EXHIBIT 2.1 TO FORM 8-K FILING
ASSET PURCHASE AGREEMENT
AMONG
CONSUMERS FINANCIAL CORPORATION
CAMP HILL, PA
CONSUMERS LIFE INSURANCE COMPANY
CAMP HILL, PA
INVESTORS FIDELITY LIFE ASSURANCE CORP.
CAMP HILL, PA
AND
LIFE OF THE SOUTH CORPORATION
NASHVILLE, GA
EFFECTIVE DATE: OCTOBER 1, 1997
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I SALE OF INFORCE BUSINESS . . . . . . . . . . . . . . . . . . 2
Section 1.1 Inforce Business Reinsured (2)
Section 1.2 Reinsurance Commission (2)
Section 1.3 Basic Asset Transfer Amount (2)
Section 1.4 Contingency Fund (3)
Section 1.5 Inforce Business Transactions between the
Effective Date and December 31, 1997 (3)
Section 1.6 Excluded Liabilities (3)
ARTICLE II NEW CREDIT BUSINESS FRANCHISE . . . . . . . . . . . . 4
Section 2.1 Sale of New Credit Business (4)
Section 2.2 Compensation for New Credit Business
Franchise (4)
Section 2.3 Method of Payment (5)
Section 2.4 New Credit Business Transactions Between the
Effective Date and December 31, 1997 (5)
Section 2.5 Reinsurance Arrangement for New
Credit Business (6)
Section 2.6 Amounts Due to or From Agents (7)
ARTICLE III FEE INCOME BUSINESS . . . . . . . . . . . . . . . . 7
Section 3.1 Sale of Fee Income Business (7)
Section 3.2 Compensation for Fee Income Business (7)
Section 3.3 Change in Corporate Name (7)
ARTICLE IV ADMINISTRATIVE SERVICES; PERSONNEL . . . . . . . . . 8
Section 4.1 Administrative Services (8)
Section 4.2 Personnel (8)
Section 4.3 Books, Accounts and Records (8)
ARTICLE V CLOSING; EFFECTIVE DATE AND TERMINATION . . . . . . . 9
Section 5.1 Closing (9)
Section 5.2 Effective Date (9)
Section 5.3 Termination (9)
Section 5.4 Effect of Termination (10)
Section 5.5 Amendment (10)
Section 5.6 Waiver (10)
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF CONSUMERS . . . . 10
Section 6.1 Organization and Good Standing of CFC (10)
Section 6.2 Organization and Good Standing of CLIC (11)
Section 6.3 Organization and Good Standing of IFLAC (11)
Section 6.4 Proper Corporate Action (11)
Section 6.5 Absence of Conflicting Laws or Agreements (11)
Section 6.6 Financial Statements (12)
Section 6.7 Litigation (13)
Section 6.8 Absence of Undisclosed Liabilities (13)
Section 6.9 Rates, Compliance with Laws (13)
Section 6.10 Taxes (13)
Section 6.11 Employment Matters (14)
Section 6.12 Full Disclosure (14)
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF LOTS . . . . . . 14
Section 7.1 Organization and Good Standing (14)
Section 7.2 Proper Corporate Action (14)
Section 7.3 Absence of Conflicting Laws or Agreements (14)
Section 7.4 Financial Statements (15)
Section 7.5 Litigation (15)
Section 7.6 Absence of Undisclosed Liabilities (15)
Section 7.7 Full Disclosure (16)
ARTICLE VIII ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . 16
Section 8.1 Shareholder Approval (16)
Section 8.2 Conduct of Consumers Business (17)
Section 8.3 Expenses; Break-up Fee (18)
Section 8.4 Other Agreements (18)
Section 8.5 Public Announcements (18)
Section 8.6 Exclusive Dealing (18)
Section 8.7 Noncompete Covenant of Consumers (19)
Section 8.8 Access and Information (20)
ARTICLE IX CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . 20
Section 9.1 Conditions Precedent to LOTS' Obligation
to Close (20)
Section 9.2 Conditions Precedent to Consumers'
Obligation to Close (22)
ARTICLE X SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . 23
Section 10.1 Survival of Representations, Warranties
and Covenants (23)
Section 10.2 Indemnity by LOTS (24)
Section 10.3 Indemnity by Consumers (24)
Section 10.4 Notice to Indemnify (24)
Section 10.5 Retention of Rights (25)
ARTICLE XI ARBITRATION . . . . . . . . . . . . . . . . . . . . 25
Section 11.1 Arbitration (25)
Section 11.2 Procedure (26)
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . 26
Section 12.1 Exhibits (26)
Section 12.2 Expenses (26)
Section 12.3 Contents of Agreement; Parties in Interest (27)
Section 12.4 Further Documents (27)
Section 12.5 Execution (27)
Section 12.6 Effect of Table of Contents; Use of
Descriptive Headings; Etc (27)
Section 12.7 Notices (27)
Section 13.8 Governing Law (28)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") made this
day of December, 1997, by and between CONSUMERS FINANCIAL
CORPORATION, a Pennsylvania corporation having its principal place
of business located at Camp Hill, Pennsylvania, (hereinafter
referred to as "CFC"), CONSUMERS LIFE INSURANCE COMPANY, a Delaware
corporation having its principal place of business located at Camp
Hill, Pennsylvania (hereinafter referred to as "CLIC"), INVESTORS
FIDELITY LIFE ASSURANCE CORP., an Ohio corporation having its
principal place of business at Camp Hill, Pennsylvania (hereinafter
referred to as IFLAC and, collectively with CLIC and CFC or its
other affiliates as "Consumers"), and LIFE OF THE SOUTH
CORPORATION, a Georgia corporation having its principal place of
business located at Nashville, Georgia (hereinafter referred to as
LOTS ). CFC, CLIC, IFLAC and LOTS are sometimes hereinafter
together referred to as "Parties", or individually, as "Party".
WITNESSETH:
WHEREAS, CLIC and IFLAC are members of the CFC Insurance
Holding Company System with CFC owning all of the outstanding
capital stock of CLIC, and CLIC owning all of the outstanding
capital stock of IFLAC; and
WHEREAS, CFC desires to sell to LOTS and LOTS desires to
purchase from CFC the inforce credit life and credit accident and
health insurance premiums of CLIC, IFLAC and Consumers Life
Insurance Company of North Carolina ( CNC ), a former wholly-owned
subsidiary of CLIC, as identified in the Reinsurance Agreements
attached hereto as Exhibits A, B and C (hereinafter referred to as
"Inforce Business"); and
WHEREAS, CFC desires to sell and LOTS desires to purchase from
CFC the franchise for future sales of credit life and credit
accident and health insurance premiums produced by the customer
accounts of CLIC and IFLAC in exchange for payments to be paid by
LOTS over a five (5) year period on such accounts as identified on
Exhibit D to this Agreement (hereinafter referred to as "New Credit
Business"); and
WHEREAS, CLIC and LOTS desire to enter into a reinsurance
arrangement in order to provide for an orderly transfer of existing
CLIC and IFLAC accounts to LOTS or its designee; and
WHEREAS, LOTS has contracted for reinsurance for the Inforce
Business and New Credit Business with American Republic Insurance
Company (hereinafter referred to as American Republic ); and
WHEREAS, LOTS agrees to market and sell automobile extended
service contracts and other fee income business through an agency
arrangement and enter into a profit sharing arrangement with CFC
(hereinafter referred to as "Fee Income Business ); an
WHEREAS, LOTS further agrees to hire certain employees of CLIC
and IFLAC and continue using certain administrative services to be
provided by CLIC for a limited period of time; and
WHEREAS, LOTS further agrees to purchase CLIC s interest in
all of the outstanding common stock of Consumers Reinsurance
Company ( CRC ) pursuant to a Stock Purchase Agreement attached
hereto as Exhibit E.
