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EXHIBIT 10.3
AMENDED AND RESTATED PURCHASE AGREEMENT
AMONG
UNIVERSAL AMERICAN FINANCIAL CORP.,
AMERICAN EXCHANGE LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL GROUP, INC.,
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY,
PENNSYLVANIA LIFE INSURANCE COMPANY,
SOUTHWESTERN FINANCIAL CORPORATION,
CONSTITUTION LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL SERVICES, INC.
Dated as of December 31, 1998,
as amended and restated on July 2, 1999
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS.....................................................................................2
SECTION 1.1 Definitions........................................................................2
SECTION 1.2 Other Definitions..................................................................7
SECTION 1.3 Reserves..........................................................................10
SECTION 1.4 Certain Interpretive Matters......................................................10
ARTICLE II
THE ACQUISITION................................................................................10
SECTION 2.1 Consideration for the Shares and the PCFS Assets..................................10
SECTION 2.2 Closing Transactions..............................................................11
SECTION 2.3 Purchase Price Adjustment.........................................................13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PFG, PLAC, SFC
AND PCFS.......................................................................................16
SECTION 3.1 Organization and Qualification....................................................16
SECTION 3.2 Authorization.....................................................................17
SECTION 3.3 No Violation......................................................................17
SECTION 3.4 Capitalization of the Companies...................................................18
SECTION 3.5 PFI Subsidiaries and PCFS Assets..................................................19
SECTION 3.6 Consents and Approvals............................................................20
SECTION 3.7 Financial Statements; Reserves....................................................20
SECTION 3.8 Absence of Undisclosed Liabilities................................................22
SECTION 3.9 Absence of Certain Changes........................................................22
SECTION 3.10 Litigation.......................................................................23
SECTION 3.11 Property; Liens and Encumbrances.................................................23
SECTION 3.12 Certain Agreements...............................................................23
SECTION 3.13 Employee Benefit Plans...........................................................24
SECTION 3.14 Taxes............................................................................27
SECTION 3.15 Compliance with Applicable Law; Permits; Policies................................31
SECTION 3.16 Brokers Fees and Commissions.....................................................34
SECTION 3.17 Proprietary Rights; Year 2000 Compliance.........................................34
SECTION 3.18 Insurance........................................................................35
SECTION 3.19 Environmental Matters............................................................35
SECTION 3.20 Books and Records................................................................35
SECTION 3.21 Bank Accounts....................................................................36
SECTION 3.22 Insurance and Reinsurance........................................................36
SECTION 3.23 Labor Matters....................................................................37
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SECTION 3.24 Affiliate Transactions...........................................................38
SECTION 3.25 Bonuses..........................................................................38
SECTION 3.26 All Related Assets...............................................................38
SECTION 3.27 Litigation Arising Between Signing and Closing...................................38
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER AND AMERICAN EXCHANGE......................................................39
SECTION 4.1 Organization; Qualifications and Operations.......................................39
SECTION 4.2 Authorization.....................................................................39
SECTION 4.3 No Violation......................................................................40
SECTION 4.4 Capitalization....................................................................40
SECTION 4.5 Consents and Approvals............................................................41
SECTION 4.6 Brokers' Fees and Commissions.....................................................41
SECTION 4.7 Purchase for Investment...........................................................41
SECTION 4.8 Financing.........................................................................41
SECTION 4.9 SEC Reports.......................................................................42
SECTION 4.10 Absence of Undisclosed Liabilities...............................................42
SECTION 4.11 Absence of Certain Changes.......................................................42
SECTION 4.12 Compliance with Applicable Law; Permits; Licenses................................42
ARTICLE V
COVENANTS......................................................................................43
SECTION 5.1 Conduct of Business Prior to the Closing..........................................43
SECTION 5.2 Management of Companies...........................................................46
SECTION 5.3 Access to Information.............................................................46
SECTION 5.4 HSR Act Filings...................................................................47
SECTION 5.5 State Regulatory Approvals........................................................47
SECTION 5.6 Pre-Closing Restructuring Transactions............................................48
SECTION 5.7 Estimated Statement...............................................................48
SECTION 5.8 Transaction Bonuses...............................................................48
