary to own its Assets and to conduct
its business as it is currently being conducted or, assuming all actions
contemplated by this Agreement to be taken by the Closing Date have been so
taken, as such business will be conducted as of the Closing Date. Each
Subsidiary of the Company is duly qualified to do business, and is in good
standing as a foreign corporation, in each jurisdiction where, due to the
character of its Assets owned or leased or the nature of its business, the
failure to be so qualified and in good standing would materially and
adversely affect the consummation or the validity of the transactions
provided for in this Agreement. Schedule 3.1(b) sets forth for each
Subsidiary of the Company (i) the state of its incorporation and (ii) the
states in which it is qualified or authorized to do business as a foreign
corporation. The Company has no Subsidiaries except those identified in
such schedule.
(c) Licenses. The Company and each of its Subsidiaries have all
Licenses that are necessary for the conduct of their respective businesses,
as disclosed on Schedule 3.1(c) Part I, except where failure to have such
Licenses would not have a Material Adverse Effect; such Licenses are in
full force and effect and are sufficient for the ownership of their
respective Assets and the conduct of such businesses; neither the Company
nor any of its Subsidiaries has received any written notice from any Person
that any violations are being or have been alleged in respect of any such
License; and no Proceeding for the purpose of suspending, revoking,
amending, restricting or limiting any such License is pending or, to the
knowledge of the Company, threatened. Without limiting the generality of
the foregoing, Schedule 3.1(c), Part II contains a list of all
20
jurisdictions wherein AGL is authorized to conduct an insurance business
and maintains a valid and effective insurance License, and lists the lines
of insurance, by jurisdiction, for which AGL is permitted to act as a
direct writer or as a reinsurer. The only states in which AGL does not
maintain an insurance License are the states listed in Schedule 3.1(c),
Part III. Except as disclosed in Schedule 3.1(c), Part IV, neither the
Company nor any of its Subsidiaries has agreed with any governmental entity
or other Person to the imposition of any limitation, condition or
restriction on any of AGL's insurance Licenses other than those
limitations, conditions or restrictions as are imposed by insurance law or
as are set forth on the face of the relevant insurance License and to the
Knowledge of the Company there has been no event or Proceeding during the
last three years which could lead to the revocation, amendment, suspension,
limitation, restriction or nonrenewal of any insurance License, whether or
not such outcome is probable. Within the last three years, AGL has filed
all Annual Statements, Quarterly Statements and other reports required by
insurance laws except where failure to do so would not have a Material
Adverse Effect. Schedule 3.1(c), Part V sets forth the most recent date of
the last completed triennial financial examination of AGL, a copy of which
report has been provided to Guarantee. Except as set forth in Schedule
3.1(c), Part VI, during the past 10 years, to the Knowledge of the Company,
AGL has committed no violations of insurance law which could, individually
or in the aggregate, have a Material Adverse Effect. Except as set forth
in Schedule 3.1(c), Part VII, to the Knowledge of the Company there are no
outstanding orders applicable to the Company or any of its Subsidiaries
issued by any governmental entity (other than an order generally applicable
21
to companies in the same business as the Company or such Subsidiaries) that
restrict the Company's or such Subsidiaries' ability to pay dividends or
regulate or establish levels of reserves or other financial ratios.
(d) Articles of Incorporation, Bylaws and Minute Books. Schedule
3.1(d) contains a true and complete copy of the Articles of Incorporation
and Bylaws of the Company and of AGL as in effect on the date hereof.
Neither the Company nor AGL is in default under or in violation of any
provision of its respective Articles of Incorporation or Bylaws. To the
Knowledge of the Company, the minute books of each such corporation
accurately reflect all material actions taken at all meetings and consents
in lieu of meetings of the respective stockholders of the Company and of
AGL and all actions taken at all meetings and consents in lieu of meetings
of their respective Boards of Directors (and all committees thereof) since
October 1992. The stock records of the Company and AGL are complete and
accurate in all material respects.
Section 3.2. CAPITALIZATION; TITLE TO STOCK. The capital stock of the
Company, AGL and the other Subsidiaries is as set forth in Schedule 3.2, Part I.
None of these entities has any shares of capital stock issued and outstanding
except as set forth in such schedule. Except as set forth in Schedule 3.2, Part
II, to the Knowledge of the Company all of the issued and outstanding shares of
AGL and the other Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned beneficially and of record by the Company free and
clear of all liens. To the Knowledge of the Company, all of the issued and
outstanding shares of the Company have been validly issued, are fully paid and
nonassessable and are owned of record by the Persons identified, along with
their respective holdings, in Schedule 3.2, Part III. Except
22
as set forth in Schedule 3.2, Part IV, the Company has no Knowledge of any
outstanding subscriptions, options, warrants, calls, rights (including
unsatisfied preemptive rights), convertible securities, obligations to make
capital contributions or advances, or voting trust arrangements, proxies,
stockholders' agreements or other agreements, commitments or understandings of
any character relating to the issued or unissued capital stock of the Company,
AGL or the other Subsidiaries or securities convertible into, exchangeable for
or evidencing the right to subscribe for any shares of such capital stock, or
otherwise obligating the Company, AGL or the other Subsidiaries to issue,
transfer or sell any of such capital stock or such other securities. Except as
set forth in Schedule 3.2, Part V, there are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights with respect
to the Company, AGL or the other Subsidiaries.
Section 3.3. AUTHORIZATION AND EFFECT.
(a) Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and thereby subject to the approval of the
Company's stockholders as set forth in Section 2.13. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly approved and authorized by
the Company's Board of Directors. No other corporate Proceedings on the
part of the Company are necessary to authorize and consummate this
Agreement or the transactions contemplated hereby or thereby subject to the
approval of the Company's stockholders as set forth in Section 2.13.
23
(b) Binding Obligation. This Agreement has been duly and validly
executed and delivered by the Company and (assuming this Agreement is a
legal, valid and binding obligation of Guarantee and Newco) constitutes a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except as such enforcement may be
subject to bankruptcy, rehabilitation, liquidation, conservation,
dissolution, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and is
subject to general principles of equity (regardless of whether enforcement
is sought in a Proceeding at law or in equity). Each other agreement to be
executed and delivered by the Company pursuant to this Agreement at the
Closing has been, or by the Closing Date will be, duly authorized by all
necessary corporate action of the Company and, upon execution and delivery
thereof by the Company (and assuming such agreement will at such time be a
legal, valid and binding obligation of the other Persons who are parties
thereto), will constitute the legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as such enforcement may be subject to bankruptcy, rehabilitation,
liquidation, conservation, dissolution, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and is subject to general principles of equity
(regardless of whether enforcement is sought in a Proceeding at law or in
equity).
Section 3.4. NO VIOLATION. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby will
24
not (a) subject to approval of the Stockholders in accordance with Section 2.13,
constitute a breach or violation of or default under the Articles of
Incorporation or the Bylaws (or similar organizational documents) of the Company
or any of its Subsidiaries; (b) except as set forth on Schedule 3.4(b), to the
Knowledge of the Company (i) violate, conflict with, or result in a breach of
any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, result in the
termination or acceleration under, result in a modification of the effect of, or
give rise to any right of termination or acceleration under, any of the terms,
conditions or provisions of any contract to which the Company or any of its
Subsidiaries is a party or to which they or any of their Assets may be subject,
or (ii) result in the creation or imposition of any lien upon any of the Assets
of the Company or of any such Subsidiaries; (c) except as set forth on Schedule
3.4(c), to the Knowledge of the Company constitute a breach or violation of or
default under, or otherwise cause any impairment of, any insurance License or
any other License of the Company or of any of its Subsidiaries; (d) except as
set forth on Schedule 3.4(d), to the Knowledge of the Company violate any order
applicable to, or binding upon, the Company or any of its Subsidiaries; or (e)
except as set forth on Schedule 3.4(e), to the Knowledge of the Company violate
any law applicable to the Company or any of its Subsidiaries.
Section 3.5. CONSENTS AND APPROVALS. Except as set forth on Schedule 3.5,
Part I, no regulatory approval or other consent, approval, order or
Authorization of, or registration, application, declaration or filing with (the
required regulatory approvals plus such other acts or filings being referred to
hereafter, collectively, as the "Consents or Filings"), any Person is required
with respect to the Company or any of its Subsidiaries in connection with the
execution
25
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. Schedule 3.5, Part II lists all material contracts
relating, directly or indirectly, to AGL's or the Company's business to the
Knowledge of the Company (i) that are between other Persons and the Company or
one of its Subsidiaries; and (ii) that expressly or by implication require the
consent of such other Persons in the event of a merger of the Company or AGL
(collectively, the "Third Party Contracts"). The Company has no Knowledge of
any reason why any required regulatory approvals would not be obtained solely as
a result of any characteristic of the Company or any of its Subsidiaries.
Section 3.6. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Company. The Company has previously delivered to Guarantee true
and complete copies of the audited consolidated Financial Statements of the
Company for each of the years ended December 31, 1994, 1995 and 1996 and
the unaudited consolidated Financial Statements of the Company for the six
months ended June 30, 1997. Such Financial Statements present fairly in
all material respects the financial condition, results of operations and
cash flows of the Company as of the dates or for the periods covered
thereby, in conformity with GAAP.
The Company is not required under any law to prepare Financial
Statements or file such with any governmental entity, except as disclosed
on Schedule 3.6.
(b) AGL. The Company has previously delivered to Guarantee true and
complete copies of the Annual Statements of AGL for each of the years ended
December 31, 1994, 1995 and 1996 and the Quarterly Statements for the six
months ended June 30, 1997. Each of the foregoing Annual Statements and
Quarterly Statements
26
was prepared in accordance with SAP, and each presents fairly in all
material respects the financial condition, results of operations and cash
flows of AGL as at the dates or for the periods covered thereby, in
conformity with SAP.
(c) Undisclosed Liabilities. Except as set forth on Schedule 3.6(c),
Part I, the Company has no liabilities of a nature requiring them to be
disclosed in financial statements other than (i) liabilities fully
reflected on the face of its December 31, 1996 audited consolidated GAAP
Financial Statements and (ii) liabilities incurred since December 31, 1996
in the ordinary course of business without violation of this Agreement.
(d) Subsidiaries' Liabilities. Except as set forth on Schedule
3.6(c), Part I, the Company's Subsidiaries have no liabilities of a nature
requiring them to be disclosed in financial statements other than (i) in
the case of AGL, liabilities fully reflected on the face of its 1996 Annual
Statement, (ii) in the case of the Company's other Subsidiaries,
liabilities fully reflected on the face of the 1996 audited consolidated
Financial Statements of the Company, and (iii) liabilities incurred by them
or any of them since December 31, 1996 in the ordinary course of business
without violation of this Agreement.
Section 3.7. RESERVES. The opinion of AGL's actuary dated December 31,
1996 has not been amended in any fashion and the Company has no Knowledge of any
reason that it should be. Since such date:
(a) AGL has made no changes in its reserving practices or in the
actuarial assumptions on which such practices are based; and
27
(b) there have been no material adverse changes required to be made to
its reserves.
Section 3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 3.8, since December 31, 1996, the Company and each of its Subsidiaries
have conducted their respective businesses only in the ordinary course,
consistent with past practices, and since June 30, 1997 there has not occurred
any event, change or development specific or unique to any of them which,
individually or in the aggregate, has had a Material Adverse Effect.
Section 3.9. TAXES AND TAX RETURNS.
(a) Filing of Tax Returns. Except as set forth in Schedule 3.9(a),
Part I (i) each of the Company and its Subsidiaries has properly completed
and filed on a timely basis and in correct form in all material respects
all Tax Returns required to be filed on or prior to the date hereof and
(ii) as of the time of filing, each such Tax Return correctly reflected in
all material respects the facts regarding the income, business, Assets,
operations, activities, status or other matters of the Company and its
Subsidiaries or any other information required to be shown thereon. In
particular, none of the foregoing Tax Returns are subject to accuracy-
related penalties under Section 6662 of the Code (or any corresponding
provision of state, local or foreign Tax Law). Except as set forth in
Schedule 3.9(a), Part II, neither the Company nor any of its Subsidiaries
has requested or been granted an extension of time within which to file any
Tax Return which has not yet been filed.