NOW THEREFORE, in consideration of the premises and mutual
covenants, representations, warranties, conditions and agreements
set forth herein, and intending to be legally bound hereby, the
Parties hereto agree as follows:
ARTICLE I
SALE OF INFORCE BUSINESS
SECTION 1.1 INFORCE BUSINESS REINSURED
Consumers agrees to sell and LOTS agrees to acquire the
Inforce Business, through reinsurance, subject to and in accordance
with the provisions of this Agreement. On or before Closing (as
hereinafter defined), LOTS shall contract with American Republic to
allow for CLIC and IFLAC to cede to American Republic one hundred
percent (100%) of the liabilities on the Inforce Business as of the
Effective Date (as hereinafter defined) in accordance with the
terms of (i) the Indemnity Reinsurance Agreement between CLIC and
American Republic effective October 1, 1997, in substantially the
form as attached hereto as Exhibit A, and (ii) the Assumption and
Novation Reinsurance Agreement between IFLAC and American Republic
effective October 1, 1997, in substantially the form as attached
hereto as Exhibit B. On or before Closing, Consumers and LOTS shall
enter into an assignment agreement substantially in the form as
attached hereto as Exhibit C whereby Consumers shall assign to
LOTS all of its right, title and interest in the Retrocession
Agreement with Alabama Reassurance Company relating to the Inforce
Business of CNC. Exhibits A, B and C are collectively hereinafter
referred to as the Reinsurance Agreements .
SECTION 1.2 REINSURANCE COMMISSION
At Closing, LOTS shall pay or cause to be paid to CLIC and
IFLAC, as the purchase price for the Inforce Business of CLIC, CNC
and IFLAC, a reinsurance commission (the Reinsurance Commission )
. The payment of the Reinsurance Commission shall be accomplished
by deducting such Reinsurance Commission in the calculation of the
Basic Asset Transfer Amount described in Section 1.3.
SECTION 1.3 BASIC ASSET TRANSFER AMOUNT
At Closing, CLIC and IFLAC shall transfer to American Republic
cash or other assets acceptable to both American Republic and LOTS
which have a market value on the Closing Date (as hereinafter
defined) equal to the amount computed in Exhibit F attached hereto
(the Basic Asset Transfer Amount ). The Basic Asset Transfer
Amount shall be reduced by $980,714, which amount has previously
been transferred to American Republic for the Inforce Business of
CNC.
SECTION 1.4 CONTINGENCY FUND
At Closing, CLIC and IFLAC shall transfer to LOTS or its
designee cash or other assets acceptable to LOTS which have a
market value on the Closing Date (as hereinafter defined) equal to
60% of the contingency fund (the Contingency Fund ) as computed in
Exhibit F attached hereto. LOTS or its designee shall deposit such
amount into a trust account (the Trust Account ) pursuant to a
trust agreement with terms mutually acceptable to the Parties. The
remaining 40% of the Contingency Fund shall be deposited by LOTS or
its designee into the Trust Account over a three-year period which
shall begin on the Effective Date. LOTS shall deposit into the
Contingency Fund all amounts which are withheld from the New
Business Fee payments otherwise due to Consumers, and as described
in Section 2.3.
CFC, its successor or assigns, may be entitled to receive all
or a portion of the Contingency Fund, with interest thereon, as
well as additional cash payments from LOTS or its designee based
on the calculation of the claims ratio on the direct risk portion
of the Inforce Business for the five-year period beginning October
1, 1997 and ending September 30, 2002, as further described in
Exhibit F.
SECTION 1. 5 INFORCE BUSINESS TRANSACTIONS BETWEEN THE EFFECTIVE
DATE AND DECEMBER 31, 1997
With regard to transactions relating to the Inforce Business
which occur between the Effective Date and December 31, 1997 (the
Interim Period ) and in accordance with the Reinsurance
Agreements, LOTS shall pay or cause to be paid to CLIC and IFLAC
an amount equal to (i) claims paid; plus (ii) premium refunds paid
net of related commissions and premium and privilege taxes; plus
(iii) reinsurance settlement payments made by CLIC and IFLAC to any
producer-owned reinsurance companies. The amount due pursuant to
this Section shall be settled on a combined basis with the amount
computed in Section 2.4.
SECTION 1. 6 EXCLUDED LIABILITIES
Except for the obligation to pay claims and refunds arising
after the Closing, and to perform any administrative services with
respect thereto, for the Inforce Business acquired by LOTS
hereunder, LOTS shall not assume and Consumers shall remain solely
liable and responsible for all liabilities of Consumers, including
but not limited to, liabilities for bad faith, fraud, special,
consequential or punitive damages resulting from actions, inactions
or omissions of Consumers with respect to the Inforce Business; any
damages arising out of litigation which is not specifically assumed
herein by LOTS; any losses arising out of any line of business or
division of CLIC and IFLAC ; other than the Inforce Business, for
which Consumers shall only remain contingently liable in accordance
with the Reinsurance Agreements, or premium taxes allocable to
periods prior to the Effective Date, whether voluntary or
involuntary, or any assessment allocable to periods prior to the
Effective Date by any guaranty fund or association established or
governed by state or federal law (hereinafter collectively referred
to as "Excluded Liabilities").
ARTICLE II
NEW CREDIT BUSINESS FRANCHISE
SECTION 2.1 SALE OF NEW CREDIT BUSINESS
Consumers agrees to sell and LOTS agrees to acquire and use
its best efforts to convert and retain all of the New Credit
Business. Consumers agrees to use its best efforts to assist LOTS
in the timely transfer of the New Credit Business. LOTS further
agrees that it will retain, manage and develop the accounts within
the New Credit Business in a sound and responsible business manner,
and shall not apply standards of profitability or contractual
continuation more stringent than applied to its current inforce
business. LOTS reserves the right to cancel or non-renew any
account within the New Credit Business for sound business reasons,
which include, but are not limited to, profitability, breach in
financial fidelity and the location within unfavorable legal and
regulatory environments. LOTS agrees to provide Consumers with
prior written notice of its intent to cancel or non-renew any
account within the New Credit Business, along with any supporting
documentation if requested by Consumers, and Consumers will be
afforded an opportunity to object. If Consumers objects in writing
to any such cancellation or non-renewal within 10 business days
after its receipt of notice thereof from LOTS, , then authorized
representatives of LOTS and Consumers shall work together in good
faith to resolve such dispute, and if no such resolution can be
reached, then the matter shall be submitted to arbitration in
accordance with Section 11.
SECTION 2.2 COMPENSATION FOR NEW CREDIT BUSINESS FRANCHISE
LOTS agrees to purchase Consumers' franchise for New Credit
Business and shall pay to Consumers a New Business Fee based upon
Net Written Premium (as hereinafter defined) from the New Credit
Business, as follows:
First full year after Effective Date-2.25% of Net Written Premium
Second full year after Effective Date-2.25% of Net Written Premium
Third full year after Effective Date-2.25% of Net Written Premium
Fourth full year after Effective Date-1.50% of Net Written Premium
Fifth full year after Effective Date-1.50% of Net Written Premium
For the purposes of computing the New Business Fee, Net
Written Premium shall be the gross premiums processed after the
Effective Date less premium refunds on such gross premiums and
shall be limited to premiums produced by CLIC s and IFLAC s
existing accounts as of the Effective Date, which accounts are
listed on Exhibit D attached hereto and made a part hereof, and any
such additional accounts as may be added through such accounts.
SECTION 2.3 METHOD OF PAYMENT
The New Business Fee payments to Consumers shall be payable
quarterly on the 25th day of the month following each calendar
quarter, commencing with the first calendar quarter ending after
the Effective Date, unless the Closing has not occurred as of the
date the first payment is otherwise due, in which case the first
payment shall be paid at the Closing. The New Business Fee payments
otherwise due to Consumers during the three-year period following
the Effective Date shall be reduced by amounts, as specified below,
which are required to be deposited into the Contingency Fund
referred to in Section 1.4 and described in Exhibit F. The amounts
to be withheld from the New Business Fee payments and deposited
into the Contingency Fund shall be computed as follows: (i) 40% of
the remaining portion of the Contingency Fund shall be withheld
from New Business Fee payments due in the first year following the
Effective Date, (ii) 30% of such remaining portion shall be
withheld from payments due in the second year following the
Effective Date and (iii) 30% of such remaining portion shall be
withheld from payments due in the third year following the
Effective Date. The amount to be withheld for each year shall be
withheld equally from each quarterly New Business Fee payment.
If the New Business Fee calculation for any quarter is less
than the amount which is required to be withheld for that quarter,
then no New Business Fee payment shall be made to Consumers and
LOTS shall be entitled to carry over any deficiency as a deduction
against the New Business Fee payment due for the next quarter. If,
at the end of the three-year period, the New Business Fees are
insufficient or if for any other reason the entire amount required
to be withheld and deposited into the Contingency Fund has not been
withheld, then LOTS shall withhold all subsequent New Business Fee
payments otherwise due to Consumers until the required amount has
been withheld, following which time Consumers shall be entitled to
the entire New Business Fee as computed.