SECTION 5.9 Payments to Agents................................................................48
SECTION 5.10 All Reasonable Efforts...........................................................49
SECTION 5.11 Public Announcements.............................................................49
SECTION 5.12 Disclosure Supplements...........................................................50
SECTION 5.13 Employment and Employee Benefits.................................................50
SECTION 5.14 Nonsolicitation..................................................................52
SECTION 5.15 Acquisition Proposals............................................................52
SECTION 5.16 Section 338(h)(10) Election, Allocation of Purchase
Price under Sections 338 and 1060 and Matters Relating to
SWLIC............................................................................53
SECTION 5.17 Tax Matters......................................................................54
SECTION 5.18 Financial Matters; Proxy Statement...............................................56
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SECTION 5.19 Peninsular Licenses..............................................................56
SECTION 5.20 PCFS Licenses....................................................................57
SECTION 5.21 Change of Name...................................................................57
SECTION 5.22 Litigation Arising Between Signing and Closing...................................57
SECTION 5.23 Union Bankers....................................................................57
ARTICLE VI
CLOSING CONDITIONS.............................................................................58
SECTION 6.1 Conditions to the Obligations of Buyer and American
Exchange under this Agreement.....................................................58
SECTION 6.2 Conditions to the Obligations of Sellers under this
Agreement.........................................................................60
ARTICLE VII
CLOSING........................................................................................62
SECTION 7.1 Closing...........................................................................62
ARTICLE VIII
SURVIVAL/INDEMNIFICATION.......................................................................63
SECTION 8.1 Survival of Representations and Warranties;
Indemnification Obligations.......................................................63
SECTION 8.2 Obligation of Buyer to Indemnify..................................................66
SECTION 8.3 Notice and Opportunity to Defend..................................................66
SECTION 8.4 Limitations on Indemnification....................................................67
SECTION 8.5 Adjustment to Purchase Price; Offsetting Tax Benefits.............................68
SECTION 8.6 Exclusive Remedy..................................................................68
ARTICLE IX
TERMINATION AND ABANDONMENT....................................................................69
SECTION 9.1 Termination.......................................................................69
SECTION 9.2 Expenses in the Event of Termination..............................................70
SECTION 9.3 Procedure and Effect of Termination...............................................70
SECTION 9.4 Mutual Agreement of Parties.......................................................70
SECTION 9.5 Confidentiality...................................................................71
ARTICLE X
MISCELLANEOUS PROVISIONS.......................................................................71
SECTION 10.1 Amendment and Modification.......................................................71
SECTION 10.2 Waiver of Compliance; Consents...................................................72
SECTION 10.3 Validity.........................................................................72
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SECTION 10.4 Expenses and Obligations.........................................................72
SECTION 10.5 Parties in Interest..............................................................72
SECTION 10.6 Notices..........................................................................72
SECTION 10.7 Governing Law....................................................................74
SECTION 10.8 Counterparts.....................................................................74
SECTION 10.9 Headings.........................................................................74
SECTION 10.10 Entire Agreement................................................................74
SECTION 10.11 Assignment......................................................................74
ANNEX A Disclosure Schedule
ANNEX B Form of Voting Agreement
ANNEX C Pre-Closing Restructuring Transactions
ANNEX D Opinions of Counsel to Sellers
ANNEX E Opinions of Counsel to Buyer
EXHIBIT A Terms of AmeriLife Marketing/Equity Arrangement
EXHIBIT B Terms of Cologne Re Reinsurance Agreement
EXHIBIT C Terms of Raleigh Lease Agreement
EXHIBIT D Form of ConLife-Peninsular Reinsurance Agreement
EXHIBIT E Terms of PCFS Services Agreement
EXHIBIT F NOL Example
EXHIBIT G Tax Allocation Agreements
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AMENDED AND RESTATED PURCHASE AGREEMENT
AMENDED AND RESTATED PURCHASE AGREEMENT (this "Agreement"), dated as of
December 31, 1998, as amended and restated on July 2, 1999, among Universal
American Financial Corp., a New York corporation ("Buyer"), American Exchange
Life Insurance Company, a Texas corporation ("American Exchange"), and PennCorp
Financial Group, Inc., a Delaware corporation ("PFG"), Pacific Life and Accident
Insurance Company, a Texas corporation ("PLAC"), Pennsylvania Life Insurance
Company, a Pennsylvania corporation ("PennLife"), Southwestern Financial
Corporation, a Delaware corporation ("SFC"), Constitution Life Insurance
Company, a Texas corporation ("ConLife"), and PennCorp Financial Services, Inc.,
a Delaware corporation ("PCFS"). PFG, PLAC, PennLife, SFC, ConLife and PCFS are
collectively referred to herein as the "Sellers."
The parties (other than American Exchange) entered into this Agreement
on December 31, 1998 and desire to amend and restate this Agreement in its
entirety as set forth herein. For purposes of this amended and restated
Agreement, all references to "as of the date hereof" mean as of December 31,
1998.