28
(b) Payment of Taxes. Except as set forth in Schedule 3.9(b), with
respect to all taxes imposed upon the Company and its Subsidiaries, or for
which the Company or its Subsidiaries are or could be liable, whether to
taxing authorities (as, for example, under law) or to other Persons (as,
for example, under tax allocation agreements), for all taxable periods or
portions of periods ending on or before the Closing Date, all applicable
tax laws and agreements have been fully complied with, and all such amounts
required to be paid by the Company or its Subsidiaries to taxing
authorities or others on or before the date hereof have been timely paid.
(c) Audit History. Except as set forth in Schedule 3.9(c), no issues
have been raised (and are currently pending) by any taxing authority in
connection with any Tax Returns filed or required to be filed by the
Company or its Subsidiaries, and no waivers of statutes of limitation with
respect to any such Tax Returns have been given by or requested from the
Company or any of its Subsidiaries. Schedule 3.9(c) also sets forth (i)
the taxable years of the Company and its Subsidiaries as to which the
respective statutes of limitations with respect to Taxes have not expired
and (ii) with respect to such taxable years, sets forth those years for
which examinations have been completed, those years for which examinations
have not been initiated and those years for which required Tax Returns have
not yet been filed. Except to the extent shown on such schedule, all
deficiencies asserted or assessments made as a result of any examinations
(i) have been fully paid or (ii) are being contested and are fully
reflected as a liability on the face of the Financial Statements of the
Company or its Subsidiaries.
29
(d) Parachute Payment. Neither the Company nor its Subsidiaries are
parties to any agreement, contract, arrangement or plan that has resulted
or would result, individually or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
(e) Permanent Establishment. Neither the Company nor its Subsidiaries
have or had a permanent establishment in any foreign country, as defined in
any applicable tax treaty or convention between the United States of
America and such foreign country.
(f) Existing Partnerships. Except as set forth in Schedule 3.9(f),
neither the Company nor any of its Subsidiaries are parties to any joint
venture, partnership or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
(g) Unpaid Tax. The unpaid taxes of the Company and its Subsidiaries
as of the dates of their respective most recent Financial Statements
provided to the Buyer do not exceed the reserves for Tax liability
(excluding any reserves for deferred taxes established to reflect timing
differences between book and tax income) set forth or included in such
financial statements.
(h) Policies in Compliance With the Code. To the Knowledge of the
Company, all Insurance Policies issued by AGL are and have been, at all
times since their issuance, in full compliance with Code Section 7702 and
7702A, to the extent they are or were required to be in compliance
therewith, and contain all required or appropriate policy provisions and
endorsements necessary to qualify as life Insurance Policies under the
Code.
30
(i) Policyholders' Surplus Account. No Subsidiary maintains an
account described in Section 815(d) of the Code.
Section 3.10. PROCEEDINGS. (a) Except as set forth in Schedule 3.10(a),
Part I, and except for routine contractual claims for amounts payable in
accordance with the terms of, and within the policy limits of, an Insurance
Policy in the ordinary course of business, there are no Proceedings pending or,
to the Knowledge of the Company, any Proceedings threatened against the Company
or any of its Subsidiaries or any of the current or former directors, officers,
employees or agents of the foregoing (in their capacities as such), nor, except
as set forth in Schedule 3.10, Part II, is the Company or any of its
Subsidiaries or any of the current or former directors, officers, employees or
agents of the Company or any of its Subsidiaries (in their capacities as such)
subject to any order except orders that are generally applicable to insurers
authorized to write life insurance. Except as set forth separately in Schedule
3.10(a), Part III, and except for Proceedings that are generally applicable to
insurers authorized to write life insurance, there is no Proceeding pending or,
to the Knowledge of the Company, any Proceeding threatened against the Company
or any of its Subsidiaries, or any of the current or former directors, officers,
Employees or agents of the foregoing (in their capacities as such), which
involves (i) claims of bad faith, claims of fraud or claims involving other
alleged tortious conduct by any such Person (ii) claims seeking punitive or
multiple damage awards against any such Person or claims relating to market
conduct matters.
(b) Except as set forth in Schedule 3.10(b), to the Knowledge of the
Company, none of the Proceedings set forth in Schedule 3.10(a), if adversely
determined, could reasonably be expected, either individually or in the
aggregate, to result in a Material Adverse Effect.
31
Section 3.11. COMPLIANCE WITH LAW. (a) Except as set forth in Schedule
3.11(a), Part I, since December 31, 1992, the operations of the Company and its
Subsidiaries have been conducted in compliance in all material respects with all
laws applicable to their respective businesses. None of the violations
described in Schedule 3.11(a), Part I, could reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
Schedule 3.11(a), Part II, since December 31, 1992 each of the Company and its
Subsidiaries has filed or caused to be filed all reports, statements, documents,
registrations, filings or submissions which were required by any law to be filed
by it except where the failure to file would not have a Material Adverse Effect
and all such filings complied in all material respects with all such laws when
filed. The Company has delivered to, or will deliver to, Guarantee all reports
reflecting the results of examinations of the affairs of AGL issued prior to
Closing by insurance governmental entities for any period ending on a date on or
after December 31, 1992 and prior to the Closing Date, and all deficiencies or
violations in such reports for any prior period will be resolved prior to
Closing. Except as set forth in Schedule 3.11(a), Part III, all outstanding
Insurance Policies issued or assumed by AGL are, to the extent required by
applicable law, on forms and at rates approved by the insurance governmental
entities of the jurisdictions where issued or have been filed with and not
objected to by such authorities within the periods provided for objections.
(b) Except as set forth in Schedule 3.11(b) and except for orders or
communications that are generally applicable to insurers authorized to write
life or health insurance or variable annuities or variable life insurance in the
jurisdiction to which such orders or communications apply, AGL is not a party to
any contract with or other undertaking to, nor is it subject to any
32
order by, or a recipient of any supervisory letter or other oral or written
communication of any kind from, any governmental entity, which contract, order
or communication:
(i) adversely affects the conduct of its business, including, without
limitation, its reserve adequacy, its investment, sales or trade practices
and policies, its underwriting and pricing practices and policies or its
management; or
(ii) may reasonably be expected to have an adverse effect on AGL;
nor has AGL been advised by any governmental entity that it is
contemplating issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such order, contract or other communication.
Section 3.12. EMPLOYMENT MATTERS. (a) AGL currently has 39 employees, the
Company currently has no employees and the Subsidiaries of the Company currently
have five employees, in each instance none of whom is covered by any union
contract. To the Knowledge of the Company, none of the foregoing employees is
currently planning or being solicited to form or join a union.
(b) The Company's employees and AGL's insurance agents and employees have
all Licenses, appointments, contracts, permits, authorizations, exemptions and
approvals (collectively, "Authorizations") needed in order to perform those
functions that they perform in all states or other jurisdictions in which such
functions are or have been performed, except where failure to obtain such
Authorization would not have a Material Adverse Effect, all of which
Authorizations are listed and described in Schedule 3.12. To the Knowledge of
the Company, none of such insurance agents or employees are, or have been during
the past five years, in violation of any law or order relating to their conduct
as insurance agents or brokers.
33
All such Authorizations are valid and in full force and effect, and no
Proceeding with respect to the revocation, suspension, limitation, nonrenewal,
reduction or qualification of any Authorization is pending or to the Knowledge
of the Company threatened nor to the Knowledge of the Company are there grounds
for any such or any similar action being taken.
Section 3.13. 401(K) PLAN. (a) The Company and AGL currently maintains a
plan subject to the provisions of Section 401(k) of the Code (the "401(k)
Plan"). The 401(k) Plan is the only Pension Benefit Plan intended to be
qualified under Section 401(a) or 403(a) of the Code maintained within the last
seven years by the Company or its Subsidiaries or with respect to which the
Company or its Subsidiaries have or may have a liability. The 401(k) Plan has
complied in all material respects, since its initial effective date, with the
applicable provisions of the Code and ERISA; any trust adopted in connection
therewith has been exempt, since its initial effective date, from federal income
Taxes pursuant to Section 501(a) of the Code; and all contributions ever made to
the 401(k) Plan have been deductible pursuant to Section 404 of the Code. One
or more favorable determination letters have been issued by the IRS with respect
to the 401(k) Plan for compliance with the Code from the 401(k) Plan's initial
effective date. There are no facts, circumstances, actions or failures to act
that would adversely affect the 401(k) Plan's compliance with the Code and ERISA
or any prior determination by the IRS or would preclude the issuance of a
favorable determination by the IRS.
(b) The Company or its Subsidiaries have heretofore delivered to Guarantee
with respect to the 401(k) Plan true and correct copies of the following:
(i) the 401(k) Plan, including all amendments thereto;
34
(ii) each trust agreement and Insurance Policy pertaining to the
investment of the Assets of the 401(k) Plan or the payment of benefits
thereunder, including all amendments thereto;
(iii) each resolution by the Company's and its Subsidiaries'
respective Board of Directors adopting the most recent restatement of the
401(k) Plan and any amendments thereto;
(iv) the most recent determination letter issued by the IRS with
respect to the 401(k) Plan;
(v) IRS Forms 5500, including applicable schedules thereto, filed with
respect to the 401(k) Plan for each of the three most recent plan years;
(vi) copies of all correspondence, if any, with the IRS or the DOL
regarding the 401(k) Plan; and
(vii) a copy of each fiduciary liability insurance policy and each
fidelity bond covering any fiduciary with respect to the 401(k) Plan.
(c) The Company, its Subsidiaries and each fiduciary of the 401(k) Plan, as
defined in Section 3(21) of ERISA, have performed all obligations required to be
performed by it or them under the 401(k) Plan and neither the Company nor the
Subsidiaries have any Knowledge of any default or violation under the terms of
the 401(k) Plan, ERISA or the Code by any Person with respect to the 401(k)
Plan.
(d) Since the initial effective date of the 401(k) Plan, there has not been
with respect to the 401(k) Plan (i) any "prohibited transaction" as defined in
Section 406 of ERISA and Section 4975 of the Code, (ii) any amendments which
decrease any accrued benefits, eliminate
35
or reduce any early retirement benefit or retirement-type subsidy, or eliminate
any optional form of benefit, in violation of Section 411(d)(6) of the Code or
Section 204(g) of ERISA or (iii) any other event or condition with respect to
the 401(k) Plan.
(e) All contributions required to have been made under the 401(k) Plan have
been duly made.
(f) The 401(k) Plan has operated since its inception substantially in
accordance with the reporting and disclosure requirements imposed under ERISA
and the Code.
(g) Except as set forth in Schedule 3.13(g), the 401(k) Plan is not liable
for any Taxes.
(h) The 401(k) Plan is not currently under investigation, audit or review
by the IRS or the DOL and the Company has no Knowledge that any such Proceeding
is contemplated or under consideration.
(i) There are no Proceedings pending or to the Knowledge of the Company
threatened with respect to the 401(k) Plan and the Company has no Knowledge of
any facts that could give rise to Proceedings against the 401(k) Plan, any
fiduciary with respect to the 401(k) Plan, as defined in Section 3(21) of ERISA,
or against the Company or any of its Subsidiaries with respect to the 401(k)
Plan.
(j) Neither the Company nor any of its Subsidiaries have at any time
maintained, participated in or contributed to a "multi-employer plan," as
defined in Section 3(37) of ERISA, with respect to any of its employees.