In the event Shareholder Approval is not received pursuant to
Section 8.1 and Consumers does not make the required fee payments
(the Administrative Fees ) under the Administrative Services
Agreement effective January 1, 1998, LOTS shall have the right,
until such Administrative Fees are paid on a current basis by
Consumers to (i) withhold such Administrative Fees from the New
Business Fee payments otherwise due Consumers, as set forth in this
Section 2.3 and (ii) reduce the payment frequency of the New
Business Fee payments from quarterly to annually.
SECTION 2.4 NEW CREDIT BUSINESS TRANSACTIONS BETWEEN THE
EFFECTIVE DATE AND DECEMBER 31, 1997
With regard to transactions relating to the New Credit
Business which occur during the Interim Period and in accordance
with the terms of the Reinsurance Agreements, CLIC and IFLAC shall
pay to LOTS or its designee an amount equal to (i) the net written
credit insurance premiums; less (ii) claims paid; less (iii)
commissions paid; less (iv) premium and privilege taxes incurred on
the net written credit insurance premiums; less (v) reinsurance
settlement payments made by CLIC and IFLAC to any producer-owned
reinsurance companies. The amount due pursuant to this Section
shall be settled on a combined basis with the amount computed in
Section 1.5.
SECTION 2.5 REINSURANCE ARRANGEMENT FOR NEW CREDIT BUSINESS
CLIC shall continue to write credit insurance on its policy or
certificate forms in the New Credit Business accounts designated by
LOTS in accordance with the terms as set forth in Section 2.1 for a
period of up to two (2) years from the Effective Date with LOTS
having the right to terminate the arrangement by giving CLIC at
least 30 days written notice of termination. Except during the
Interim Period, all premiums on the New Credit Business shall be
collected by LOTS and all commissions and claims shall be paid
directly by LOTS. Premium and privilege taxes shall continue to be
paid by CLIC and reimbursed by LOTS or its designee. All New Credit
Business produced under this arrangement shall be reinsured on a
monthly basis (except during the Interim Period when the reinsured
amounts shall be reinsured and settled at the Closing) to American
Republic under the terms of the Indemnity Reinsurance Agreement.
Except during the Interim Period, LOTS agrees to provide the
administrative and marketing services during this period in
accordance with the provisions as set forth in Article IV hereof.
CLIC shall not be entitled to receive any ceding fees or other
compensation for any credit insurance business reinsured under this
arrangement.
IFLAC shall continue to write credit insurance on its policy
or certificate forms in the New Credit Business accounts designated
by LOTS in accordance with the terms as set forth in Section 2.1
until January 16, 1998. Except during the Interim Period, all
premiums on the New Credit Business shall be collected by LOTS and
all commissions and claims shall be paid directly by LOTS. Premium
and privilege taxes shall continue to be paid by CLIC and
reimbursed by LOTS or its designee. All New Credit Business
produced under this arrangement shall be reinsured on a monthly
basis (except during the Interim Period when the reinsured amounts
shall be reinsured and settled at the Closing) to American Republic
under the terms of the Assumption and Novation Reinsurance
Agreement. Except during the Interim Period, LOTS agrees to provide
the administrative and marketing services during this period in
accordance with the provisions as set forth in Article IV hereof.
IFLAC shall not be entitled to receive any ceding fees or other
compensation for any credit insurance business reinsured under this
arrangement. Effective January 17, 1998, all New Credit Business
previously written on IFLAC s policy or certificate forms, except
for New Credit Business written in West Virginia, shall be
written on the policy or certificate forms of Classic Life
Assurance Company ( Classic ), an Ohio corporation owned by LOTS.
New Credit Business written in West Virginia shall be written on
CLIC s policy or certificate forms.
CLIC and IFLAC authorize representatives of LOTS to use their
names and stationery, forms and other related documents only for
the purposes of the marketing and sale of the New Credit Business
under this Agreement. Any other use of the CLIC and IFLAC names and
documents relating thereto, is expressly prohibited without the
prior written consent of CLIC and IFLAC.
SECTION 2.6 AMOUNTS DUE TO OR FROM AGENTS
LOTS shall be responsible for, and shall transfer to CLIC and
IFLAC on the Closing Date, the net agents balances which arise
from credit insurance business issued and processed during the
Interim Period. With respect to cash payments made by agents which
are received by CLIC and IFLAC after the Interim Period, CLIC and
IFLAC shall promptly remit such amounts to LOTS unless CLIC and
IFLAC determine that those collections relate to business issued
and processed on or before the Effective Date.
ARTICLE III
FEE INCOME BUSINESS
SECTION 3.1 SALE OF FEE INCOME BUSINESS
Consumers agrees to sell and LOTS agrees to acquire and use
its best efforts to convert and retain all of the Fee Income
Business and will manage such business on a state by state basis.
Consumers agrees to assist and use its best efforts to facilitate
the timely transfer of the Fee Income Business to LOTS.
SECTION 3.2 COMPENSATION FOR FEE INCOME BUSINESS
In exchange for Consumers assistance in facilitating the
transfer of the Fee Income Business, LOTS agrees to pay to
Consumers 50% of the Net Fee Income (as hereinafter defined)
collected on the Fee Income Business generated by all of the
accounts of Consumers as of the Effective Date (which accounts are
listed on Exhibit D attached hereto and hereby made a part hereof)
for a 60 month term beginning on the Effective Date (the Marketing
Fee ). For purposes of computing the Marketing Fee, extended
service contract business underwritten and administered by
Acceleration National Insurance Company under the product name
CostGuard shall be excluded. Payment will be made by LOTS by the
25th day following the end of each month commencing with the first
month ending after the Effective Date and continuing for a period
of 60 months. "Net Fee Income shall be defined as the fee and
commission income derived from the marketing of Fee Income
Business, less (i) sales bonuses and commissions incurred, less
(ii) the cost of products sold, and less (iii) direct
administrative expenses, as identified in the Marketing and Sales
Agreement, attached hereto as Exhibit G .
With respect to Fee Income Business produced by Consumers
during the Interim Period, Consumers shall transfer to LOTS at the
Closing the Net Fee Income less the Marketing Fee.
SECTION 3.3 CHANGE IN CORPORATE NAME
In conjunction with the sale of the Fee Income Business, at
Closing, Consumers shall cause to be transferred to LOTS the
service ▇▇▇▇ Consumers Car Care and any logos, slogans and any
other intangible property relating to such service ▇▇▇▇ and arrange
to have the necessary documents for such change of ownership filed
with the United States Patent and Trademark Office and any other
regulatory authority.
ARTICLE IV
ADMINISTRATIVE SERVICES; PERSONNEL
SECTION 4.1 ADMINISTRATIVE SERVICES
LOTS agrees to use and Consumers agrees to provide certain
administrative and support services (hereinafter referred to as
Administrative Services ) to administer the Inforce Business, the
New Credit Business and the Fee Income Business during the Interim
Period, in accordance with the terms of the Administrative Services
Agreement between the Parties attached hereto as Exhibit H,
provided that LOTS has the right to extend until January 31, 1998
the term of the Administrative Services Agreement by giving
Consumers at least 30 days prior written notice. Upon the
expiration of the Administrative Services Agreement, LOTS shall be
responsible for and provide administrative services pursuant to
an Administrative Services Agreement between the parties effective
January 1, 1998, the terms of which shall be consistent with the
Agreement to Perform Administration, a copy of which is attached
hereto as Exhibit I.
SECTION 4.2 PERSONNEL
LOTS agrees to use and Consumers agrees to provide CLIC s and
IFLAC s marketing and sales and support personnel during the
Interim Period in accordance with the terms of the Marketing and
Sales Agreement between the Parties attached hereto as Exhibit G.
As of January 1, 1998, LOTS agrees to retain the sales
management team of CLIC and IFLAC [▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇] and LOTS further agrees to retain the
remainder of the sales force of CLIC and IFLAC subject to the
recommendations of ▇▇. ▇▇▇▇▇▇. LOTS will bridge benefits to those
employees retained by LOTS and waive all waiting periods for LOTS
corporate benefits, including but not limited to, health insurance,
profit sharing, 401(k) plan participation, group insurance, and
other benefit programs typically offered to LOTS employees. LOTS
further agrees to credit the retained employees with their years
of service with CLIC and IFLAC as if they were employed for the
same period by LOTS.