RECITALS:
WHEREAS, American Pioneer Life Insurance Company, a Florida corporation
and a direct wholly owned subsidiary of Buyer ("American Pioneer"), is the
record and beneficial owner of all of the issued and outstanding shares of
common stock, par value $1.00 per share (the "American Exchange Shares"), of
American Exchange;
WHEREAS, PFG is the record and beneficial owner of all of the issued
and outstanding shares of common stock, par value $1.00 per share (the "PFI
Shares"), of PennCorp Financial, Inc., a Delaware corporation ("PFI");
WHEREAS, PLAC, a wholly owned Subsidiary of PFG, is the record and
beneficial owner of all of the issued and outstanding shares of common stock,
par value $100.00 per share (the "PennLife Shares"), of PennLife;
WHEREAS, PennLife is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $2.25 per share (the
"Peninsular Shares"), of Peninsular Life Insurance Company, a North Carolina
corporation ("Peninsular");
WHEREAS, PennLife is the record and beneficial owner of all of the
issued and outstanding shares of common stock, no par value (the "PC-Canada
Common Shares"), of PennCorp Life Insurance Company, a Canadian corporation
("PC-Canada"), and all of the issued and outstanding preferred shares, no par
value (the
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"PC-Canada Preferred Shares" and, together with the PC-Canada Common Shares, the
"PC-Canada Shares"), of PC-Canada;
WHEREAS, SFC, a wholly owned Subsidiary of PFG, is the record and
beneficial owner of all of the issued and outstanding shares of common stock,
par value $60.00 per share (the "ConLife Shares"), of ConLife;
WHEREAS, ConLife is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $2.00 per share (the
"Union Bankers Shares"), of Union Bankers Insurance Company, a Texas corporation
("Union Bankers");
WHEREAS, Union Bankers is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $1.00 per share (the
"Marquette Shares"), of Marquette National Life Insurance Company, a Texas
corporation ("Marquette");
WHEREAS, PCFS is a wholly owned Subsidiary of PFG;
WHEREAS, PennLife and ConLife and their respective Subsidiaries are
engaged in the insurance business and PFI and its Subsidiaries are engaged in
the financial services business; and
WHEREAS, Buyer, acting through its Subsidiaries, is engaged in the life
and accident and health insurance business.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means, as to a specified Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
Person.
(b) "Allocation Schedule" means the Allocation Schedule
relating to the 338(h)(10) Election.
(c) "Annual Statement" means, with respect to a referenced
Person, the annual statement of such Person filed with or submitted to the
insurance
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regulatory authority in the jurisdiction in which such Person is domiciled on
forms prescribed or permitted by such authority.
(d) "Assumed Liabilities" means all obligations under the PCFS
Licenses and other contracts (if any) included as part of the PCFS Assets, to
the extent such obligations arise after the Closing Date.
(e) "AVR" means, with respect to any Person domiciled in the
United States, the Asset Valuation Reserve set forth in the balance sheet of
such Person in accordance with SAP.
(f) "Business Day" means any day that is not a Saturday,
Sunday or other day on which banking institutions in the city of New York, New
York are authorized or required by law or executive order to be closed.
(g) "Chase Bank Facility" means the term loan facility and
revolving credit facility provided to Buyer upon the terms and subject to the
conditions of the Chase Commitment.
(h) "Closing Statement" means the statement prepared by
PennLife and ConLife calculating the capital and surplus (excluding AVR and IMR)
of each of the PennLife Companies and each of the ConLife Companies in
accordance with SAP as of the Closing Date (immediately prior to the Closing but
after giving effect to the Closing Transactions) using the same assumptions and
methodologies utilized in the preparation of such companies' December 31, 1998
Annual Statements and the preparation of the Estimated Statement.
(i) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(j) "Commission" means the Securities and Exchange Commission.
(k) "Companies" means the ConLife Companies, the PennLife
Companies and the PFI Companies.
(l) "ConLife Companies" means ConLife, Union Bankers and
Marquette, but shall not include SWLIC.
(m) "ConLife Employees" means (i) those employees of Services
who primarily render services to or on behalf of any or all of the ConLife
Companies as listed on Schedule 1.1(m) and (ii) all former employees of Services
who, during the term of their employment with Services, primarily rendered
services to or on behalf of any or all of the ConLife Companies and whose
employment with Services was terminated for any reason (including retirement)
prior to the Closing Date and who, as of the Closing Date, are not employed by
PFG or any of its affiliates (excluding any of the Companies).
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(n) "ConLife Surplus Notes" mean (i) the Surplus Debenture,
dated December 14, 1995, in the original principal amount of $80 million, issued
by ConLife in favor of SFC or a wholly owned Subsidiary of SFC and (ii) the
Surplus Debenture dated January 1, 1996, in the original principal amount of $40
million, issued by ConLife in favor of SFC or a wholly owned Subsidiary of SFC,
each as amended from time to time to comply with requests or the requirements of
the Texas Department of Insurance.
(o) "Disclosure Schedule" means the Disclosure Schedule
attached hereto as Annex A.