Section 3.14. WELFARE BENEFIT PLANS. (a) Each of the Welfare Benefit
Plans maintained by the Company or its Subsidiaries or to which the Company or
its Subsidiaries make
36
contributions with respect to their own employees or agents either pays benefits
as needed solely from the general Assets of the Company or its Subsidiaries or
provides benefits exclusively through insurance contracts as defined in DOL
Regulation 2520.104-20(b). Each of the Welfare Benefit Plans has substantially
complied since its initial effective date with the applicable provisions of the
Code and ERISA. All contributions ever made to the Welfare Benefit Plans have
been deductible by the Company or its Subsidiaries for federal income Tax
purposes.
(b) Neither the Company nor any of its Subsidiaries have at any time within
the last seven years maintained, participated in or contributed to a "multiple
employer welfare arrangement," as defined in Section 3(40) of ERISA, with
respect to any of their respective employees or agents and neither the Company
nor any of its Subsidiaries have or may have a Liability with respect to any
multiple employer welfare arrangement.
(c) The Company, each of its Subsidiaries and each fiduciary of any Welfare
Benefit Plan, as defined in Section 3(21) of ERISA, have performed all
obligations required to be performed under each Welfare Benefit Plan in
accordance with its terms and in compliance with the applicable requirements of
ERISA and the Code, and there are no defaults or violations under the terms of
the Welfare Benefit Plans, ERISA or the Code by any Person with respect to any
Welfare Benefit Plan.
(d) All contributions required to have been made under each of the Welfare
Benefit Plans have been duly made.
(e) Except as set forth in Schedule 3.14(e), each Welfare Benefit Plan has
operated since its inception in accordance with the reporting and disclosure
requirements imposed under ERISA and the Code.
37
(f) No Welfare Benefit Plan is liable for any Taxes.
(g) Since July 1, 1987, the Company and its Subsidiaries have complied in
all respects with the group health plan continuation coverage requirements of
the Consolidated Omnibus Budget Reconciliation Act of 1986 as set forth in
Sections 601 through 608 of ERISA and Section 4980B of the Code and neither the
Company nor its Subsidiaries are or could be liable for an excise Tax under
Section 4980B of the Code.
(h) No Welfare Benefit Plan is currently under investigation, audit or
review by the IRS or the DOL and the Company has no Knowledge that any such
action is contemplated or under consideration.
(i) There are no Proceedings pending or to the Knowledge of the Company
threatened with respect to any Welfare Benefit Plan and there are no facts that
could give rise to any Proceedings against any Welfare Benefit Plan, any
fiduciary with respect to any Welfare Benefit Plan or against any of the Company
or its Subsidiaries with respect to any Welfare Benefit Plan.
(j) Except as set forth in Schedule 3.14(j), neither the Company nor its
Subsidiaries maintain, nor have any of them ever maintained, a Welfare Benefit
Plan that provides benefits to current or former employees or agents of any of
them beyond their termination of employment.
(k) Neither the Company nor its Subsidiaries maintain, nor have any of them
ever maintained, a Welfare Benefit Plan or any custom or policy that provides
severance benefits to former employees or agents of any of them on account of
their termination of employment.
38
Section 3.15. EMPLOYEE BENEFIT PLANS. Set forth in Schedule 3.15 is a
complete list of the Employee Benefit Plans currently in effect, other than the
401(k) Plan and the Welfare Benefit Plans. With respect to said Employee
Benefit Plans:
(a) The Company and its Subsidiaries have heretofore delivered to
Guarantee true and correct copies of each of said Employee Benefit Plans.
(b) Each of the Company and its Subsidiaries has performed all
obligations required to be performed by it under said Employee Benefit
Plans and is not in default under said Employee Benefit Plans, and there is
no default or violation by any other Person with respect to any of said
Employee Benefit Plans.
(c) All contributions required to have been made under each of said
Employee Benefit Plans have been duly made.
(d) None of said Employee Benefit Plans is currently under
investigation, audit or review by the IRS or the DOL and the Company has no
Knowledge that any such Proceeding is contemplated or under consideration.
(e) There are no Proceedings pending or to the Knowledge of the
Company threatened with respect to any of said Employee Benefit Plans and
there are no facts that could give rise to any Proceedings against any of
said Employee Benefit Plans or against the Company or any of its
Subsidiaries with respect to any of said Employee Benefit Plans.
(f) Each of said Employee Benefit Plans has operated since its
inception substantially in accordance with all applicable laws.
39
(g) Except as set forth in Schedule 3.15(g), neither the execution of
this Agreement or of any of the related documents nor the consummation of
the transactions contemplated hereby or thereby will:
(i) entitle any Person to severance pay or other compensation,
other than compensation for future services;
(ii) accelerate the time of payment or vesting, or increase the
amount of compensation or benefits due to any Person;
(iii) constitute or result in a prohibited transaction under
Section 4975 of the Code or Section 406 or 407 of ERISA;
(iv) constitute a "deemed severance" or "deemed termination"
under any contract or under any law; or
(v) cause any amounts payable under any Employee Benefit Plan or
employment contract to be nondeductible for federal income Tax
purposes by reason of Code Section 280G.
Section 3.16. ASSETS. (a) The Company and its Subsidiaries have, or will
have as of the Closing Date, good title to all of their respective Assets that
are disclosed or otherwise reflected in their Financial Statements as of
December 31, 1996 or incurred in the ordinary course thereafter, but prior to
the Closing Date, and except as set forth in Schedule 3.16(a), and, except for
those assets used or sold in the ordinary course, all such Assets are owned, or
will be owned by the Closing Date, by the Company or its Subsidiaries free and
clear of all liens, other than Permitted Liens.
40
(b) Except as set forth in Schedule 3.16(b), the bonds, notes, debentures
and other evidences of indebtedness that constitute investment Assets and which
are disclosed or otherwise reflected in AGL's 1996 Annual Statement are, and the
bond, notes, debentures and other evidences of indebtedness that constitute
investment Assets are, and those that will constitute investment Assets as of
the Closing Date will be, to the Knowledge of the Company, collectible in
accordance with the terms of the investment Assets and the documents relating
thereto.
(c) Neither the Company nor any of its Subsidiaries own any real property.
(d)(i) Each of the Company and its Subsidiaries has, or as of the Closing
Date will have, free and clear of all liens on their respective leasehold
estates, other than Permitted Liens, a valid leasehold interest in each of their
respective properties referenced in Schedule 3.16(d)(i), which property
constitutes the only real property used in the conduct of their respective
businesses in each case as such is presently conducted.
(ii) In the aggregate, all such leasehold estates are suitable for current
uses and are not in need of material repairs.
(iii) Except as set forth on Schedule 3.16(d)(iii), by the Closing Date
all of the following will be true: each of the Company and its Subsidiaries will
hold good and indefeasible title to, or have a valid leasehold interest in or a
valid right to use, all personal property that is material to the conduct of
their respective businesses, free and clear of all liens other than Permitted
Liens, and, in the aggregate, all such personal property will be suitable and
adequate for its current uses and will be in condition sufficient for the
conduct of the Company's and Subsidiary's businesses.
41
(iv) The Company and its Subsidiaries have, or will have by the Closing
Date, the right to use, free and clear of any royalty or other payment
obligations, claims of infringement or alleged infringement or other liens,
other than Permitted Liens and other than contractual agreements with respect to
licensing and maintenance fees, all Intellectual Property that is material to
the conduct of their respective businesses and, except as set forth in Schedule
3.16(d)(iv), neither the Company nor any of its Subsidiaries is in conflict with
or violation or infringement of, nor is there any such conflict with or
violation or infringement of, any asserted rights of any other Person with
respect to any Intellectual Property.
Section 3.17. OPERATIONS INSURANCE. Schedule 3.17 contains a true and
complete list of all liability, property, worker's compensation, directors' and
officers' liability and other Insurance Policies that currently insure the
Company's and its Subsidiaries' businesses or Assets and their officers,
directors, employees or agents, or affect or relate to the ownership, use or
operations of the Company's or its Subsidiaries' Assets or to their leasehold
interests that have been issued to any of them (including, without limitation,
the names of the insurers, the expiration dates thereof and any deductible
amounts in respect thereof) and a description of all claims thereunder relating
to the Company, its Subsidiaries or their directors, officers, employees or
agents. All such insurance is in full force and effect on the date of this
Agreement. Except as set forth in Schedule 3.17, insurance with comparable
coverages was maintained by the Company during the five years preceding the date
hereof. To the Knowledge of the Company, all notices of reportable incidents
with respect to any of the foregoing insurance which incidents have occurred
since December 31, 1991 have been given in writing to the
42
appropriate carriers except where failure to give such notice would not prevent
recovery under such insurance.
Section 3.18. BROKERAGE FEES. Except as set forth in Schedule 3.18,
neither the Company, nor any of its Subsidiaries, nor any of their respective
officers, directors, employees, agents or representatives has employed any
broker, finder or agent, or entered into any contract with any Person to pay a
brokerage fee, commission or allowance on account of or with respect to this
Agreement or the transactions contemplated hereby or thereby.
Section 3.19. ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
3.19(a), Part I, the Company and each of its Subsidiaries is in compliance in
all material respects with all applicable Environmental Laws, and, except as set
forth in said Schedule, no Company Operating Facility (including, to the
Knowledge of the Company, all owners or operators thereof insofar as such
property is concerned) is in violation of any applicable Environmental Laws.
Except as set forth in Schedule 3.19(a), Part II, neither the Company nor any of
its Subsidiaries have received any communication (written or oral) that alleges
that any of them or any Company Operating Facility (including, with respect to
any Company Operating Facility, any owner or operator thereof insofar as such
property is concerned) is not in such compliance, and there are no circumstances
that may prevent or interfere with such compliance in the future. All Licenses
held by the Company or any of its Subsidiaries pursuant to Environmental Laws
are identified in Schedule 3.19(a), Part III.
(b) Except as set forth in Schedule 3.19(b), there is no Environmental
Claim pending against the Company or any of its Subsidiaries or any Company
Operating Facility or, to the Knowledge of the Company, threatened against the
Company or any Company Operating
43
Facility, or threatened or pending against any Person whose liability for any
Environmental Claims the Company or any of its Subsidiaries have or may have
retained or assumed either contractually or by operation of law.
(c) Except as set forth in Schedule 3.19(c), to the Knowledge of the
Company there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge, disposal or presence of any Materials of Environmental
Concern, that could form the basis of any Environmental Claim against the
Company, any of its Subsidiaries, any Company Operating Facility or any Person
whose Liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(d) Without in any way limiting the generality of the foregoing, to the
Knowledge of the Company there:
(i) are no underground storage tanks currently or formerly being
located on property currently owned or leased by the Company or any of its
Subsidiaries;
(ii) is no asbestos contained in or forming part of any building or
structure owned or leased by the Company or any of its Subsidiaries; and
(iii) are no polychlorinated biphenyls ("PCBs") which are used or
stored at any property currently owned or leased by the Company or any of
its Subsidiaries.