4.3 BOOKS, ACCOUNTS AND RECORDS
All books, accounts, records, policies, forms and/or other
documents relating to the business of this Agreement shall be
subject at reasonable times to inspection by a duly authorized
representative either of Consumers or LOTS and copies thereof may
be requested and provided by one Party to the other. All of such
information shall be confidential and, except as may be required
under this Agreement or by law, shall not be disclosed to any third
party.
In addition, with respect to the credit insurance business
under this Agreement, LOTS shall provide Consumers with a periodic
accounting of all transactions consisting of data in the form
mutually agreed to by the Parties for proper entry into its books
for financial statement purposes. LOTS, with respect to the Fee
Income Business shall provide Consumers with a periodic accounting
of all transactions consisting of data in the form reasonably
required by Consumers from time to time for proper entry into its
books for financial statement purposes.
ARTICLE V
CLOSING; EFFECTIVE DATE AND TERMINATION
SECTION 5.1 CLOSING
The closing (the "Closing") shall take place at the offices of
Consumers on a mutually agreed day and time within ten (10) days
after (i) all required approvals of the transactions contemplated
hereby are received from the Arizona, Delaware and Ohio Departments
of Insurance and any other regulatory department or governmental
entity having jurisdiction over these transactions (the "Regulatory
Approvals"), and (ii) this Agreement and those transactions
contemplated herein are approved by the shareholders of CFC (the
"Shareholder Approval"). The actual date of the Closing shall be
the "Closing Date".
SECTION 5.2 EFFECTIVE DATE
Subject to receipt of the Regulatory and Shareholder
Approvals, the parties have agreed that the effective date of this
Agreement shall be October 1, 1997 (the "Effective Date").
SECTION 5.3 TERMINATION
This Agreement may be terminated at any time prior to the
Closing Date, whether before or after the approval of the
shareholders of CFC: (i) upon the mutual written consent of the
Parties, (ii) by LOTS, if there has been a material
misrepresentation or breach of a warranty, covenant or other
agreement by Consumers contained herein or if any of the conditions
precedent to LOTS' obligations hereunder shall not have been
satisfied on or before the Closing Date, (iii) by Consumers, if
there has been a material misrepresentation or breach of a
warranty, covenant or other agreement by LOTS contained herein or
if any of the conditions precedent to Consumers' obligations
hereunder shall not have been satisfied on or before the Closing
Date, or (iv) if the transactions contemplated herein are not
consummated on or before January 31, 1998, provided, however, that
this Agreement shall not terminate if the Closing has not occurred
due to a delay in receiving either the Regulatory Approvals or
Shareholder Approval which delay is beyond the control of the
Parties, in which case any of the Parties may request an extension
reasonably necessary to obtain regulatory or shareholder approval,
and which consent may not be unreasonably withheld prior to May 31,
1998 after which such consent may be withheld in the sole
discretion of any Party.
SECTION 5.4 EFFECT OF TERMINATION
Except as provided in Section 8.1(c) with respect to
Shareholder Approval and Section 8.3 with respect to expenses and
fees, in the event of the termination of this Agreement, this
Agreement shall thereafter become void and have no effect, and no
Party hereto shall have any liability to any other Party hereto or
its shareholders or directors or officers in respect thereof, and
each Party shall be responsible for its own expenses, except that
nothing herein shall relieve any Party from liability for any
willful breach of this Agreement.
SECTION 5.5 AMENDMENT
This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the Parties hereto; provided,
however, that after Shareholder Approval of the Sale of Assets, no
amendment may be made which decreases the consideration to which
Consumers is entitled to receive pursuant to this Agreement or
otherwise materially adversely affects the shareholders of CFC
without the further approval of the shareholders of CFC.
SECTION 5.6 WAIVER
Any time prior to the Closing Date, whether before or after
Shareholder Approval is received, any Party hereto may (a) in the
case of Consumers, extend the time for the performance of any of
the obligations or other acts of LOTS or, subject to the provisions
contained in Section 5.5, waive compliance with any of the
agreements of LOTS or with any conditions to the respective
obligations of Consumers, or (b) in the case of LOTS, extend the
time for the performance of any of the obligations or other acts of
Consumers, subject to the provisions contained in Section 5.5, or
waive compliance with any conditions to its own obligations. Any
agreement on the part of a Party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such Party by a duly authorized officer.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CONSUMERS
Consumers represents and warrants to LOTS as follows:
SECTION 6.1 ORGANIZATION AND GOOD STANDING OF CFC
CFC is a corporation duly organized and presently subsisting
under the laws of the Commonwealth of Pennsylvania. It has, or at
the Closing will have, the corporate legal capacity, power and
authority to enter into and consummate the transactions
contemplated in this Agreement and subject to receiving the
Regulatory Approvals and Shareholder Approval, such transactions
will be binding and valid obligations of CFC and will not violate
the terms of its Articles of Incorporation or By-laws. In
addition, at Closing there will be no legal impediments to CFC
proceeding with the transactions contemplated hereby. The closing
of such transactions will not cause a default or event of
termination under any material contract to which CFC is a party and
all necessary approvals have been or will be obtained prior to
Closing.
SECTION 6.2 ORGANIZATION AND GOOD STANDING OF CLIC
CLIC is a corporation duly incorporated, validly existing in
good standing under the laws of the State of Delaware, with full
corporate powers to own and operate its business and properties and
to carry on its business substantially as presently conducted by
it. Except as otherwise disclosed in this Agreement, CLIC is or
will be at Closing duly qualified, licensed and in good standing as
a domestic life insurance company in the State of Delaware and duly
qualified, licensed and in good standing as a foreign life
insurance company in the states and territories where such
qualification is required, and neither the character of the
properties owned or held nor the nature of the businesses conducted
at the date hereof requires qualification in any other state or
jurisdiction. A copy of the Articles of Incorporation and By-laws
of CLIC, as amended to date, have been provided to LOTS, and are
true, correct and in full force and effect.
SECTION 6.3 ORGANIZATION AND GOOD STANDING OF IFLAC
IFLAC is a corporation duly incorporated, validly existing in
good standing under the laws of the State of Ohio, with full
corporate powers to own and operate its business and properties and
to carry on its business substantially as presently conducted by
it. Except as otherwise disclosed in this Agreement, IFLAC is or
will be at Closing duly qualified, licensed and in good standing as
a domestic life insurance company in the State of Ohio and duly
qualified, licensed and in good standing as a foreign life
insurance company in the states and territories where such
qualification is required, and neither the character of the
properties owned or held nor the nature of the businesses conducted
at the date hereof requires qualification in any other state or
jurisdiction. A copy of the Articles of Incorporation and Code of
Regulations of IFLAC, as amended to date, have been provided to
LOTS, and are true, correct and in full force and effect.
SECTION 6.4 PROPER CORPORATE ACTION
The execution of this Agreement and the transactions
contemplated herein have been or will be before Closing duly
authorized by the Board of Directors of CFC, CLIC and IFLAC. These
transactions will be presented to the shareholders of CFC for
Shareholder Approval at a special meeting of shareholders held
prior to Closing, and CFC has delivered, or will deliver prior to
or at Closing, to LOTS true, correct and certified copies of the
resolutions of CFC's, CLIC's and IFLAC s Board of Directors and the
shareholders of CFC authorizing the transactions.
SECTION 6.5 ABSENCE OF CONFLICTING LAWS OR AGREEMENTS
Subject to receiving the Regulatory Approvals and Shareholder
Approval, the execution, delivery and performance of this Agreement
by Consumers does not, and the consummation of the transactions
contemplated in this Agreement will not, (i) contravene any
provision of the Certificate of Incorporation or Bylaws of CFC or
CLIC, or the Articles of Incorporation or Code of Regulations of
IFLAC; (ii) conflict with, result in a breach of, or constitute a
material default (or an event which would, with the passage of time
or the giving of notice or both, constitute a material default)
under, or give rise to a right to terminate, amend, modify, abandon
or accelerate, any material contract, agreement, lease, indenture,
instrument or license to which Consumers is a party or by which it
or its assets or properties may be bound or affected; (iii) to the
knowledge of Consumers, violate or conflict with any federal, state
or local law, statute, rule, regulation, order, judgment or decree;
or (iv) result in or require the creation or imposition of any
mortgage, pledge, lien, security interest, claim, charge or
encumbrance upon or with respect to the assets of Consumers.