(p) "Environmental Laws" means all applicable U.S. and
Canadian federal, state, provincial or local laws (including but not limited to
federal and state common law), statutes, codes, rules or regulations relating to
the environment, natural resources, and pollution including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et
seq., as amended from time to time (HMTA), the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., as amended from time to time
(RCRA), the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.,
as amended from time to time (FWPCA), the Clean Air Act, 42 U.S.C. Section 7401
et seq., as amended from time to time (CAA), and/or the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., as amended from time to time (TSCA).
(q) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(r) "Governmental Authority" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
(s) "Hazardous Materials" means (i) any wastes, substances, or
materials which are defined as "hazardous material," "hazardous waste,"
"hazardous substance," "toxic material" or other similar designations in, or
otherwise subject to regulation under, any applicable Environmental Laws; (ii)
petroleum or petroleum byproducts; (iii) friable asbestos and/or any material
which contains friable asbestos; and (iv) electrical equipment containing
polychlorinated biphenyls (PCBs) in excess of 50 parts per million.
(t) "IMR" means, with respect to any Person domiciled in the
United States, the Interest Maintenance Reserve set forth on the balance sheet
of such Person in accordance with SAP.
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(u) "Lincoln National Agreement" means the reinsurance
agreement, dated September 30, 1998, between PennLife and Lincoln National
Reassurance
Company.
(v) "Material Adverse Effect" means a materially adverse
effect on the business, results of operations or financial condition of the
PennLife Companies, the PFI Companies and the PCFS Assets, taken as a whole, or
the ConLife Companies, taken as a whole, excluding the reserve deficiencies
specifically identified in the reports of the Reserves Consultants.
(w) "Nasdaq" means The Nasdaq Stock Market, Inc.
(x) "PennLife Companies" means PennLife, Peninsular and PC-
Canada.
(y) "PennLife Employees" means (i) all employees of the
PennLife Companies and (ii) all former employees of the PennLife Companies whose
employment with the PennLife Companies was terminated for any reason (including
retirement) prior to the Closing Date and who, as of the Closing Date, are not
employed by PFG or any of its affiliates (excluding any of the Companies).
(z) "Person" means an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or, as applicable, any other entity.
(aa) "PCFS Assets" means those assets of PCFS listed on
Schedule 1.1(aa).
(ab) "PCFS Employees" means (i) those employees of PCFS who
primarily render services to or on behalf of any or all of the Companies as
listed on Schedule 1.1(ab) and any other employees of PCFS performing services
primarily for the Companies who are hired between the date hereof and the
Closing Date in accordance with Section 5.13(a) and (ii) all former employees of
PCFS who, during the term of their employment with PCFS, primarily rendered
services to or on behalf of any or all of the Companies and whose employment
with PCFS was terminated for any reason (including retirement) prior to the
Closing Date and who, as of the Closing Date, are not employed by PFG or any of
its affiliates (excluding any of the Companies).
(ac) "PFI Companies" means PFI and its wholly owned
Subsidiaries.
(ad) "PFI Employees" means (i) all employees of the PFI
Companies and (ii) all former employees of the PFI Companies whose employment
with the PennLife Companies was terminated for any reason (including retirement)
prior to the Closing Date and who, as of the Closing Date, are not employed by
PFG or any of its affiliates (excluding any of the Companies).
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(ae) "Phase III Taxes" means Taxes imposed under Section
815(f) of the Code by reference to Section 815 as in effect prior to the
enactment of the Tax Reform Act of 1984.
(af) "Quarterly Statement" means, with respect to a referenced
Person, the quarterly statement of such Person submitted to the insurance
regulatory authority in the state in which such Person is domiciled on forms
prescribed or permitted by such authority.
(ag) "Release" means any emission, spill, seepage, leak,
escape, leaching, discharge, injection, pumping, pouring, emptying, dumping,
disposal, release, or threatened release of Hazardous Materials into the
environment.
(ah) "Reserves Consultants" means (i) with respect to the
disability income claims reserves of PennLife, ▇▇▇▇▇▇▇▇▇▇▇, (ii) with respect to
the non-disability income claims reserves of PennLife, BAS Actuarial Services,
and (iii) with respect to all other reserves of PennLife (excluding life
insurance reserves), another independent actuarial firm of national reputation.
(ai) "SAP" means the statutory accounting practices required
or permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person.
(aj) "Services" means Southwestern Financial Services
Corporation, a Delaware corporation and wholly owned Subsidiary of SFC.
(ak) "Settlement Auditor" means PricewaterhouseCoopers or, if
such firm is not available, such other independent accounting firm of national
reputation selected by the mutual agreement of Buyer and PFG, or if Buyer and
PFG cannot agree, a nationally recognized accounting firm chosen by
PricewaterhouseCoopers.
(al) "Shares" means the PFI Shares, the PennLife Shares, the
Peninsular Shares, the PC-Canada Shares, the ConLife Shares and the Union
Bankers Shares, collectively.