Section 3.20. CONTRACTS. Schedule 3.20 contains a true and complete list
of all of the following contracts (true and complete copies of all such written
contracts will be made available to Guarantee upon request, and a written
summary of all material terms of such oral contracts will be made available to
Guarantee upon request) in force or operative in any respect to which
44
the Company or any of its Subsidiaries is a party or by which any Assets of the
Company or any of its Subsidiaries are or may be bound, as such contracts may
have been amended:
(a) all employment, agency (other than contracts for retention of a
Person as an insurance agent), brokerage, consultation, retirement (other
than pursuant to the existing provisions of any Benefit Plan in full force
and effect on the date of this Agreement), representation or other
contracts with present or former employees, agents or consultants
(including, without limitation, loans or advances to any Person) with any
Person which may not be terminated on notice of 60 days or less without
penalty or premium), and the name, position and rate or terms of
compensation of each such Person and the expiration date of each such
contract, as well as a true and accurate summary of all leave, layoff,
compensation or severance practices, procedures and policies of the Company
and AGL;
(b) all severance contracts with any Person and the name and position
of each such Person and the payment terms of each such contract;
(c) all consultation or other contracts with (including, without
limitation, loans or advances to) any former director or officer of the
Company or any of its Subsidiaries all such contracts, regardless of
aggregate payments thereunder, with all current directors or officers of
such Person:
(i) of which any such director or officer is a director or
officer; or
(ii) in which any such director or officer has a direct or
indirect beneficial ownership interest
45
(other than, with respect to clause (ii), a publicly traded company in
which such director or officer beneficially owns 5% or less of any class of
the outstanding voting securities);
(d) all contracts with any Person, including, without limitation, any
governmental entity, containing any provision or covenant:
(i) limiting the ability of the Company or its Subsidiaries to
engage in any line of business, to compete with any Person, to do
business with any Person or in any location or to employ any Person;
or
(ii) limiting the ability of any Person to compete with the
Company or its Subsidiaries;
(e) all partnership, joint venture or profit-sharing contracts with
any Person;
(f) all contracts relating to the borrowing of money from Persons not
affiliated with the Company or its Subsidiaries; or the direct or indirect
guarantee of any obligation of any Persons for, or contract to service the
repayment by any Person of, borrowed money or other financial obligation of
any Person (other than indebtedness in respect of investment Assets); or
any other liability in respect of indebtedness for borrowed money or other
financial obligation of any Person (other than indebtedness in respect of
investment Assets), including, without limitation, any contract relating to
or containing provisions with respect to:
(i) any lines of credit;
(ii) the payment for property, products or services of any other
Person even if such property, products or services are not conveyed,
delivered or rendered; or
46
(iii) any obligation to satisfy any financial obligation or
covenants, including, without limitation, take-or-pay, keep-well,
make-whole or maintenance of working capital, capital or earnings
levels or financial ratios or to satisfy similar requirements;
(g) all contracts (other than Insurance Policies issued by AGL or
reinsurance contracts) with any Person containing any provision or covenant
relating to the indemnification or holding harmless by the Company or any
of its Subsidiaries of any Person;
(h) all leases, subleases or rental or use contracts providing for
annual rental payments to be paid by or on behalf of the Company or any of
its Subsidiaries individually in excess of $5,000 in any one year;
(i) all contracts relating to the future disposition (including,
without limitation, restrictions on transfer or rights of first refusal) or
acquisition of any investment Assets or of any interest in any business
enterprise, and all contracts requiring the Company or any of its
Subsidiaries to purchase or dispose of any investment Assets, other than in
the case of each of the foregoing:
(i) notes or other debt securities having a maturity date of 90
days or less from the date of purchase; or
(ii) the disposition or acquisition of any notes or debt
securities in the ordinary course of business;
(j) all investment advisory contracts with any investment company
registered under the Investment Company Act of 1940 or with any investment
advisory client;
47
(k) all reinsurance, retrocession, coinsurance or other similar
contracts, including, with respect to each such contract, the ceding and
assuming Person, the business reinsured or retroceded and the amount of
liability reinsured;
(l) any contracts of the Company with any of its Subsidiaries or with
its or any of its Subsidiaries' officers, directors, employees or insurance
agents (other than, in the case of insurance agents, AGL's routine
contracts for insurance agents or brokers); and
(m) all other contracts (other than (x) Insurance Policies and (y)
employment, agency, brokerage, consultation, retirement or representation
contracts that are otherwise required to be set forth in Schedule 3.20)
that individually involve payments by or on behalf of the Company or any of
its Subsidiaries in excess of $5,000 in any one year.
Each of the contracts listed in Schedule 3.20 is in full force and effect
and (assuming each such contract is a valid and binding obligation of the other
parties thereto) constitutes, or will by the Closing Date constitute, a valid
and binding obligation of the Company or its Subsidiaries to the extent that
they are or will be parties thereto, and, to the Knowledge of the Company, of
each other Person that is a party thereto in accordance with its terms, and
neither the Company nor any of its Subsidiaries is, and to the Knowledge of the
Company no other party to any such contract is, in material violation, breach or
default of any such contract or with notice or lapse of time or both would be in
material violation, breach or default of any such contract. Except as set forth
in Schedule 3.20(n), neither the Company nor its Subsidiaries is a party to or
bound by any contract material to its respective business that was not entered
into in the ordinary course of business. Neither the Company nor any of its
Subsidiaries is a party
48
to or bound by any collective bargaining or similar labor contract and the
Company has no Knowledge of any threatened unionization.
Section 3.21. INSURANCE ISSUED BY AGL. (a) Except as set forth in
Schedule 3.21(a), all benefits payable by AGL under Insurance Policies have been
paid (or adequate provision for payment thereof has been made) in accordance
with the terms of the contracts under which they arose.
(b) Except as set forth in Schedule 3.21(b), Part I, since December 31,
1991, to the Knowledge of the Company all outstanding Insurance Policies of AGL
were issued in conformity with AGL's underwriting standards and ratings then in
effect and, with respect to such contracts reinsured in whole or in part,
conform in all material respects to the standards and ratings required pursuant
to the terms of the related reinsurance, coinsurance or other similar contracts.
(c) Except as set forth in Schedule 3.21(c):
(i) all amounts recoverable under reinsurance, coinsurance or
other similar contracts (including, without limitation, amounts based
on paid and unpaid damages and claims) relating to AGL are fully
collectible;
(ii) since December 31, 1991, to the Knowledge of the Company
each insurance agent or broker, at the time such agent or broker
wrote, sold or produced business for AGL, was duly licensed as an
insurance agent or broker (for the type of business written, sold or
produced by such insurance agent or broker) in the particular
jurisdiction in which such agent or broker wrote, sold or produced
such business; and
49
(iii) since December 31, 1991, to the Knowledge of the Company
no such insurance agent or broker has, in the conduct of such Person's
activities for AGL, violated (or has taken any action which, with
notice or lapse of time or both, would have violated) in any material
respect any law.
Section 3.22. THREAT OF CANCELLATION. Except as set forth in Schedule
3.22, since December 31, 1991, no policyholder, group of policyholders or
Persons writing, selling or producing insurance Business which in the aggregate
accounted for 5% or more of the net premium income of AGL has or have terminated
or substantially reduced, or, to the Knowledge of the Company, threatened to
terminate or substantially reduce, its or their relationship with AGL.
Section 3.23. ACCOUNTING PRACTICES. Except as described in audited
Financial Statements, or as required under applicable accounting rules, since
December 31, 1991, neither the Company nor any of its Subsidiaries has made any
material changes in its Tax, SAP or GAAP accounting methods, practices or
policies, including, without limitation, any change with respect to
establishment of reserves for unearned premiums, losses (including incurred but
not reported losses) and loss adjustment expenses, or made any change in
depreciation or amortization policies or rates adopted by it.
Section 3.24. STATE INSOLVENCY FUNDS. Except as set forth on Schedule
3.24, the Company has received no notice of any assessment against the Company
by any State guaranty or insolvency fund which remains unpaid as of the date
hereof.
Section 3.25. PERSONS ENTITLED TO MERGER CONSIDERATION. Schedule 2.7(a)
sets forth all
50
Persons entitled to receive the Merger Consideration and their pro rata share of
the Merger Consideration.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GUARANTEE
Guarantee represents and warrants to the Company as follows:
Section 4.1. ORGANIZATION. Guarantee is a company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the power and authority to own, lease, and operate Guarantee's properties and to
carry on Guarantee's business as it is now being conducted.
Section 4.2. AUTHORIZATION OF AGREEMENT. Guarantee has all requisite
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and to perform its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Guarantee, and no other corporate Proceedings on the part of
Guarantee are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Guarantee, and constitutes a valid and binding agreement by, and
obligation of, Guarantee, enforceable against Guarantee in accordance with its
terms, except as enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (b) general principles of equity (regardless of whether
enforcement is sought in a Proceeding in equity or at law).
51
Section 4.3. CONSENTS AND APPROVALS; NO VIOLATIONS. There is no
requirement applicable to Guarantee to make any filing with, or obtain any
permit, Authorization, consent or approval of, any governmental or regulatory
authority as a condition to the lawful consummation by Guarantee of the
transactions contemplated by this Agreement other than as set forth in Schedule
4.3 attached hereto. The execution and delivery of this Agreement by Guarantee
will not (a) conflict with or result in any breach of any provision of the
Articles of Incorporation or Bylaws (or other similar charter documents) of
Guarantee or violate any law or regulation applicable to Guarantee; (b) result
in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, agreement, lease or other instrument or obligation to
which Guarantee or any of its Affiliates is a party or by which any of their
respective Assets may be bound, except for such defaults (or rights to
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained; or (c) violate an order, writ, injunction or decree
applicable to Guarantee, any of its Affiliates or to any of their respective
Assets.
Section 4.4. PURCHASE PRICE FUNDING. Guarantee will fund the Purchase
Price from working capital and/or borrowing under its existing revolving line of
credit, and no additional financing is required to fund the Purchase Price.
Section 4.5. COMMISSIONS. Guarantee represents and warrants to the
Company that, other than ▇▇▇▇▇ ▇▇▇▇▇ & Co., Inc., no broker, finder or other
Person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby by reason of any action
taken by Guarantee and Newco and further that Guarantee, alone,
52
shall be responsible for the payment of any amounts which may be owed to ▇▇▇▇▇
▇▇▇▇▇ & Co., Inc. in connection with the transactions contemplated by this
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company as follows:
Section 5.1. ORGANIZATION. Newco is a company duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and has the power and authority to own, lease, and operate Newco's properties
and to carry on Newco's business as it is now being conducted.
Section 5.2. AUTHORIZATION OF AGREEMENT. Newco has all requisite power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and to perform its obligations hereunder. The
Board of Directors of Newco has, by majority vote and by resolutions duly
adopted, approved this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Newco and no other corporate Proceedings
on the part of Newco are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Newco, and constitutes a valid and binding agreement by, and
obligation of, Newco, enforceable against Newco in accordance with its terms,
except as enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (b) general principles of equity (regardless of whether
enforcement is sought in a Proceeding in equity or at law).
53
Section 5.3. CONSENTS AND APPROVALS; NO VIOLATIONS. There is no
requirement applicable to Newco to make any filing with, or obtain any permit,
Authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation by Newco of the transactions
contemplated by this Agreement other than as set forth in Schedule 5.3 attached
hereto. The execution and delivery of this Agreement by Newco will not (a)
conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws (or other similar charter documents) of Newco or violate
any law or regulation applicable to Newco; (b) result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
agreement, lease or other instrument or obligation to which Newco or any of its
Affiliates is a party or by which any of their respective Assets may be bound,
except for such defaults (or rights to termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained; or
(c) violate an order, writ, injunction or decree applicable to Newco, any of its
Affiliates or to any of their respective Assets.
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.1. EXPENSES. Unless specifically provided to the contrary
herein, each party to this Agreement will be responsible for any costs and
expenses incurred by such party in connection with this Agreement or in
furthering the transactions contemplated hereby.
Section 6.2. FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each party to this Agreement will use its commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary,
54
proper or advisable under applicable laws and regulations to consummate and to
make effective the transactions contemplated by this Agreement. From time to
time prior to the Closing Date, without further consideration, Guarantee and
Newco will, at their own expense, provide such information (financial or other)
to the Company as shall be necessary for the Company to obtain all consents
required hereunder and will execute and deliver such documents to the Company as
it may reasonably request in order more effectively to consummate the
transactions contemplated by this Agreement. Moreover, prior to the Closing
Date, the Company will use its commercially reasonable efforts to introduce
Guarantee insurance products which are mutually acceptable to the Company and
Guarantee to AGL's distribution system and to cooperate with Guarantee to
develop budgets and business plans for 1998.