SECTION 6.6 FINANCIAL STATEMENTS
Consumers has or will deliver to LOTS prior to Closing copies
of the following financial statements which have been prepared in
accordance with generally accepted accounting principles applied on
a basis consistent with that of the preceding years and which
present fairly the financial condition of CFC and its subsidiaries
as of said date and the results of their operations for said
period:
(i) Annual Report on Form 10-K for the year
ended December 31, 1996 filed with the
Securities and Exchange Commission (the
Commission ) which includes the Consolidated
Balance Sheet as of December 31, 1996 and
Consolidated Statement of Operations for the
year ended December 31, 1996, which have been
audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP;
(ii) Quarterly Reports on Form 10-Q for the
periods ended March 31, June 30 and September
30, 1997 filed with the Commission which
include Unaudited Consolidated Balance Sheets
as of March 31, June 30 and September 30,
1997, respectively and Consolidated Statements
of Operations for the three, six and nine month
periods ended March 31, June 30 and September
30, 1997, respectively;
(iii) Any Reports on Form 8-K filed with
the Commission during the period beginning on
December 31, 1996 and ending on the Closing
Date.
Since September 30, 1997, there has been no material adverse
change in the assets being purchased hereunder from that set forth
in the September 30, 1997 financial statements described above.
SECTION 6.7 LITIGATION
There is no decree, judgment, order, action, suit,
investigation or claim or legal, administrative, arbitration or
other proceeding pending or to the knowledge of Consumers
threatened against it, at law or in equity, by or before any court
or governmental agency, department or instrumentality or
arbitration board (i) which might materially affect the financial
condition of Consumers on a consolidated basis or the conduct of
its business on a consolidated basis or (ii) which relate to the
transactions contemplated by this Agreement. Consumers is not in
default under any judgment, decree or order of any court,
arbitrator, or any governmental or administrative agency against or
affecting any of its assets or businesses.
SECTION 6.8 ABSENCE OF UNDISCLOSED LIABILITIES
Consumers does not know or has any reasonable grounds to know
of the assertion against it of any material liability of any nature
or in any amount existing as of the date of this Agreement, that
should properly have been reflected or reserved against in the
balance sheets prepared in accordance with generally accepted
accounting principles or statutory accounting principles, as may be
appropriate, which was not fully reflected or reserved against in
their balance sheets as of December 31, 1996 and September 30,
1997, including, without limitation, tax liabilities due or to
become due and whether incurred in respect of, or measured by, its
income for any period prior to such dates, or arising out of
transactions entered into, or any state of facts existing prior
thereto.
SECTION 6.9 RATES, COMPLIANCE WITH LAWS
The premium rates charged, the policy forms used, and the
commissions paid by CLIC and IFLAC on its credit insurance business
are those approved by the respective state insurance departments
under the applicable insurance laws and regulations (the "Laws and
Regulations"). The credit insurance business of CLIC and IFLAC has
been and is being conducted in compliance with all the Laws and
Regulations. Consumers has received no notice of violation of any
Law or Regulation with respect to its credit insurance business and
it is not subject to any judicial, regulatory or governmental
order, writ, judgment or decree.
SECTION 6.10 TAXES
Each of CLIC, IFLAC and CFC has duly and timely filed all
federal, state, municipal, local and foreign, if any, tax returns
and reports, including returns for estimated tax, with respect to
all taxes owed by each such company. All taxes imposed on Consumers
(including all deposits in connection therewith required by
applicable law, and all interest and penalties thereon) which have
become due and payable by Consumers for all periods through the
date hereof have been paid in full. There is not now any proposed
assessment against Consumers of additional taxes of any kind.
There is no dispute or action pending or threatened concerning any
tax liability of Consumers.
SECTION 6.11 EMPLOYMENT MATTERS
Consumers has provided to LOTS all contracts, agreements or
arrangements (written or oral) concerning Consumers employment of
any individual who will be employed by LOTS or its designee after
the Closing, including each such individual s title, compensation
and duties. Such information is true and correct in all material
respects. LOTS shall have no liability for, and Consumers shall
indemnify and hold LOTS harmless from and against any claim with
respect thereto, any severance, termination or other payment
required to be made to any Consumers employee as a result of this
Agreement or the consummation of the transactions contemplated
hereby.
SECTION 6.12 FULL DISCLOSURE
No representation or warranty by Consumers nor any statement
or certificate furnished or to be furnished to LOTS pursuant
hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF LOTS
LOTS represents and warrants to Consumers as follows:
SECTION 7.1 ORGANIZATION AND GOOD STANDING
LOTS is a corporation duly organized, validly existing and in
good standing under the laws of the state of Georgia with full
corporate powers to own and operate its business and properties and
to carry on its business substantially as presently conducted.
SECTION 7.2 PROPER CORPORATE ACTION
LOTS has full corporate power to enter into and perform this
Agreement. Its entry into this Agreement and the transactions
contemplated to occur pursuant thereto, have been or will be
before Closing duly authorized by resolution of its Board of
Directors and no further corporate action will be required.
SECTION 7.3 ABSENCE OF CONFLICTING LAWS OR AGREEMENTS
Subject to receiving the necessary Regulatory Approvals and
Shareholder Approval, the execution, delivery and performance of
this Agreement by LOTS, does not, and the consummation of the
transactions contemplated in this Agreement will not, (i)
contravene any provision of the articles of incorporation or bylaws
of LOTS; (ii) conflict with, result in a breach of, or constitute a
material default (or an event which would, with the passage of time
or the giving of notice or both, constitute a material default)
under, or give rise to a right to terminate, amend, modify, abandon
or accelerate, any material contract, agreement, lease, indenture,
instrument or license to which LOTS is a party or by which their
assets or properties may be bound or affected; (iii) to the
knowledge of LOTS, violate or conflict with any federal, state or
local law, statute, rule, regulation, order, judgment or decree; or
(iv) result in or require the creation or imposition of any
mortgage, pledge, lien, security interest, claim, charge or
encumbrance upon or with respect to any of the assets of LOTS.
SECTION 7.4 FINANCIAL STATEMENTS
LOTS has or will deliver to Consumers prior to Closing, copies
of its Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997 and its Consolidated Statements of Operations
for the respective twelve and nine month periods then ended. Such
statements have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of
the preceding years and present fairly the financial condition of
LOTS and its subsidiaries as of said dates and the results of
their operations for said periods.
Since September 30, 1997, there has been no material adverse
change in the assets or financial condition of LOTS and its
subsidiaries from that set forth in the Consolidated Balance Sheet
dated September 30, 1997.
SECTION 7.5 LITIGATION
There is no decree, judgment, order, action, suit,
investigation or claim or legal, administrative, arbitration or
other proceeding pending or, to the knowledge of LOTS, threatened
against it, at law or in equity, by or before any court or
governmental agency, department or instrumentality or arbitration
board (i) which might materially affect the financial condition of
LOTS on a consolidated basis or the conduct of its business on a
consolidated basis or (ii) which relate to the transactions
contemplated by this Agreement. LOTS is not in default under any
judgment, decree or order of any court, arbitrator, or any
governmental or administrative agency against or affecting any of
its assets or businesses.
SECTION 7.6 ABSENCE OF UNDISCLOSED LIABILITIES
LOTS does not know or have any reasonable grounds to know of
the assertion against it of any material liability of any nature
or in any amount existing as of the date of this Agreement, that
should properly have been reflected or reserved against in the
balance sheets prepared in accordance with generally accepted
accounting principles or statutory accounting principles, as may be
appropriate, which was not fully reflected or reserved against in
its balance sheets of December 31, 1996 and September 30, 1997,
including, without limitation, tax liabilities due or to become due
and whether incurred in respect of, or measured by, its income for
any period prior to such dates, or arising out of transactions
entered into, or any state of facts existing prior thereto.
SECTION 7.7 FULL DISCLOSURE
No representation or warranty by LOTS nor any statement or
certificate furnished or to be furnished to Consumers pursuant
hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VIII
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 8.1 SHAREHOLDER APPROVAL
(a) As soon as reasonably practicable following the date
hereof, CFC shall take all action necessary in accordance
with the Securities Exchange Act of 1934 (the Exchange
Act ), the laws of the Commonwealth of Pennsylvania and
its Articles of Incorporation and Bylaws to call and give
notice of a meeting (the "Meeting") of its shareholders
to consider and vote upon those items contemplated under
this Agreement which require Shareholder Approval (the
Sale of Assets ) and for such other purposes as may be
necessary or desirable. The Board of Directors of CFC has
unanimously determined that the Sale of Assets is
advisable and in the best interests of the shareholders
of CFC and, subject to their fiduciary duties as advised
by counsel, shall recommend without qualification of any
nature that CFC s shareholders vote to approve the Sale
of Assets and any other matters to be submitted to CFC s
shareholders in connection therewith. The Board of
Directors of CFC shall use commercially reasonable
efforts to solicit and secure from shareholders of CFC
such approval, subject to their fiduciary duties as
advised by counsel, which efforts shall include causing
CFC to solicit shareholder proxies therefor and advising
LOTS promptly upon its request from time to time as to
the status of the shareholder vote then tabulated.