(am) "Subsidiary" means, as to any Person, any other Person of
which at least a majority of the outstanding shares or other equity interests
having ordinary voting power for the election of directors or comparable
managers of such Person is owned, directly or indirectly, by the referenced
Person. For purposes of this Agreement, Buyer's Subsidiaries shall not include
any of the Companies, notwithstanding the consummation of any of the Closing
Transactions.
(an) "SWLIC" means Southwestern Life Insurance Company, a
Texas corporation and wholly owned Subsidiary of ConLife.
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(ao) "Taxes" means any and all federal, state, provincial,
local, foreign and other taxes, levies, fees, imposts, duties, and similar
governmental charges (including any interest, fines, assessments, penalties or
additions to tax imposed in connection therewith or with respect thereto)
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits or gross receipts, ad valorem, value added, capital gains,
sales, goods and services, use, real or personal property, capital stock,
license, branch, payroll, Phase III Taxes, estimated withholding, employment,
social security (or similar), unemployment, compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes, and customs duties.
(ap) "Tax Returns" means any report, return, declaration,
claim for refund, information report or return or statement required to be
supplied to a taxing authority in connection with Taxes, including any schedule
or attachment thereto or amendment thereof.
(aq) "Union Bankers Special Dividend" means the dividend paid
by Union Bankers to ConLife in connection with the transactions set forth herein
in the amount of $37,800,000 or such lesser amount necessary to ensure that the
capital and surplus of Union Bankers (as indicated on the Estimated Statement)
is equal to the Union Bankers Target Capital Amount specified in Section 2.3(e).
(ar) "U.S. Insurance Companies" means ConLife, Union Bankers,
Marquette, PennLife and Peninsular, collectively.
(as) "▇▇▇▇▇▇▇▇▇▇▇ Note" means the promissory note, dated
February 25, 1998, issued by PFI in favor of PennLife, in the original principal
amount of $7.2 million.
(at) "WARN" means the Worker Adjustment and Retraining
Notification Act of 1988 and any similar state, local or Canadian "plant
closing" or layoff statute.
SECTION 1.2 Other Definitions. When used in this Agreement, the
following terms shall have the meanings ascribed to them in Sections noted
below:
Term Defined in
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1998 SAP Financial Statements Section 5.18(a)
338(h)(10) Election Section 5.16
Accounts Section 3.21
Advest Section 4.6
Agent Compensation Section 3.15(e)
Aggregate Target Capital Amount Section 2.3(e)
Agreement Preamble
American Exchange Preamble
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American Exchange Shares Recitals
Asserted Liability Section 8.3(a)
Audited Financial Statements Section 5.18(a)
Banks Section 3.21
Basket Amount Section 8.4(a)
Basket Exclusions Section 8.4(a)
Benefit Plans Section 3.13(a)
▇▇▇▇ of Sale, Assignment and Assumption Agreement Section 2.2
Buyer Preamble
Buyer Approvals Section 4.5
Buyer Common Stock Section 4.4
Buyer Indemnitees Section 8.1(b)
Buyer Material Adverse Effect Section 4.1
Buyer Parties Section 4.1
Buyer Plans Section 5.13(b)
Capital Z Section 4.8
Chase Bank Section 4.8
Chase Commitment Section 4.8
Chase Securities Section 4.6
Claim Section 8.1(b)
Claims Notice Section 8.3(a)
Closing Section 7.1
Closing Date Section 7.1
Closing Transactions Section 2.2
Cologne Re Section 2.3(e)
Company Employees Section 5.13(a)
Confidentiality Agreement Section 9.4(a)
ConLife Preamble
ConLife Group Section 3.14(n)
ConLife Insurance Approvals Section 3.6
ConLife Purchase Price Section 2.1(b)
ConLife Shares Recitals
Deposit Section 3.15(i)
DOJ Section 3.6
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(e)
Estimated Statement Section 5.7
Financial Statements Section 3.7(d)
Fundamental Representations Section 8.1