Section 6.3. CONSENTS. On or prior to Closing, the Company shall use its
commercially reasonable efforts to obtain the consents required in the contracts
set forth in Schedule 3.5 Part II. On or prior to the Closing Date, the
Company, Guarantee and Newco shall use their commercially reasonable efforts to
satisfy the provisions of Section 7.1(b) hereof. The Company, Guarantee and
Newco shall work closely with each other, and each shall cooperate fully with
each other to obtain any necessary consents and to satisfy such provisions. The
Company, Guarantee and Newco shall keep each other fully informed as to the
status of their progress and when any necessary consents are received or denied.
Section 6.4. ANNOUNCEMENTS OR COMMUNICATIONS. The Company, Newco and
Guarantee acknowledge the damaging effects which could result from any premature
disclosure concerning the transactions contemplated by this Agreement.
Accordingly, unless a public disclosure or filing or communication with
policyholders or shareholders of the Company,
55
Newco or Guarantee is mandated by law or regulation, neither the Company
(including its employees and agents), Newco nor Guarantee will make any public
disclosure or statements or issue press releases or otherwise make any public
statements with respect to this Agreement and the transactions contemplated
hereby except in a form and at a time which has been mutually agreed to among
them. To the extent that any disclosure or filing or communication with
policyholders of the Company or others shall be mandated by law or regulation,
it shall first be submitted to, reviewed and approved to the extent practicable
by all parties, which approval shall not be unreasonably withheld.
Section 6.5. ACCESS. At all times prior to the Closing Date, the Company
will, upon commercially reasonable notice, cause the Company to permit Guarantee
and Newco, their officers and employees, and their respective agents
commercially reasonable access during normal working hours to the Company's
business, properties, Assets, books, records and personnel. In connection with
the foregoing, the Company shall deliver or make available to Guarantee true and
correct copies of all Tax Returns of the Company that were required to be filed
by or with respect to the Company for all taxable years which remain subject to
assessment and deficiency and the accountants' tax provision workpapers
(involving both current and deferred income tax) and any other accountants'
workpapers dealing with the composition of any general loss or contingency
reserve accounts and such other information relating to Tax matters in the
possession of the Company as Guarantee may reasonably request (including
elections, consents, revenue agent's reports, protests, closing agreements and
ruling requests). The Company shall also direct its independent accountants to
make available for Guarantee's
56
inspection, or deliver copies to Guarantee, any such tax information, workpapers
and reports in the possession of such accountants.
Section 6.6. CONDUCT OF THE COMPANY'S BUSINESS. (a) Except as
contemplated by this Agreement, from the date hereof until the Closing Date, the
Company and its Subsidiaries shall:
(i) continue to conduct its businesses and operations in the ordinary
and usual course;
(ii) continue to exercise the same degree of care that the Company has
previously exercised with respect to its business and, in any case, not
less than the degree of care which is standard in the industry with respect
to its business;
(iii) use its commercially reasonable efforts to maintain its
relationships with its reinsurers, agents, policyholders, providers of
specialty insurance products to its agents and other parties with whom it
has business relationships; and
(iv) cooperate with Guarantee to facilitate a smooth transition of
ownership of the Company, including consulting with Guarantee as to the
advisability of retaining certain employees necessary to the continued
operations of the Company and using its best commercially reasonable
efforts to enter into severance agreements acceptable to the Company and
Guarantee with those officers, employees or agents whose services Guarantee
determines will not be required either immediately after Closing or shortly
thereafter.
(b) From the date hereof until the Closing Date, the Company shall not
(except as is contemplated or permitted by this Agreement or with the written
approval of Guarantee, which approval shall not be unreasonably withheld):
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(i) sell, pledge, dispose of, lease or encumber any material Assets
(including, without limitation, any indebtedness owed to, or any claims
held by, it) except in the ordinary course;
(ii) terminate the insurance licenses, insurance permits and insurance
authorities, or fail to timely file all reports required by government
agencies which administer such Licenses, permits and authorities, except in
the ordinary course;
(iii) declare, set aside or pay any dividend or distribution payable
in cash, stock, property or otherwise with respect to any shares of its
capital stock;
(iv) redeem, purchase or otherwise acquire or offer to redeem,
purchase or otherwise acquire any shares of its capital stock;
(v) transfer any Assets or liabilities of the Company to any new
subsidiary or new Affiliate;
(vi) acquire (by merger, consolidation or acquisition of stock or
Assets) any corporation, partnership or other business organization or
division thereof or make any investment either by purchase of stock or
securities, contribution to capital or property transfer other than in the
ordinary course;
(vii) incur any indebtedness for borrowed money (other than in the
ordinary course of business consistent with past practice), issue any debt
securities, assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any individual or entity other
than the Company or its Subsidiaries, make any loans or advances, incur any
other liabilities, obligations or commitments or forgive or discharge any
indebtedness, other than in the ordinary course of business;
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(viii) except in the ordinary course of business, adopt or amend any
bonus, profit-sharing, thrift, savings, compensation, stock option, pension
retirement, deferred compensation, employment or other employee benefit
plan, agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any of their employees, except where required by any state or
federal law or regulation;
(ix) other than the severance arrangements contemplated by Section
6.6(a)(iv), increase or authorize an increase in the compensation or fringe
benefits of any employee or pay or authorize any payment or any benefit not
required by an existing plan and arrangement not in the ordinary course of
business;
(x) promote or demote any key employee or take any action to reduce
the staff of the Company (except for terminations for documented cause);
(xi) terminate the services of the Company's present brokers, agents
and general agents and other sales personnel;
(xii) issue, authorize or propose the issuance of additional shares
of their capital stock of any class other than pursuant to the conversion
of shares of the Company's Series B Convertible Preferred Shares and Series
C Convertible Preferred Shares or stock options or warrants outstanding on
the date hereof, or securities convertible into or rights, warrants or
options to acquire any such shares;
(xiii) split, combine or reclassify any shares of their capital stock
or declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise with respect to any of their capital stock,
except for dividends in the normal course to
59
satisfy the debt service requirements under the Company's existing credit
agreement with ▇▇▇▇▇▇ Guaranty Trust Company of New York;
(xiv) enter into any transaction not in the ordinary course of
business;
(xv) cancel, compromise or settle any material claim, or waive or
release any right other than in the ordinary course of business; or
(xvi) dispose of any investment securities of the Company, without
Guarantee's prior consent other than in the ordinary course of business.
Section 6.7. NOTIFICATION. The Company, Newco and Guarantee shall each
give the others prompt written notice of (i) the existence of any fact or the
occurrence of any event which constitutes, or with the giving of notice or the
passage of time or both would constitute, a material breach of any of its
respective representations or warranties made herein or pursuant hereto and of
which they have actual knowledge and (ii) the taking of any action that would
materially breach or violate, or constitute a material default under, any of its
respective agreements or covenants made herein or pursuant hereto.
Section 6.8. OTHER TRANSACTIONS.
(a) Definitions. As used in this Agreement, the following terms shall
have the meanings specified:
(i) "Other Offer" shall mean any inquiry, proposal or offer
relating in any manner to an Other Transaction.
(ii) "Other Transaction" shall mean any of the following on or
prior to the Special Date, other than the merger as contemplated by
this Agreement (A) a merger, consolidation, share exchange, exchange
of securities,
60
reorganization, business combination or other similar transaction
involving the Company or its Subsidiaries and substantially all of its
securities; (B) a sale, transfer or other disposition of all or a
significant portion of the Assets of any of the Company or its
Subsidiaries in a single transaction or series of related
transactions; (C) a sale of, or tender offer or exchange offer for, or
acquisition by any Person or group of beneficial owners of, a
substantial interest in the outstanding capital stock of the Company
or its Subsidiaries in a single transaction or series of related
transactions; or (D) a public announcement of a proposal, plan,
intention or agreement to do any of the foregoing.
(iii) "Special Date" shall mean that date which is six months
after the date of termination of this Agreement.
(iv) "Special Event" shall mean any of the following to occur on
or prior to the Special Date: (A) a Person unrelated to Guarantee has
consummated, or has publicly announced or proposed (and subsequently
consummates after the Special Date), an Other Transaction; (B) the
Company or its Subsidiaries have entered into an agreement with
respect to an Other Transaction; or (C) the Company shall have
terminated this Agreement for the purpose of pursuing an Other Offer
or Other Transaction.
(b) Termination of Discussions. The Company shall immediately cease
and cause to be terminated all existing discussions and negotiations, if
any, with any parties conducted prior to the date of this Agreement with
respect to any Other Transaction,
61
except that the Company may notify such other parties that the discussions
and negotiations are terminated.
(c) Nonsolicitation. The Company shall not, and shall not permit its
Subsidiaries or officers, directors, employees, agents or other
representatives (including, without limitation, any investment banker,
attorney or accountant retained or engaged by the Company) to, solicit,
initiate, facilitate, encourage, negotiate with respect to, discuss or
agree to, any Other Offer or any Other Transaction, except to the extent
required by the fiduciary duties of the Company's officers and Board of
Directors under applicable law if so advised by a written opinion of
outside counsel. The Company shall notify Guarantee orally and in writing
within two business days following receipt by the President of the Company
of any Other Offer, including the terms and conditions of any such Other
Offer and the Person making such Other Offer. The Company shall give
Guarantee five calendar days' prior notice and an opportunity to negotiate
with the Company before entering into, executing or agreeing to any Other
Offer or Other Transaction.
(d) Termination. The Company may, by notice to Guarantee at any time
prior to the Effective Time of merger, terminate this Agreement if the
Company enters into, executes or agrees to an Other Offer or Other
Transaction following a determination by the Board of Directors of the
Company on the written advice of counsel that such action is required by
its fiduciary duties under applicable law and compliance by the Company
with the provisions of Section 6.8 of this Agreement.
62
(e) Special Fee. In order to induce Guarantee to enter into this
Agreement and to compensate Guarantee for the time and expenses incurred in
connection with this Agreement and the merger and the losses suffered by
Guarantee from foregone opportunities, the Company shall pay a "Special
Fee" equal to $750,000 to Guarantee in immediately available funds within
five business days after the occurrence of a Special Event.
(f) Termination of Section 6.8. There shall be no Special Fee payable
as a result of a Special Event which occurs unless this Agreement is
terminated by the Company pursuant to Section 6.8(d) hereof or Guarantee
terminates this Agreement pursuant to Section 8.1(c) or (d) where the
breach of the representation and warranty or breach of covenants results
from any willful or intentional acts of the Company.
Section 6.9. TAX ELECTIONS, ETC. No new elections with respect to Taxes
or any changes in current elections or practice with respect to Taxes (in each
case, in respect of any tax year ending on or before, or which includes, the
Closing Date) affecting the Company (including, without limitation, all changes
which would set a precedent for later periods) or any of its Subsidiaries shall
be made after the date of this Agreement without the prior written consent of
Guarantee not to be unreasonably withheld.
Section 6.10. BENEFITS. As of the Closing Date, the Company shall have
paid or accrued all amounts of compensation, benefits, bonuses and other forms
of direct or indirect compensation to any employee, officer, director, agent or
consultant which is due or payable as of the Closing or which becomes due or
payable as a result of the Company's termination or severance at the Closing of
such employee, officer, director, agent or consultant, including
63
Persons to be terminated and referenced in Section 6.6(a)(iv). Not later than
20 days prior to the Closing Date, the Company shall provide Guarantee with a
schedule setting forth all such benefits. Notwithstanding the aforesaid,
nothing contained in this paragraph shall affect the Purchase Price, unless it
constitutes a breach of this Agreement.
Section 6.11. SEPTEMBER 30, 1997 FINANCIAL STATEMENTS. The Company will
use its commercially reasonable efforts to provide its unaudited Financial
Statements for the period ended September 30, 1997 to Guarantee no later than
October 31, 1997. And the Company will cause its officers, employees, agents
and consultants to cooperate with KPMG Peat Marwick LLP in connection with its
audit of the Company's Financial Statements for the period ended September 30,
1997.