(b) CFC shall prepare and file with the SEC under the
Exchange Act and the rules and regulations promulgated by
the SEC thereunder within 30 days following the date
hereof, a preliminary draft of the Proxy Statement. LOTS
shall cooperate with CFC in the preparation and filing of
the Proxy Statement and any amendments and supplements
thereto. CFC will use commercially reasonable efforts to
have any review of the Proxy Statement conducted by the
SEC promptly. As soon as reasonably practicable following
completion of any review by, or in the absence of such
review, the termination of any applicable waiting period
of, the SEC, CFC shall cause to be mailed a definitive
Proxy Statement to its shareholders entitled to vote on
the Sale of Assets.
(c) In the event Shareholder Approval is not received
for any reason, the Parties shall agree to the transfer
of (i) the New Credit Business in accordance with the
provisions set forth in Article II hereof, (ii) the Fee
Income Business in accordance with the provisions set
forth in Article III hereof, and (iii) the Administrative
Services and personnel in accordance with the provisions
set forth in Article IV hereof, which transfers are
expected to occur on January 1, 1998. The Inforce
Business shall be retained by Consumers and administered
by LOTS under the terms of the Administrative Services
Agreement between the Parties effective January 1, 1998
unless otherwise agreed to between the Parties.
SECTION 8.2 CONDUCT OF CONSUMERS BUSINESS
Except as otherwise provided in this Agreement, Consumers
covenants that until Closing, it will:
(a) Carry on CLIC's and IFLAC s credit insurance
business in the normal and usual course and without
limitation maintain normal and usual business practices.
(b) Use its best efforts to adequately maintain the
operating efficiency of its offices and equipment.
(c) Maintain its policies of insurance against fire or
other casualty to its property in full force and effect
pending Closing.
(d) Use its best efforts to maintain and preserve CLIC's
and IFLAC s business organization, to maintain the
services of CLIC's and IFLAC s present officers,
employees and field representatives, and to preserve the
goodwill of its suppliers, customers and others with whom
it has business relationships.
(e) Remain in compliance with all applicable laws, rules
and regulations.
(f) Maintain all of CLIC's and IFLAC s policy filings
on a current basis.
(g) Use its best efforts to obtain the Regulatory
Approvals and Shareholder Approval of this transaction.
(h) Continue to conduct its business in the normal
course.
(i) Not terminate, extend, or modify any contract with
the officers, employees or field representatives to be
retained by LOTS except as presently provided by
contract, or make any material change with respect to the
compensation or terms of employment of such officers,
employees or field representatives.
(j) Not grant any general or uniform increase in the
rates of pay for the officers, employees and field
representatives to be retained by LOTS, or institute any
pension, profit sharing, insurance or similar employee
benefit or welfare program for such officers, employees
and field representatives.
(k) Not make any change to CLIC's and IFLAC s
reinsurance treaties.
SECTION 8.3 EXPENSES; BREAK-UP FEE
If, prior to the Closing Date, CFC is offered a transaction
by another party that CFC believes is a more favorable transaction
for its shareholders, and the Board of Directors of CFC, in the
exercise of its fiduciary duty, decides to proceed with the new
party, CFC shall promptly (and, in any event, within five days) pay
LOTS a $250,000 break-up fee, which shall be LOTS sole remedy
against CFC for such action. Except as provided in the immediately
preceding sentence, whether or not the Sale of Assets is
consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such expenses.
SECTION 8.4 OTHER AGREEMENTS
Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including using
commercially reasonable efforts to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations
and filings, including, but not limited to, filings required under
the Exchange Act; provided that the foregoing shall not require
LOTS or CFC to make, or agree to make, any divestiture of a
material asset in order to obtain any waiver, consent or approval.
SECTION 8.5 PUBLIC ANNOUNCEMENTS
Neither LOTS nor CFC will make, issue or release any oral or
written public announcement or statement concerning, or
acknowledgment of the existence of, or reveal the terms, conditions
or status of, the transactions contemplated by this Agreement and
the Sale of Assets, or make any other communication to its
shareholders or the investing public, directly or indirectly
(including press releases and statements to securities analysts),
without first making a good faith attempt to obtain the prior
approval of, or concurrence in, the contents of such announcement,
acknowledgment or statement by the other Party or Parties, which
approval or concurrence shall not be unreasonably withheld or
delayed.
SECTION 8.6 EXCLUSIVE DEALING
Consumers shall not solicit, or, except to the extent required
by applicable law relating to fiduciary obligations of directors
upon advice of counsel, negotiate or enter into any agreement with
any other person or entity concerning the Sale of Assets or furnish
to any person or entity interested in making any such acquisition
any information concerning the Sale of Assets. Consumers shall
notify LOTS immediately upon the approach of any such person or
entity. Notwithstanding the foregoing, nothing contained in this
Agreement shall be construed to prohibit CFC or its Board of
Directors from (i) making any recommendation with respect to the
Sale of Assets and related disclosure to shareholders, or (ii)
disclosing, under protection of an appropriate confidentiality
agreement, non-public information concerning CFC to a person who
has made a bonafide, binding and firm, fully-financed offer to
acquire all of the outstanding common stock of CFC, including the
Sale of Assets for a price in excess of the price to be paid under
the terms of this Agreement, which are higher and better to CFC s
shareholders, which, in the judgment of CFC and its Board of
Directors, on the advice in writing of counsel, shall be required
by law.
SECTION 8.7 NONCOMPETE COVENANT OF CONSUMERS
(a) For the period commencing on the Effective Date and
ending on the fifth anniversary of the Effective Date
(the "Period"), Consumers agrees that it will not
directly or indirectly solicit or service any New Credit
Business or Fee Income Business account transferred under
the terms of this Agreement without the prior written
consent of LOTS unless (i) LOTS is no longer involved in
the marketing, sale or administration of credit
insurance, or (ii) the subject account is terminated by
LOTS or terminates its relationship with LOTS.
(b) Consumers shall not at any time during the Period,
without the prior written consent of LOTS, (i) request or
advise any customer of, or other person or entity having
business dealings with, LOTS, to withdraw, curtail or
cancel such business, or (ii) induce or attempt to
influence any employee or independent contractor of LOTS
to terminate his or her employment or his, her or its
status as an independent contractor.
(c) If the scope of any restriction contained in this
Section 8.7 is too broad to permit enforcement of such
restriction to its full extent, then such restriction
shall be enforced to the maximum extent permitted by law,
and Consumers hereby consents that such scope may be
judicially modified accordingly in any proceeding brought
to enforce such restriction. Consumers hereby
acknowledges and confirms that after the sale of the
credit insurance business to LOTS, any activity of the
nature referred to in this section by Consumers would
cause irreparable injury to LOTS.
(d) Consumers acknowledges that LOTS' remedy at law for
any breach of any of Consumers' obligations under this
Section 8.7 would be inadequate, and Consumers agrees
that temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce
any provision of this Section 8.7 without the necessity
of proof of actual damages. Prior to initiating such
proceeding, LOTS shall give Consumers written notice of
such breach. If Consumers does not remedy such breach to
the satisfaction of LOTS within ten (10) days following
receipt of such written notice, LOTS may proceed to
enforce the provisions of this Section 8.7.
SECTION 8.8 ACCESS AND INFORMATION
From and after the date of this Agreement and until Closing,
Consumers shall give to LOTS and its representatives full access
during normal business hours to all of the properties, books,
contracts, documents, and records relating to the business of
Consumers covered by this Agreement and will furnish to LOTS all
information with respect to the affairs of Consumers as LOTS may
from time to time reasonably request, provided; however, that any
furnishing of such information to LOTS and any investigation by
LOTS shall not affect the right of LOTS to rely upon the
representations and warranties made by Consumers in or pursuant to
this Agreement. LOTS and its representatives shall treat all
information originally obtained from Consumers and not otherwise
known to LOTS or already in the public domain as confidential;
provided, however, that nothing herein shall be construed to
prohibit LOTS from disclosing to any of its advisors any such
information. If this Agreement is not consummated, LOTS shall
return all copies made by LOTS and its representatives, of
materials belonging to Consumers or relating to its business.