GAAP Section 3.7(d)
HSR Act Section 3.6
Indemnifying Party Section 8.3(a)
Indemnitee Section 8.3(a)
Integon Section 6.1(g)
Investment Agreements Section 5.9(b)
Intellectual Property Section 3.17
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IRS Section 1.1(k)
KPMG Section 5.18(a)
Leased Properties Section 3.11(b)
Liens Section 3.11(b)
Litigation Section 3.10
Losses Section 8.1(b)
Marquette Recitals
Marquette Shares Recitals
Material Contract Section 3.12(a)
MEC Section 3.14(x)
Multiemployer Plan Section 3.13(a)
New Employee Claims Section 5.22
New Litigation Section 5.22
NOLs Section 3.14(ac)
Offsetting Tax Benefit Section 8.5(b)
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
PC-Canada Recitals
PC-Canada Common Shares Recitals
PC-Canada Preferred Shares Recitals
PC-Canada Purchase Price Section 2.1(d)
PC-Canada Shares Recitals
PCFS Preamble
PCFS Licenses Section 5.20
PCFS Purchase Price Section 2.1(g)
Peninsular Recitals
Peninsular Purchase Price Section 2.1(c)
Peninsular Shares Recitals
PennLife Preamble
PennLife Insurance Approvals Section 3.6
PennLife Purchase Price Section 2.1(e)
PennLife Shares Recitals
PFG Preamble
PFG Group Section 3.14(n)
PFI Recitals
PFI Purchase Price Section 2.1(f)
PFI Shares Recitals
PFI Subsidiaries Section 3.5(a)
PLAC Preamble
PLAC Group Section 3.14(n)
Post-Closing Compensation Obligations Section 5.9(b)
Pre-Closing Restructuring Transactions Section 5.6
Pre-Sale Obligations Section 5.9(a)
Proxy Statement Section 5.18(b)
Purchase Price Section 2.1
Reinsurance Agreements Section 3.22(a)
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Required Permits Section 3.15(b)
SAP Financial Statements Section 3.7(a)
SEC Reports Section 4.9
Seller Refund Section 5.17(d)
Seller Net Refund Amount Section 5.17(d)
Sellers Preamble
Series C-1 Holders Section 4.2
SFC Preamble
Substituted Buyer Section 10.12
Surplus Note Amount Section 2.2(b)
SWLIC Basis Adjustments Section 5.16(c)
SWLIC Valuation Opinion Section 5.16(c)
SWLIC Value Section 5.16(c)
Target Capital Amount Section 2.3(e)
Tax Representation Claim Section 8.1(a)
Technology Systems Section 3.17(b)
Transaction Bonus Section 3.25
Transition Period Section 5.13(f)
UAFC Share Purchase Agreement Section 4.8
Unaudited Financial Statements Section 3.7(d)
Union Bankers Recitals
Union Bankers Purchase Price Section 2.1(a)
Union Bankers Shares Recitals
SECTION 1.3 Reserves. With respect to health claims reserves,
references herein to such reserves include loss adjustment expenses.
SECTION 1.4 Certain Interpretive Matters. Unless otherwise noted, all
references herein to "$" or dollar amounts are to lawful currency of the United
States of America. Unless the context otherwise requires, all references to
Sections, Articles, Annexes or Exhibits are to Sections, Articles, Annexes or
Exhibits to this Agreement.
ARTICLE II
THE ACQUISITION
SECTION 2.1 Consideration for the Shares and the PCFS Assets. At the
Closing, upon the terms and subject to the conditions of this Agreement and in
reliance upon the representations, warranties and agreements contained herein,
Sellers shall sell to Buyer or American Exchange, and Buyer or American Exchange
shall purchase from Sellers, in the manner described in Section 2.2, all of the
Shares and the PCFS Assets for an amount in cash equal to $130,500,000 (the
"Purchase Price"),
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subject to adjustment as provided in Section 2.3, allocable as set forth below,
and subject to Sections 5.19(c) and 5.23:
(a) for the Union Bankers Shares, $12,248,000 (the "Union
Bankers Purchase Price");
(b) for the ConLife Shares, $6,250,000 (the "ConLife Purchase
Price");
(c) for the Peninsular Shares, $13,300,000 (the "Peninsular
Purchase Price");
(d) for the PC-Canada Shares, $18,000,000 (the "PC-Canada
Purchase Price");
(e) for the PennLife Shares, $74,542,000 (the "PennLife
Purchase Price");
(f) for the PFI Shares, $5,160,000 (the "PFI Purchase Price");
and
(g) for the PCFS Assets, $1,000,000 (the "PCFS Purchase
Price").