Section 6.12. DEFERRED COMPENSATION. Guarantee and the Surviving
Corporation hereby acknowledge and agree to be bound by the terms of those
certain Key Employee Deferred Compensation Plan Agreements and Director Deferred
Compensation Plan Agreements listed on Schedule 3.20(c) (collectively, the
"Deferred Compensation Agreements"). Guarantee shall cause the Surviving
Corporation to keep the Deferred Compensation Agreements in full force and
effect and assume the obligations of the Company and its Subsidiaries under the
Deferred Compensation Agreements. Guarantee and the Surviving Corporation shall
not amend the Deferred Compensation Agreements without the consent of the
beneficiary of the applicable agreement.
Section 6.13. LIFE INSURANCE PROGRAM. Guarantee and the Surviving
Corporation hereby acknowledge and agree to be bound by the terms of the PFG
Matched Life Insurance Plan (the "Life Insurance Plan"). Guarantee shall cause
the Surviving Corporation to continue
64
to provide the benefits referred to in the Life Insurance Plan to any director
as of the Closing Date who is participating in such Life Insurance Plan (a
"Participating Director") and who does not allow his life insurance policy with
the Company or Surviving Corporation to lapse. Guarantee and the Surviving
Corporation shall not amend the Life Insurance Plan with respect to any
Participating Director without the consent of such Participating Director. Each
Participating Director shall be permitted to renew his life insurance policy in
effect on the Closing Date, provided that such Participating Director continues
to pay applicable premiums on the policy that the Director has purchased
individually under the Life Insurance Plan.
ARTICLE VII
CLOSING DATE CONDITIONS
Section 7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the transactions contemplated hereby shall
be subject to the following conditions:
(a) That all conditions to the Closing contained in this Article VII
shall have been satisfied in all respects or waived in accordance with the
terms of this Article VII and the Closing Date shall occur on or before
December 31, 1997, unless extended in accordance with the terms of this
Agreement; provided, however, either the Company or Newco may extend the
Closing Date pursuant to Section 2.3 hereof for one 30-day period, provided
the extending party is not in breach or default under the terms of this
Agreement and the conditions to the Closing set forth in Article VII have
not been satisfied;
(b) That all permits, approvals and consents of any governmental body
or agency (including, without limitation, state insurance departments) or
Person which are
65
required in connection with the transactions contemplated by this Agreement
shall have been obtained, which approvals shall not contain conditions to
which Guarantee reasonably objects, and such permits, approvals and
consents shall be effective and shall not be suspended, revoked or stayed
by action of any governmental authority or Person;
(c) That all applicable waiting periods under the HSR Act, state
antitrust laws, plant closing laws or any other applicable laws shall have
expired or been terminated;
(d) That, at or prior to the Closing Date, none of the Company, Newco
or Guarantee shall be subject to any order, decree or injunction of a
government regulatory agency or a court of competent jurisdiction which (i)
prevents or delays any of the transactions contemplated by this Agreement
or (ii) would impose any material limitation on the ability of the Company
to conduct its business and operations in substantially the same form as it
is presently being conducted;
(e) That this Agreement and the Merger shall have been approved by the
requisite vote of the stockholders of the Company.
Section 7.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the transactions contemplated hereby shall
be further subject to the fulfillment at or prior to the Closing Date of the
following conditions, any one or more of which may be waived by the Company:
(a) Each of Guarantee and Newco shall have performed and complied with
the agreements contained in this Agreement required to be performed and
complied with by it at or prior to the Closing Date, and the
representations and warranties of Guarantee and Newco set forth in this
Agreement shall be true and correct in all material respects
66
as though made as of and on the Closing Date. Guarantee and Newco shall
have delivered to the Company a certificate of an officer of Guarantee and
Newco dated as of the Closing Date, to the foregoing effect;
(b) The Company shall have received an opinion from counsel to
Guarantee and Newco dated the Closing Date and in form and substance to the
reasonable satisfaction of the Company;
(c) The Paying Agent shall have received from Guarantee the Purchase
Price in accordance with Section 2.9 of this Agreement;
(d) The Company shall have received from each of Guarantee and Newco
(i) a copy of its Board of Directors' actions approving and authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby (including the approval of this Agreement and the
Merger by Guarantee as the sole stockholder of Newco), certified by the
Secretary of Guarantee and Newco as true, correct and complete and that
such actions have not been amended or rescinded on or prior to the Closing
Date and (ii) a certificate of the Secretary of Guarantee and Newco as to
the incumbency and signature of the directors and officers of Guarantee and
Newco executing this Agreement;
(e) The Company shall have received from the Secretary of Newco a
certificate as to the number of shares of Newco's outstanding common stock
and the number which voted in favor of adopting this Agreement and
approving the Merger, and a copy of such certificate has been appended to
this Agreement; and
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(f) The Company shall have received all other documents, instruments
and writings required to be delivered by Guarantee and Newco at or prior to
the Closing Date pursuant to this Agreement or otherwise required in
connection herewith.
Section 7.3. CONDITIONS TO THE OBLIGATIONS OF GUARANTEE AND NEWCO. The
obligations of Guarantee and Newco to effect the transactions contemplated
hereby shall be further subject to the fulfillment at or prior to the Closing
Date of the following conditions, any one or more of which may be waived by
Guarantee or Newco:
(a) The Company shall have performed and complied with the agreements
contained in this Agreement required to be performed and complied with by
it at or prior to the Closing Date, and the representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects as though made as of and on the Closing Date. The
Company shall have delivered to Guarantee a certificate dated as of the
Closing Date to the foregoing effect. Notwithstanding anything herein to
the contrary, in the event that any representation or warranty is not true
and correct when made or at any time on or before the Closing Date,
Guarantee may terminate this Agreement pursuant to this Section 7.3(a) only
if either (i) Guarantee reasonably determines there has been a Material
Adverse Effect or (ii) the breach is of such a nature as to effectively
prevent Guarantee from owning and or operating the Company in a manner as
presently conducted by the Company.
(b) Guarantee shall have received an opinion from counsel to the
Company dated the Closing Date and in form and substance to the reasonable
satisfaction of Guarantee.
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(c) Guarantee shall have received from the Company a Certificate of
Good Standing for the Company and all Subsidiaries, dated as of a recent
date, issued by the Secretary of State of the state of their incorporation.
(d) Guarantee shall have received from the Secretary of the Company a
certificate as to (i) the number of shares of Stock and the number which
voted in favor of adopting this Agreement and approving the Merger and (ii)
the number of shares of Stock with respect to which appraisal rights have
been exercised under the Pennsylvania Law, and a copy of such certificate
has been appended to this Agreement.
(e) All of the outstanding options, warrants, calls, subscriptions,
convertible security or other right, agreement or commitment for the
Company to issue any shares of its capital stock shall be exercised or
terminated on or before the Closing.
(f) Guarantee shall have received, not later than five days prior to
the Closing Date, the audited Financial Statements of the Company for the
nine months ended September 30, 1997 together with a report from KPMG Peat
Marwick LLP relating thereto.
(g) Guarantee and Newco shall have received, not later than five days
prior to the Closing Date, copies of written resignations effective
immediately following the Closing Date of all the directors and officers
(other than ▇▇▇▇▇▇ ▇. ▇▇▇▇) of the Company and the Subsidiaries whose
resignations Guarantee and Newco have requested in writing at least 20 days
prior to Closing.
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(h) Guarantee shall have received all other documents, instruments and
writings required to be delivered by the Company at or prior to the Closing
Date pursuant to this Agreement or otherwise required in connection
herewith.
ARTICLE VIII
TERMINATION
Section 8.1. TERMINATION OF THIS AGREEMENT. Anything herein to the
contrary notwithstanding, this Agreement may be terminated at any time before
the Closing Date as follows, and in no other manner:
(a) Mutual Consent. By mutual written consent of the Company, on the
one hand, and Guarantee and Newco, on the other hand.
(b) Expiration Date. By the Company, on the one hand, or Guarantee
and Newco, on the other hand, if the Closing Date shall not have occurred
by December 31, 1997, unless extended in accordance with the terms of this
Agreement; and, provided, further, that the party or parties seeking to
terminate this Agreement shall have used their commercially reasonable best
efforts to facilitate the consummation of the transactions contemplated
hereby.
(c) Breach of Representations and Warranties. By Guarantee, in
accordance with Section 7.3(a) hereof.
(d) Breach of Covenants by Company. By Guarantee and Newco in the
event of a material breach by the Company of a covenant contained in this
Agreement.
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(e) Breach of Representations, Warranties or Covenants by Guarantee or
Newco. By the Company in the event of a material breach by Guarantee or
Newco of a representation, warranty or covenant contained in this
Agreement.
(f) Access and Cooperation. By Guarantee and Newco if the Company
does not cooperate with and provide access to the Company's business,
properties, Assets, books, records and personnel in accordance with
Sections 6.5 and 6.11 hereof.
(g) Assertion of Appraisal Rights. By Guarantee in the event that
stockholders owning 5% or more of the Stock assert appraisal rights
pursuant to the Pennsylvania Law.
Section 8.2. EFFECT OF TERMINATION. In the event that this Agreement
shall be terminated pursuant to Section 8.1(a), (b) or (g) hereof, all
obligations of the parties hereto under this Agreement shall terminate and there
shall be no Liability of any party to another and each party hereto shall pay
all costs and expenses incident to this Agreement as contemplated in Section 6.1
hereof. In the event that this Agreement shall be terminated pursuant to
Section 8.1(c), (d) or (f) hereof where the breach of the representation and
warranty or breach of covenant results from willful or intentional acts of the
Company, the Company will be liable to Guarantee and Newco for all direct out-
of-pocket expenses they actually incurred from July 1, 1997 in connection with
this transaction plus $500,000. Any payments the Company makes to Guarantee
under Section 6.8 shall be a credit against the Company's obligations under
Section 8.2, and if a Special Event occurs after the Agreement is terminated,
the Company's obligations under Section 6.8 shall be reduced by any payments the
Company made to Guarantee under this Section 8.2. In the event that this
Agreement shall be terminated pursuant to Section 8.1(e)
71
hereof where the breach of the representation and warranty or breach of covenant
results from the willful or intentional acts of Guarantee, Guarantee will be
liable to the Company for all direct out-of-pocket expenses it actually incurred
from July 1, 1997 in connection with this transaction plus $500,000.
Notwithstanding the foregoing, in the event this Agreement shall be terminated
pursuant to Section 8.1(c), (d) or (e) and the breaches of representations,
warranties or covenants are due to riots, storms, fires, explosions, embargoes,
interruption of computer, mail or communication systems or any other cause or
act of God which is beyond the commercially reasonable control of the Company,
Guarantee or Newco (as the case may be), then there shall be no liability of any
party to another, and each party hereto shall pay all costs and expenses
incident to this Agreement as contemplated in Section 6.1 hereof. Upon payment
of the amounts provided in this Section 8.2, the Company, Guarantee and Newco
shall have no further obligation or liability to each other under this
Agreement.
ARTICLE IX
INDEMNIFICATION
Section 9.1. INDEMNIFICATION. Each Person who receives Merger
Consideration under this Agreement (the "Indemnifying Parties") agrees to
jointly and severally indemnify and hold harmless on an after-tax basis
Guarantee and Newco, and their successors and assigns, and their respective
officers, directors, employees, agents and Affiliates against and in respect of
any and all losses, liabilities, claims, damages and expenses whatsoever
(including, but not limited to, commercially reasonable attorneys' and
accountants' fees and all commercially reasonable expenses incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or based on (i) any breach of any of
the representations,
72
warranties, covenants or agreements which have been made or undertaken by the
Company under this Agreement; and (ii) any inaccuracy, misrepresentation or
omission in any certificate or document delivered in accordance with the terms
of this Agreement by the Company.