Consumers shall treat as confidential any and all information not
otherwise in the public domain concerning LOTS.
ARTICLE IX
CONDITIONS PRECEDENT TO CLOSING
SECTION 9.1 CONDITIONS PRECEDENT TO LOTS' OBLIGATION TO CLOSE
The obligation of LOTS under this Agreement on the Closing
Date is subject to the fulfillment at or prior to the Closing of
each of the following conditions:
(a) All representations and warranties by Consumers
which are contained in this Agreement shall be true in
all material respects at and as of Closing as though such
representations and warranties were made at and as of
such time; and Consumers shall have performed and
complied with all agreements and conditions required by
this Agreement prior to or at Closing, and shall have
delivered to LOTS an officer's certificate certifying
thereto.
(b) Receipt of all Regulatory Approvals and Shareholder
Approval approving this Agreement and the transactions
contemplated herein.
(c) There shall not be in force at Closing any order or
decree, or any complaint praying for an order or decree,
restraining or enjoining the consummation of this
Agreement and none of the Parties shall have received
notice from any governmental department, court, agency or
commission of its intention to restrain or enjoin the
consummation of this Agreement or to nullify or render
ineffective this Agreement if consummated, or any inquiry
from such governmental department, court, agency or
commission indicating an intent to review this Agreement
under any laws of the United States.
(d) Delivery of the certificate of the Secretary of CFC
and CLIC setting forth the resolutions of CFC's, CLIC's
and IFLAC s Board of Directors authorizing the execution,
delivery and performance of this Agreement.
(e) Delivery of the certificate of the Secretary of CFC
setting forth the resolution duly adopted by the
shareholders of CFC evidencing the approval of the Sale
of Assets.
(f) An opinion of counsel for Consumers to the effect
that execution of this Agreement and each act and
document to be performed and executed by Consumers are
the valid and duly authorized or ratified act of
Consumers, and to such other matters as LOTS may
reasonably request and counsel for Consumers agrees to
give.
(g) Termination of all of CLIC's and IFLAC s existing
surplus relief reinsurance agreements.
(h) Delivery of the Initial Asset Transfer Amount
(i) The execution and delivery of the following
agreements .
(1) The Indemnity Reinsurance Agreement between
CLIC and American Republic.
(2) The Assumption and Novation Reinsurance
Agreement between IFLAC and American Republic.
(3) The Assignment by CLIC of the Alabama Reassurance
Company Retrocession Agreement to LOTS.
(4) The Marketing and Sales Agreement.
(5) The Administrative Services Agreement effective
October 1, 1997.
(6) The Administrative Services Agreement effective
January 1, 1998.
(7) The Stock Purchase Agreement for the purchase
of CRC by LOTS.
(8) The Assumption and Novation Agreements for the
producer-owned companies referred to in Schedule A
of the Reinsurance Agreements
(j) Closing on the purchase of CRC by LOTS in accordance
with the terms of the Stock Purchase Agreement.
(k) LOTS, in its sole discretion, may waive any defect
in any representations, conditions precedent or covenants
set forth in this Agreement.
SECTION 9.2 CONDITIONS PRECEDENT TO CONSUMERS' OBLIGATION TO
CLOSE
The obligation of Consumers under this Agreement on the
Closing Date is subject to the fulfillment at or prior to the
Closing of each of the following conditions:
(a) All representations and warranties by LOTS which are
contained in this Agreement shall be true in all material
respects at and as of Closing as though such
representations and warranties were made at and as of
such time and LOTS shall have performed and complied with
all agreements and conditions required by this Agreement
and shall have delivered to Consumers an officer's
certificate certifying thereto.
(b) Receipt of all Regulatory Approvals and Shareholder
Approval approving this Agreement and the transactions
contemplated herein.
(c) There shall not be in force at Closing any order or
decree, or any complaint praying for an order or decree,
restraining or enjoining the consummation of this
Agreement and none of the Parties shall have received
notice from any governmental department, court, agency or
commission of its intention to restrain or enjoin the
consummation of this Agreement or to nullify or render
ineffective this Agreement if consummated, or any inquiry
from such governmental department, court, agency or
commission indicating an intent to review this Agreement
under any laws of the United States.
(d) Delivery of the certificate of the Secretary of LOTS
setting forth the resolutions of LOTS Board of
Directors authorizing or ratifying the execution,
delivery and performance of this Agreement.
(e) The execution and delivery of the following
agreements:
(1) The Indemnity Reinsurance Agreement between
CLIC and American Republic
(2) The Assumption and Novation Reinsurance
Agreement between IFLAC and American Republic
(3) The Assignment by CLIC of the Alabama
Reassurance Company Retrocession Agreement to LOTS.
(4) The Marketing and Sales Agreement.
(5) The Administrative Services Agreement
effective October 1, 1997.
(6) The Administrative Services Agreement effective
January 1, 1998.
(7) The Stock Purchase Agreement for the purchase
of CRC by LOTS.
(8) The Assumption and Novation Agreements for the
producer owned companies referred to in Schedule A
of the Reinsurance Agreements
(f) Closing on the purchase of Consumers Reinsurance
Company by LOTS in accordance with the terms of the Stock
Purchase Agreement.
(g) An opinion of counsel for LOTS to the effect that
execution of this Agreement and each act and document to
be performed and executed by LOTS is the valid and duly
authorized or ratified act of LOTS and to such other
matters as Consumers may reasonably request and counsel
for LOTS agrees to give.
(h) The termination of the employment contract between
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and CLIC and the voluntary resignation of
those officers and employees of CLIC and IFLAC retained
by LOTS as provided in Section 4.2 hereof, effective
December 31, 1997 .
(i) Consumers, in its sole discretion, may waive any
defect in any representations, conditions precedent or
covenants set forth in this Agreement.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
SECTION 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS
All representations, warranties and covenants of the Parties
made under or pursuant to this Agreement shall survive the Closing
Date until the fifth anniversary thereof except Consumers
warranties and representations with respect to claims made for
payment for retrospective commissions which shall survive the
Closing Date for a period not to exceed two (2) years.
SECTION 10.2 INDEMNITY BY LOTS
Subject to the provisions of Section 10.4 hereof, LOTS hereby
covenants and agrees to indemnify and hold harmless Consumers and
its successors and assigns from and against any and all loss,
liability, damage, including punitive or extra contractual damages,
or expense (including, but not limited to, reasonable attorney's
fees) arising out of, or resulting from (i) any misrepresentation
or breach of any warranty, representation, covenant or agreement
made by LOTS in this Agreement, including the exhibits hereto and
any and all written statements, certificates, instruments and
documents delivered to Consumers pursuant to this Agreement, and
(ii) any actions taken by LOTS, its officers, employees, agents or
representatives in the marketing, sales and administration of the
credit insurance policies of CLIC and IFLAC or in adjusting,
denying, resisting or defending any claim under the said policies
after January 1, 1998. To the extent the loss, liability, damage,
including punitive or extra contractual damages, or expense has
resulted from the reasonable reliance by LOTS on statements made or
information forwarded by Consumers, this paragraph on
indemnification will not be applicable.
SECTION 10.3 INDEMNITY BY CONSUMERS
Subject to the provisions of Section 10.4 hereof, Consumers,
jointly and severally, hereby covenants and agrees to indemnify and
hold harmless LOTS and its successors and assigns from and against
any and all loss, liability, damage, including punitive or extra
contractual damages, or expense (including, but not limited to,
reasonable attorney's fees) arising out of, or resulting from (i)
any misrepresentation or breach of any warranty, representation,
covenant or agreement made by Consumers in this Agreement,
including the exhibits hereto and any and all written statements,
certificates, instruments and documents delivered to LOTS pursuant
to this Agreement, (ii) any actions taken by Consumers, their
officers, employees, agents or representatives in the marketing,
sales and administration of the credit insurance policies of CLIC
and IFLAC or in adjusting, denying, resisting or defending any
claim under the said policies, (iii) except for those liabilities
expressly assumed by LOTS hereunder, any and all liabilities of
Consumers of any nature, whether accrued, absolute, contingent or
otherwise, (iv) any liability arising from the defined term
Excluded Liabilities; and (v) any liability which arises out of or
results from any claim asserted by any inactive dealer account for
retrospective commission payments, to the extent of any amount
which was due as of the Effective Date. To the extent the loss,
liability, damage, including punitive or extra contractual damages,
or expense has resulted from the reasonable reliance by Consumers
on statements made or information forwarded by LOTS, this paragraph
on indemnification will not be applicable.