SECTION 2.2 Closing Transactions. Subject to Section 5.19, at and
simultaneously with the Closing, on the terms and subject to the conditions of
this Agreement, the parties shall cause the following transactions (the "Closing
Transactions") to occur in the order set forth below:
(a) American Pioneer shall sell the American Exchange Shares
to Buyer causing American Exchange to be a direct, wholly-owned subsidiary of
Buyer;
(b) Buyer shall purchase from American Exchange a surplus note
of American Exchange with an aggregate principal amount less than or equal to
the amount borrowed from Chase Bank and other financial institutions to finance
the acquisition contemplated hereby (the "Surplus Note Amount") and shall
contribute to American Exchange an aggregate amount in cash equal to the excess
of (i) the Purchase Price over (ii) the sum of (A) the PFI Purchase Price, (B)
the PCFS Purchase Price, (C) the PC-Canada Purchase Price and (D) the Surplus
Note Amount;
(c) Union Bankers shall distribute to ConLife the Union
Bankers Special Dividend;
(d) in consideration for the Union Bankers Purchase Price,
ConLife shall sell, assign, transfer and convey to American Exchange, and
American Exchange shall purchase and acquire from ConLife, the Union Bankers
Shares, free and clear of any Liens, other than those which may be created by
Buyer or American Exchange;
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(e) in full repayment of ConLife's obligations under the
ConLife Surplus Notes after which, without further action, such Notes shall be
canceled and shall be null and void and ConLife shall have no further liability
to SFC with respect thereto, ConLife (i) shall distribute all of the issued and
outstanding capital stock of SWLIC to SFC and (ii) shall pay to SFC an amount in
cash equal to the sum of (x) the Union Bankers Purchase Price and (y) the Union
Bankers Special Dividend; provided, that if, after making such distribution and
payment, (A) the capital and surplus of ConLife would be less than $3.3 million,
the amount of the payment described in clause (ii) above shall be reduced by
such shortfall or (B) the capital and surplus of ConLife would be greater than
$3.3 million, ConLife shall distribute and transfer to SFC any remaining capital
and surplus of ConLife in excess of $3.3 million;
(f) in consideration for the ConLife Purchase Price, SFC shall
sell, assign, transfer and convey to American Exchange, and American Exchange
shall purchase and acquire from SFC, the ConLife Shares, free and clear of any
Liens, other than those which may be created by Buyer or American Exchange;
(g) in consideration for the PFI Purchase Price, PFG shall
sell, assign, transfer and convey to Buyer, and Buyer shall purchase and acquire
from PFG, the PFI Shares, free and clear of any Liens, other than those which
may be created by Buyer;
(h) Buyer shall contribute to PFI the PCFS Purchase Price;
(i) in consideration for the PCFS Purchase Price, PCFS shall
sell, assign, transfer and convey to PFI, and PFI shall purchase and acquire
from PCFS, the PCFS Assets, free and clear of any Liens, other than those which
may be created by Buyer;
(j) in consideration for payment by PLAC of an amount equal to
the PC-Canada Purchase Price, PennLife shall sell, assign, transfer and convey
to PLAC, and PLAC shall purchase and acquire from PennLife, the PC-Canada
Shares, free and clear of any Liens, and (ii) in consideration for the PC-Canada
Purchase Price, PLAC shall sell, assign, transfer and convey to Buyer or such
other entity as Buyer may designate, and Buyer or Buyer's designee shall
purchase and acquire from PLAC, the PC-Canada Shares, free and clear of any
Liens, other than those which may be created by Buyer;
(k) in consideration for the Peninsular Purchase Price,
PennLife shall sell, assign, transfer and convey to American Exchange, and
American Exchange shall purchase and acquire from PennLife, the Peninsular
Shares, free and clear of any Liens, other than those which may be created by
Buyer or American Exchange; and
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(l) in consideration for the PennLife Purchase Price, PLAC
shall sell, assign, transfer and convey to American Exchange, and American
Exchange shall purchase and acquire from PLAC, the PennLife Shares, free and
clear of any Liens, other than those which may be created by Buyer or American
Exchange;
If requested by Buyer, Sellers shall cooperate in good faith
to restructure the manner and order in which the Companies or their operations
are acquired and if Buyer designates a purchaser for the PC-Canada Shares as
described in Section 2.2(j) above, Sellers shall transfer the PC-Canada Shares
to Buyer's designee, provided that such restructuring or designation either (x)
does not result in additional cost to Sellers or additional indemnification
obligations of Sellers under Section 8.1 or (y) at Buyer's option, Buyer
unconditionally indemnifies Sellers with respect to any such additional costs
and waives any such additional indemnification obligations as referenced in (x)
above.
Upon each sale, assignment, transfer and conveyance of the
respective shares described above, the relevant Seller shall deliver to American
Exchange, in the case of (d), (f), (k) and (l) above, and to Buyer or Buyer's
designee, in the case of (g) and (j) above, share certificates constituting such
Shares, duly endorsed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer.
Upon the sale, assignment, transfer and conveyance of the PCFS
Assets as described above, PCFS and PFI will execute and deliver a ▇▇▇▇ of sale,
assignment and assumption agreement (the "▇▇▇▇ of Sale, Assignment and
Assumption Agreement") with respect to the sale by PCFS of the PCFS Assets and
the assumption by PFI of the Assumed Liabilities. Subject to the indemnification
provided in Section 8.1(b)(xiii), PFI waives compliance with any and all bulk
sales laws in connection with the sale and purchase of the PCFS Assets.
SECTION 2.3 Purchase Price Adjustment.