Section 9.2. NOTICE OF CLAIM. Upon obtaining knowledge thereof, Guarantee
or Newco shall notify the Agents and the Paying Agent in writing of any damage,
claim, loss, liability or expense which Guarantee or Newco has determined has
given or could give rise to a claim under Section 9.1 (such written notice being
hereinafter referred to as a "Notice of Claim"). A Notice of Claim shall
contain a brief description of the nature and estimated amount of any such claim
giving rise to a right of indemnification.
Section 9.3. LIMITATION ON INDEMNIFICATION OBLIGATION. Notwithstanding
anything to the contrary contained in this Article IX, each Indemnifying Party
shall not be obligated to indemnify any Person in an amount greater than his pro
rata share of the $1,000,000 of Merger Consideration, plus interest, held by the
Paying Agent after the Initial Distribution. Moreover, none of the Indemnifying
Parties shall be obligated to indemnify any Person until the Notices of Claims
for amounts in excess of $100,000 in total have been submitted to the Paying
Agent, then the Indemnifying Parties shall be liable for the dollar amount of
all claims allowed under any Notice of Claim. By way of example only, if
Notices of Claims are approved for a total of less than $100,000, there are no
payments to indemnified Persons; however,if Notices of Claims are approved for a
total of $100,001 or more, then the full amount allowed under such Notices shall
be paid to the indemnified Persons, subject to the limitation in the first
sentence of this Section 9.3.
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Section 9.4. SURVIVAL OF INDEMNIFICATION. The obligation of the
Indemnifying Parties to indemnify and hold harmless pursuant to this Article IX
shall survive, subject to Section 10.1 hereof, the consummation of the
transactions contemplated by this Agreement.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; EFFECT OF CERTIFICATES
Section 10.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
CONDITIONS AND AGREEMENTS. The Company agrees that all representations,
warranties, covenants, conditions and agreements contained herein or in any
instrument or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement, the consummation of the transactions
contemplated hereby and any investigation or audit made by any party hereto;
provided, however, that all representations, warranties, covenants, conditions
and agreements (including the indemnification provisions in Section 9.1) shall
only survive until the earlier of March 31, 1998 or five business days after the
receipt of the Company's audited Financial Statements for the year ended
December 31, 1997 by Guarantee. Anything to the contrary notwithstanding, no
claim may be asserted nor may any action be commenced against any party for
breach of any representation or warranty, unless written notice of such claim or
action is received by such party describing in detail the facts and
circumstances with respect to the subject matter of such claim or action on or
prior to the date on which the representation or warranty on which such claim or
action is based ceases to survive as set forth in this paragraph, irrespective
of whether the subject matter of such claim or action shall have occurred before
or after such date. Notwithstanding the foregoing, the obligations on Guarantee
under Section 2.11(b) shall survive and continue
74
until all funds required to be paid thereunder have been paid. Notwithstanding
the foregoing, the obligations on Guarantee and the Surviving Corporation under
Sections 2.11(b), 6.12 and 6.13 shall survive and continue forever.
Section 10.2. EFFECT OF CERTIFICATES. Each statement contained in any
certificate delivered in connection with this Agreement or the consummation of
the transactions contemplated hereby shall constitute the representation,
warranty and agreement of the party delivering such certificate and shall have
the same force and effect as if it had been incorporated into this Agreement as
a representation, warranty and agreement by such party.
Section 10.3. RELIANCE. All warranties, representations and covenants
made by the Company, Newco and Guarantee herein or in any certificate or other
instrument delivered by the Company, Newco or Guarantee under this Agreement
shall be considered to have been relied upon by the Company, Newco and
Guarantee, as the case may be, regardless of any investigation made by the
Company, Newco or Guarantee, as the case may be, or on the Company's, Newco's or
Guarantee's behalf, unless a party shall have received a notification pursuant
to Section 6.8.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified or supplemented only in writing at any time
prior to the Effective Date by the majority of the boards of directors of the
Company, Newco and Guarantee, except that an amendment made subsequent to the
adoption of this Agreement by the Stockholders of PFG shall not modify or change
(i) the Merger Consideration; (ii) the Articles of Incorporation
75
of the Surviving Corporation to be effected by the merger; or (iii) any terms or
conditions that would adversely affect the holders of the Stock.
Section 11.2. WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise
provided in this Agreement, any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
or parties entitled to the benefits thereof only by a written instrument signed
by the party or parties granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 11.2.
Section 11.3. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date of receipt if
delivered personally or by facsimile transmission and 10 days from the date of
mailing if mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice; provided, however,
that notices of a change of address shall be effective only upon receipt
thereof):
(a) If to the Company to:
PFG, Inc.
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
76
With a copy to:
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ LLP
2500 One Liberty Place
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to Guarantee or Newco, to:
The Guarantee Life Companies Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
With copies to:
The Guarantee Life Companies Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
and
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Section 11.4. ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, heirs, personal representatives and permitted assigns,
but neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other party or parties.
Section 11.5. NO THIRD-PARTY BENEFICIARIES. Nothing in this Agreement is
intended or shall be construed to give any Person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect to
this Agreement or any provision contained herein.
77
Section 11.6. CONFIDENTIALITY OF INFORMATION AND DOCUMENTS. If this
Agreement terminates and the transactions contemplated hereby are not
consummated as described above, the parties hereto shall keep confidential and
shall not use in any manner any information or documents obtained from the other
party unless ordered to do so by a court, governmental or regulatory body having
jurisdiction in the premises (after Notice to the other party where possible and
steps to protect such information are taken when practicable), or unless such
information is readily ascertainable from public or published information, or
trade sources, or is already known or subsequently developed by such party
independently, or was received from a third party not under an obligation to
such other party or any of its Affiliates to keep such information confidential.
If this Agreement terminates, any documents obtained by either party from the
other or any of such other party's Affiliates shall be promptly returned.
Section 11.7. GOVERNING LAW. Unless it is indicated that the laws of the
Commonwealth of Pennsylvania apply, this Agreement shall be governed by the laws
of the State of Nebraska (regardless of the laws that might otherwise govern
under applicable principles of conflicts of law) as to all matters, including,
but not limited to, matters of validity, construction, effect, performance and
remedies.
Section 11.8. JURISDICTION; AGENTS FOR SERVICE OF PROCESS. Any judicial
Proceeding brought against any of the parties to this Agreement or any dispute
arising out of this Agreement or any matter related hereto shall be brought in
the courts of the State of Nebraska, or in the United States District Court for
the District of Nebraska, and, by execution and delivery of this Agreement, each
of the parties to this Agreement accepts for himself or itself the exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment
78
rendered thereby in connection with this Agreement. The foregoing consents to
jurisdiction and appointments of agents to receive service of process shall not
constitute general consents to service of process in the State of Nebraska for
any purpose except as provided above and shall not be deemed to confer rights on
any Person other than the parties to this Agreement.
Section 11.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11.10. HEADINGS. The article and section headings contained in
this Agreement are solely for convenience of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 11.11. KNOWLEDGE OF THE COMPANY. Where any representation or
warranty contained in this Agreement is qualified by reference to the Knowledge
of the Company, Knowledge in this context means that the Company, including its
executive officers and directors, has no actual knowledge of any facts,
circumstances or conditions that would render such representations and
warranties inaccurate or untrue or that would put such parties on actual notice
that further inquiry is required in order to confirm that such representations
and warranties are not inaccurate or untrue.
Section 11.12. ENTIRE AGREEMENT. This Agreement, including the exhibits
hereto and the documents, schedules, certificates and instruments referred to
herein, embodies the entire agreement and understanding of the parties hereto in
respect of the transactions contemplated by this Agreement. There are no
restrictions, promises, representations, warranties, covenants or undertakings
other than those expressly set forth or referred to herein. This Agreement
79
supersedes all prior agreements and understandings between the parties with
respect to such transactions; provided, however it does not supersede the
Confidentiality Agreements between the Company and Guarantee dated July 24, 1997
and July 30, 1997.
Section 11.13. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Until the fifth
anniversary of the Closing Date, Guarantee shall, and shall cause the Surviving
Corporation to, indemnify and hold harmless each current and former officer and
director of the Company against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claims, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the Closing Date, whether
asserted or claimed prior to, at or after the Closing Date, to the fullest
extent that the Company would have been permitted under its Articles of
Incorporation or Bylaws as in effect on the date hereof, provided the person to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to indemnification.
80
IN WITNESS WHEREOF, the Company, Newco and Guarantee have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
COMPANY:
PFG, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------
Name ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title President
NEWCO:
GUARANTEE SUBSIDIARY, INC.
By /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title President
GUARANTEE:
THE GUARANTEE LIFE COMPANIES
INC.
By /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title Executive Vice President
81
COMMONWEALTH OF PENNSYLVANIA ]
] SS.
COUNTY OF ]
On this 17th day of October, 1997, before me, the undersigned, personally
appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇ known to me to be the President of PFG, Inc. who is
known to me to be the identical person whose name is affixed to the foregoing
instrument and acknowledged the execution thereof to be his voluntary act and
deed and the voluntary act and deed of said corporation.
Witness my hand and notarial seal the day and year last above written.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Notary Public
SEAL
STATE OF NEBRASKA ]
] SS.
COUNTY OF ▇▇▇▇▇▇▇ ]
On this 17th day of October, 1997, before me, the undersigned, personally
appeared ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ known to me to be the President and Executive Vice
President of Guarantee Subsidiary, Inc. and The Guarantee Life Companies Inc.,
respectively, who is known to me to be the identical person whose name is
affixed to the foregoing instrument and acknowledged the execution thereof to be
his voluntary act and deed and the voluntary act and deed of said corporation.
Witness my hand and notarial seal the day and year last above written.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
Notary Public
SEAL
82
ATTACHMENT A
THE FOLLOWING STOCKHOLDERS of PFG, Inc. hereby agree, at a properly called
meeting of PFG, Inc.'s stockholders or by a written consent of PFG, Inc.
stockholders, to approve the Merger described in the Merger Agreement Among The
Guarantee Life Companies Inc., Guarantee Subsidiary, Inc. and PFG, Inc. dated as
of October 17, 1997, a copy of which is attached hereto. In addition, the
following stockholders hereby waive any preemptive rights or rights of first
refusal or rights of similar nature, if any, in connection with any shares to be
issued as a result of the Merger. (The signatures of these selling stockholders
are for the sole purpose of approving the Merger, and no other purpose, and
neither party hereto shall assert or imply any other purpose to such
signatures.)
ENSIGN TRUST, LTD. PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: ____________________________ By: ____________________________
Its: ____________________________ Its: ____________________________
CENTURY CAPITAL MANAGEMENT, INC.: ▇▇▇▇▇▇▇▇, ETAL.
Century Capital Partners, ▇.▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇.
ISF Limited Partnership ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ - MPPP
MFA MASTERS Limited Partnership ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ - MPPP
Voluntary Account
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. custodian for ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ UGMA
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. custodian for
By: ____________________________ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ UGMA
Its: ____________________________ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
_________________________________
MERIDIAN VENTURE PARTNERS By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its: Trustee and Individually
By: ____________________________
Its: ____________________________ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Trust U/D/T 12-31-79
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Trust U/D/T 6-1-80
_________________________________ _________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇ By: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its: Trustee
EXHIBIT A
PAYING AGENT AGREEMENT
This PAYING AGENT AGREEMENT (this "Agreement") is made and entered into as
of the ____ day of December, 1997 by and among The Guarantee Life Companies Inc.
("Guarantee"), Guarantee Subsidiary, Inc. ("Newco") and PFG, Inc. (the
"Company"), all of whom are parties to a Merger Agreement made as of the 17 day
of October, 1997 (the "Merger Agreement"), ___________________________________
________ (the "Paying Agent") and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
and ▇▇▇▇▇▇ ▇. ▇▇▇▇ as agents for the persons entitled to receive Merger
Consideration at the Closing Date (the "Agents"). Capitalized terms used herein
and not otherwise defined have the meanings assigned to them in the Merger
Agreement.