SECTION 10.4 NOTICE TO INDEMNIFY
Within sixty (60) days after receipt by Consumers or LOTS, as
the case may be (the "Indemnified Party"), of notice of the
commencement of any claim, action or proceeding against it, the
Indemnified Party shall give notice to the other Party (the
"Indemnifying Party") of such claim, action or proceeding and the
Indemnifying Party shall at its expense assume the defense of any
claim, action or proceeding; provided, however, that the failure by
the Indemnified Party to give timely notice as provided herein
shall absolutely relieve the Indemnifying Party of its
indemnification obligations under this Agreement, unless the
failure to give actual notice to the Indemnifying Party results in
no damage to the Indemnifying Party. In the defense of any such
claim against the Indemnified Party (whether singly or with the
Indemnifying Party) or of any action or proceeding in which the
Indemnified Party is named as a party, the Indemnifying Party shall
not, except with the consent of the Indemnified Party, consent to
the entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from
all liability with respect to such claim, action or proceeding. The
Indemnified Party and the Indemnifying Party shall cooperate in the
defense of any claim, action or proceeding and the records of each
relating to the subject matter of such defense shall be available
to the other with respect to such defense.
SECTION 10.5 RETENTION OF RIGHTS
Notwithstanding anything in this Agreement to the contrary,
the Indemnified Party shall have the right to employ separate
counsel in any such claim, action or proceeding which counsel may
participate actively and fully as co-counsel in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of the Indemnified Party unless (i) the Indemnifying Party
has agreed in writing to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense and employ
counsel in a timely manner, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party and
the Indemnified Party shall have been advised by its counsel that
representation of the Indemnified Party and the Indemnifying Party
by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such
representation by the same counsel has been proposed), due to
actual or potential differing interests between them (in which case
the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of the Indemnified Party). The
Indemnifying Party shall not be liable for any settlement of any
such claim, action or proceeding effected without its written
consent (which consent shall not be unreasonably withheld) but if
settled with such written consent, or if there be a final judgment
for the plaintiff in any such claim, action or proceeding, the
Indemnifying Party agrees to indemnify and hold harmless the
Indemnified Party to the extent provided herein by reason of such
settlement or judgment.
ARTICLE XI
ARBITRATION
SECTION 11.1 ARBITRATION
The Parties agree that should any dispute arise between the
Parties with reference to interpretation of this Agreement or their
rights with respect to any transaction involving this Agreement,
whether such dispute arises before or after termination hereof,
such dispute shall be submitted to arbitration to be held in
Philadelphia, Pennsylvania in accordance with the rules of
Commercial Arbitration of the American Arbitration Association.
Notwithstanding the foregoing, the provisions of this section shall
not prohibit any Party from seeking, and each Party shall have the
right to seek and obtain, injunctive relief in a court of proper
jurisdiction in order to maintain the status quo prior to or during
the pendency of any arbitration proceeding commenced hereunder.
SECTION 11.2 PROCEDURE
One arbitrator shall be chosen by LOTS, one by Consumers, and
an umpire chosen by the two arbitrators. If either Party fails to
name an arbitrator within thirty (30) days after receiving a
written request by the other Party to do so, the requesting Party
may choose two arbitrators who shall in turn choose an umpire. The
arbitrators and the umpire shall be disinterested executive
officers or former executive officers of credit insurance or
credit reinsurance companies authorized to transact business in the
United States or any Fellow of the Society of Actuaries or any
partner or principal in a nationally recognized accounting firm
with credit insurance experience. The arbitrators shall be relieved
from all judicial formalities and may abstain from following the
strict rules of law. They shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. A
majority decision by the arbitrators and umpire shall be final and
binding on both parties. Judgment may be entered upon the final
decision of the arbitrators in any court having jurisdiction. Each
Party shall bear the expense of its own arbitrator and shall
jointly and equally bear, with the other Party, the expense of the
umpire and the arbitration, unless otherwise determined by the
arbitrators and umpire.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 EXHIBITS
All Exhibits hereto are deemed a part hereof and
incorporated herein. All statements contained in any certificate or
other instrument delivered by or on behalf of the Parties hereto
pursuant to this Agreement or in connection with the transactions
contemplated hereby, or contained in any Exhibit hereof, shall be
true at Closing as though such representations and warranties were
made at and as of such time.
SECTION 12.2 EXPENSES
The Parties shall pay their own expenses, incident to the
preparation and execution of this Agreement and the consummation of
the transactions contemplated hereby, including but not limited to,
the payment of fees for professional services provided by their
attorneys, accountants, actuaries and experts. Neither Consumers
nor LOTS shall have any liability or responsibility to each other
for the payment of any finder's fee or broker's commission arising
from any transaction under this Agreement, and each of Consumers
and LOTS shall hold the other harmless from and against any such
fee or commission due or claimed to be due from it.
SECTION 12.3 CONTENTS OF AGREEMENT; PARTIES IN INTEREST
This Agreement sets forth the entire understanding of the
Parties. All terms and provisions of this Agreement shall be
binding upon and inure to the benefit of, and be enforceable by
their successors and assigns. No assignment of this Agreement shall
be made, however, without the written consent of the other Party,
which consent shall not be unreasonably withheld.
SECTION 12.4 FURTHER DOCUMENTS
Each Party shall cooperate and take such action as may
reasonably be requested by the other Party in order to carry out
the provisions and purpose of this Agreement
SECTION 12.5 EXECUTION
This Agreement, upon completion of all Exhibits hereto to the
mutual satisfaction of the Parties and the attachment of such
Exhibits to this Agreement, may be simultaneously executed in
several counterparts, each of which when executed shall be deemed
to be an original, and such counterparts shall together constitute
one and the same instrument.
SECTION 12.6 EFFECT OF TABLE OF CONTENTS; USE OF DESCRIPTIVE
HEADINGS; ETC.
The Table of Contents preceding this Agreement but under the
same cover, and the descriptive headings of the several paragraphs
and subparagraphs are for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
Whenever used in this Agreement, and the context so requires, the
singular shall include the plural and the plural the singular, and
the use of any gender shall be applicable to all genders.
SECTION 12.7 NOTICES
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been
given if delivered to the person to whom it was addressed after
being sent by facsimile, mailed by an overnight delivery service
requiring a receipt (such as Federal Express) or mailed, postage
prepaid, certified or registered air-mail, return receipt requested
addressed to:
(a) If to Consumers to:
Consumers Financial Corporation
1200 Camp Hill By-Pass
P. O. ▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Senior Vice President
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(b) If to LOTS to:
Life of the South Corporation
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇, CLU, President
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Either Party may change its address for notice by providing
notice to the other Party in the manner set forth above.
SECTION 13.8 GOVERNING LAW
This Agreement shall be governed and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania, including its
statute of limitations but without regard to its conflict of laws
rule.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the Parties by their duly authorized
officers have executed this Agreement on the day and year first
above written.
ATTEST: CONSUMERS FINANCIAL CORPORATION
By
Secretary
Its President
ATTEST: CONSUMERS LIFE INSURANCE COMPANY
By
Secretary
Its Senior VP & CFO
ATTEST: INVESTORS FIDELITY LIFE
ASSURANCE CORP.
By
Secretary
Its Executive Vice President
ATTEST: LIFE OF THE SOUTH CORPORATION
By
Assistant Secretary
Its President
INDEX OF EXHIBITS
A INDEMNITY REINSURANCE AGREEMENT BETWEEN CLIC AND AMERICAN
REPUBLIC
B ASSUMPTION AND NOVATION REINSURANCE AGREEMENT BETWEEN IFLAC
AND AMERICAN REPUBLIC
C ASSUMPTION AND NOVATION AGREEMENT BETWEEN CLIC, LOTS AND
ALABAMA REASURANCE COMPANY (CNC INFORCE BUSINESS)
D CREDIT INSURANCE AND FEE INCOME ACCOUNTS
E STOCK PURCHASE AGREEMENT
F BASIC ASSET TRANSFER AND CONTINGENCY FUND CALCULATIONS
G MARKETING AND SALES AGREEMENT
H ADMINISTRATIVE SERVICES AGREEMENT (EFFECTIVE OCTOBER 1, 1997)
I AGREEMENT TO PERFORM ADMINISTRATION (EFFECTIVE JANUARY 1,
1998)