RECITALS
The Merger Agreement contemplates the execution of this Agreement to
facilitate the payment of the Merger Consideration in accordance with Article II
of the Merger Agreement.
Guarantee, Newco and the Company desire that the Paying Agent act as the
party for collecting, holding and disbursing funds representing the Merger
Consideration and the Paying Agent is willing to do so, all upon the terms and
conditions hereinafter set forth.
THEREFORE, for and in consideration of the mutual covenants and agreements
herein contained, the parties,intending to be legally bound hereby, agree as
follows:
Section 1. FUNDING OF PAYING AGENT. On the Closing Date, Guarantee shall
transmit to the Paying Agent in immediately available funds the amount of
$37,250,000.
Section 2. INFORMATION TO BE PROVIDED TO PAYING AGENT. (a) At or prior
to the Closing Date, the Company shall deliver to the Paying Agent a list of
those persons who are entitled to receive Merger Consideration as of the Closing
Date (the "Sellers"). Any list delivered pursuant to this paragraph shall
include, for each Seller: the name, address, social security number or tax
identification number, if applicable, wiring instructions (if any) and the
amount of Merger Consideration due to such Seller (which amounts shall be
calculated as of the appropriate related payment date(s) in accordance with the
Merger Agreement and will set forth their respective pro rata share of the
Initial Distribution and the Holdback Escrow.
(b) All surrendered stock certificates, notices or other evidence of stock
options and stock warrants collected by the Company prior to Closing shall be
delivered to the Paying Agent as soon as practicable after the Closing Date.
All stock certificates, notices or other evidence of stock options and stock
warrants shall be delivered to the Paying Agent for one year after the Closing
and then the Surviving Corporation.
(c) In the event a stock certificate is lost, the Seller shall present the
Paying Agent with: (i) an affidavit to the effect that the stock certificate has
been lost, stolen or destroyed; and (ii) shall indemnify Guarantee and Newco
against any claim that may be made against Guarantee and Newco with respect to
the stock certificate alleged to have been lost, stolen or destroyed. In the
event of a lost stock option notice (or other evidence of stock options) or
stock warrant, the Seller shall present the Paying Agent with: (i) an affidavit
of ownership reasonably acceptable to Paying Agent and (ii) shall indemnify
Guarantee or Newco against any claim that may be made against Guarantee and
Newco with respect to the lost stock option notice or stock warrant.
Section 3. DISPOSITION OF FUNDS. The Paying Agent shall hold the funds
and any interest earned thereon in trust for all parties and deliver such funds
as follows:
(a) The Paying Agent shall distribute the Merger Consideration on the
Closing Date as follows:
(i) $1,000,000 to an escrow account (the "Holdback Escrow") to be held
in trust with interest for the benefit of Guarantee and Sellers as provided
herein; and
(ii) $36,250,000, the Initial Distribution, in the form of bank
cashier's checks or wire transfers to those Sellers who, at or prior to the
Closing, have been identified to the Paying Agent pursuant to Section 2
hereof as eligible to receive Merger Consideration.
All payments made to Sellers with respect to the Initial Distribution shall
be made with interest, if any. Any payment made to a Seller hereunder shall be
payable to the order of such Seller pursuant to the most recent list delivered
to the Paying Agent pursuant to Section 2(a) hereof, unless such Seller has
given the Paying Agent different instructions regarding payment to such Seller,
in which case the Seller's instructions shall control. Upon payment for any
stock certificate, the Paying Agent shall ▇▇▇▇ such stock certificate cancelled
and return it to the Surviving Corporation or Guarantee.
Section 4. HOLDBACK ESCROW CLAIM DISBURSEMENTS. (a) A disbursement from
the Holdback Escrow on account of a claim for indemnification under Article IX
of the Merger Agreement shall be initiated by Guarantee delivering to Paying
Agent a Notice of Claim setting forth a reasonably detailed description of the
nature and estimated amount of the claim and the Section under the Merger
Agreement giving rise to the claim, e.g., the specific sections of the
representations, warranties or covenants breached. Guarantee shall
simultaneously deliver a copy of the Notice of Claim to the Agents. After the
passage of thirty (30) days following Paying Agent's receipt of a Notice of
Claim, the Paying Agent shall pay to Guarantee the amount specified in the
Notice of Claim unless the Agents have delivered a written objection to the
Paying Agent setting forth the basis for the objection and the amount in
controversy.
2
(b) Guarantee and the Agents agree to use their reasonable efforts to cause
any disputes or disagreements between the parties to be considered, negotiated
in good faith and resolved as soon as practicable after delivery of the Notice
of Claim to the Paying Agent and the Agents or any objection thereto.
(c) If Guarantee and the Agents cannot agree as to any Notice of Claim,
disputes arising under this Agreement shall be settled by arbitration before a
panel of three arbitrators pursuant to the rules of the American Arbitration
Association. Such arbitration may be held at such location as may be mutually
agreed by Guarantee and the Agents, but if they do not so agree within thirty
(30) days after the appointment of the panel or arbitrators, the panel of
arbitrators shall decide the location for such arbitration. Arbitration may be
commenced at any time by either party giving written notice to the other party
that a dispute has been referred to arbitration under this Section 4(b). The
arbitrators shall be selected by the joint agreement of the parties hereto, but
if they do not so agree within twenty (20) days after the date of the notice
referred to above, the selection shall be made pursuant to the rules from the
panel of arbitrators maintained by such Association. Any award of the
arbitrators shall be accompanied by a written opinion of the arbitrators giving
the reasons for the award. The costs of the arbitration shall be borne by the
parties in the manner determined in writing by the arbitrators, but if no such
written determination is made, then by the losing party. Any costs or expenses
to be paid by Sellers or incurred by Agents including without limitation any
expenses incurred pursuant to Section 2.9(d) of the Merger Agreement, in
connection with performing their duties under this Agreement shall be paid out
of the Holdback Escrow from funds to be distributed to the Sellers as part of
the Second Distribution or final distribution; provided, however, in no event
will the Paying Agent pay more than $75,000 to the Agents for such costs and
expenses if the Holdback Escrow does not have sufficient funds to pay all claims
by Guarantee under this Agreement. This provision for arbitration shall be
specifically enforceable by the parties. The determination by the arbitrators
pursuant to this Section 4(c) shall be final and binding upon the parties.
Section 5. SECOND DISTRIBUTION.
(a) The second distribution (the "Second Distribution") shall be made
within five business days of the earlier of March 31, 1998 or five business days
after the audited Financial Statements for the Company for the year ended
December 31, 1997 together with a report thereon from KPMG Peat Marwick LLP are
delivered to Guarantee.
(b) The Second Distribution shall be in an amount equal to the balance, if
any, in the Holdback Escrow; provided, however, if there are any pending claims
for which Guarantee has given notice to the Sellers under Article X prior to the
date of the Second Distribution (the "Pending Escrow Claims"), then the Second
Distribution shall be reduced by an amount reasonably agreed to by the Agents
and Guarantee and if they cannot agree then by the amount of the claim.
Following a final determination of the Pending Escrow Claims, in accordance with
the provisions of Article X, an additional distribution shall be made in an
amount equal to the balance, if any, in the Holdback Escrow.
3
(c) The distributions completed pursuant to this Section shall be made to
each Seller who has surrendered each of his, her or its stock certificates,
notices or other evidence representing stock options or stock warrants in
connection with the Closing in accordance with their pro rata share as
determined under Section 2.9 of the Merger Agreement and, together with their
distribution under Section 4, shall be a full and complete satisfaction of such
Seller's right to receive Merger Consideration.
(d) Any portion of the funds held by the Paying Agent which has not been
paid to Sellers within one year of the Closing Date, except for funds held by
the Paying Agent for Pending Escrow Claims which shall continue to be held by
Paying Agent until resolved in accordance herewith and then to the party
entitled thereto, shall promptly be paid, to Guarantee. Thereafter, Sellers who
have not complied with Article II of the Merger Agreement shall look solely to
Guarantee and/or the Surviving Corporation for payment of any Merger
Consideration.
Section 6. INVESTMENT. During the continuance of this Agreement, any cash
transmitted or delivered to the Paying Agent by Guarantee shall be immediately
invested or reinvested by the Paying Agent in (i) obligations of the United
States government having a maturity no later than 90 days after the date of
investment or (ii) commercial paper rated "AA" or higher and having a maturity
no later than 90 days after the date of investment.
Section 7. FEES. The Paying Agent shall receive a fee for its services of
$________ per year payable annually in advance. All fees of and expenses
incurred by the Paying Agent shall be paid by Guarantee. The Agents shall not
receive any fees for their services hereunder.
Section 8. INDEMNIFICATION/DUTIES OF AGENT. The duties of the Paying
Agent are only as herein specifically provided and, except as provided in
Section 6 regarding investments, are purely ministerial in nature. The Paying
Agent is not responsible for verifying (a) who is a Seller, (b) whether any
instructions given by a Seller pursuant to Section 3 hereof are valid, (c)
whether the amount of the Initial Distribution, Notice of Claim, or the Second
Distribution has been properly calculated, (d) whether any Holdback for a
Pending Escrow Claim is required or (e) the date of the final distribution. In
performing its duties hereunder, the Paying Agent shall act as co-agent in a
fiduciary capacity on behalf of all parties. The Paying Agent may act upon any
notice or other document reasonably believed to be genuine and to have been made
or signed by any party hereto. The Paying Agent shall not be liable for any
action taken or omitted in connection with the performance of its duties
pursuant to the provisions of this Agreement, except for its own negligence or
its knowing or intentional default. The parties hereto agree to indemnify and
hold the Paying Agent harmless from and against any and all costs, expenses
(including reasonable attorneys' fees) and losses incurred in connection with
the performance of its duties hereunder, except in the case of the negligence or
knowing or willful default of the Paying Agent. The Paying Agent, in the event
of any conflict between the parties to this Agreement, shall institute any
interpleader action, suit or proceeding it deems appropriate to resolve any
dispute among the parties hereto which may arise.
4
Section 9. TERMINATION. This Agreement shall terminate when all funds
paid to the Paying Agent under this Agreement and any interest thereon shall
have been fully distributed to Sellers or Guarantee in accordance with the terms
and provisions of this Agreement.
Section 10. BENEFIT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective legal representatives,
successors and permitted assigns and shall be governed and construed under the
laws of the State of Nebraska.
Section 11. RESIGNATION OF PAYING AGENT. The Paying Agent shall not resign
prior to the termination of this Agreement unless Guarantee and the Agents have
agreed in writing upon a successor Paying Agent.
Section 12. NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered personally, when sent by confirmed cable,
telecopy, telegram or telex, confirmed by first class mail, when sent by
overnight courier service or when mailed by certified or registered mail, return
receipt requested, with postage prepaid to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Company, to:
PFG, Inc.
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
2500 One Liberty Place
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other person and place as Company shall direct Guarantee in writing;
or
5
(b) if to Guarantee or Newco, to:
The Guarantee Life Companies Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone Number: (402) ▇▇▇- ▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
The Guarantee Life Companies Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Paying Agent, to:
(d) if to the Agents to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
Century Capital Management
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone Number:
Facsimile Number:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
Meridian Venture Partners
Fidelity Court Building, Suite 140
▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone Number:
Facsimile Number:
6
▇▇▇▇▇▇ ▇. ▇▇▇▇
PFG, Inc.
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
2500 One Liberty Place
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
Section 13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to constitute an original and all of
which together shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Paying Agent
Agreement to be duly executed as of the date and year first above written.
COMPANY:
PFG, INC.
By ______________________________________________
Name ____________________________________________
Title ___________________________________________
NEWCO
GUARANTEE SUBSIDIARY, INC.
By ______________________________________________
Name ____________________________________________
Title ___________________________________________
GUARANTEE
THE GUARANTEE LIFE COMPANIES INC.
By ______________________________________________
Name ____________________________________________
Title ___________________________________________
AGENTS FOR SELLERS
_________________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
_________________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
_________________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇
8