(a) As promptly as practicable (but in no event more than 90
days) after the Closing Date, Buyer will cause PennLife and ConLife to prepare
the Closing Statement and will deliver it to PFG. The capital and surplus
amounts reflected in the Closing Statement shall be in sufficient detail to
permit PFG to verify the same. The Closing Statement to be delivered to PFG will
be accompanied by a certificate of Buyer's Chief Financial Officer certifying
that the Closing Statement has been prepared in accordance with SAP as of the
Closing Date using the same assumptions and methodologies utilized in the
preparation of the Estimated Statement. At the request of PFG, after the Closing
Statement has been prepared, Buyer will cause its personnel and independent
auditors to (i) provide to PFG and PFG's independent auditors (A) a
reconciliation of the differences between the Closing Statement and the
Estimated Statement in sufficient detail for PFG to reconcile such differences
and (B) copies of financial statements and such work papers and other documents
relating to the preparation of the Closing Statement as PFG or PFG's independent
auditors may reasonably request and (ii) cooperate with, and be reasonably
available to, PFG
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and PFG's independent auditors and provide such other information reasonably
requested by PFG or PFG's independent auditors concerning the Closing Statement
and any accounting, auditing and actuarial issues related thereto, in each case
in good faith and in a manner and at such times so as to enable PFG to complete
its review and analysis of the Closing Statement within the period specified in
paragraph (b) below.
(b) Within 20 Business Days after PFG's receipt of the Closing
Statement, PFG will provide Buyer with written notice indicating whether PFG
agrees or disagrees with the capital and surplus amounts (excluding AVR and IMR)
reflected in such statement. If PFG in such notice agrees with the capital and
surplus amounts (excluding the AVR and IMR) reflected in the Closing Statement
or if PFG fails to deliver to Buyer such written notice within such 20 Business
Day period, the Closing Statement shall be deemed final and binding upon the
parties. If PFG in such notice disagrees with the capital and surplus amounts
(excluding AVR and IMR) reflected in the Closing Statement, within ten Business
Days after PFG delivers such notice to Buyer of its disagreement with Buyer's
calculation, PFG and Buyer will begin good faith negotiations to resolve such
disagreement.
(c) If PFG and Buyer are unable to resolve such disagreement
in good faith within ten Business Days after such negotiations begin, such
disagreement will be submitted to the Settlement Auditor for resolution. PFG and
Buyer will cooperate with the Settlement Auditor and will proceed in good faith
to cause the Settlement Auditor to resolve such disagreement within 30 days
after such disagreement is submitted to the Settlement Auditor. PFG and Buyer
will each pay one-half of the fees and expenses of the Settlement Auditor;
provided, however, that if the Settlement Auditor's written report indicates
that PFG or Buyer was the prevailing party in the dispute, the non-prevailing
party shall pay 100% of the fees and expenses of the Settlement Auditor.
(d) The Settlement Auditor, in its sole discretion, will
determine (i) the nature and extent of the participation by PFG, Buyer, and
their respective agents in connection with any disagreement submitted to the
Settlement Auditor for resolution, (ii) the nature and extent of information
that PFG and Buyer may submit to the Settlement Auditor for consideration in
connection with such resolution and (iii) the personnel of the Settlement
Auditor who will review such information and resolve such disagreement. The
Settlement Auditor's resolution of any such disagreement, with respect to dollar
amounts, must fall within the range of the disputed amounts stated by PFG and
Buyer and will be reflected in a written report which will be delivered promptly
to, and will be final and binding upon, PFG and Buyer. The Closing Statement
will be adjusted accordingly to reflect any such resolution and, as adjusted,
shall be final and binding upon the parties.
(e) Upon the earlier to occur of (i) the parties' agreement
with respect to the capital and surplus amounts reflected in the Closing
Statement or (ii) the delivery of the report of the Settlement Auditor as
provided in Section 2.3(d)
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hereof with respect to a dispute relating to the Closing Statement: (A) PFG will
pay to Buyer the amount, if any, by which (x) in the case of the PennLife
Companies (excluding PC- Canada) or the ConLife Companies, the capital and
surplus (excluding AVR and IMR) reflected in the Closing Statement for such
Company is less than the Target Capital Amount (defined below) for such Company
and (y) in the case of PC-Canada, total shareholders equity (calculated in
accordance with Canadian generally accepted accounting principles) reflected in
the Closing Statement under the heading "PC- Canada Section 2.3(e)(A) Amount" is
less than the Target Capital Amount for PC- Canada; and (B) PFG will pay to
Buyer the amount, if any, by which the aggregate capital and surplus (for all
PennLife Companies, including PC-Canada, and all ConLife Companies, calculated
in accordance with SAP) of the PennLife Companies and the ConLife Companies
(excluding amounts attributable to the ▇▇▇▇▇▇▇▇▇▇▇ Note), taken as a whole,
reflected in the Closing Statement is less than the sum of $65.8 million plus
the earnings of the PennLife Companies and the ConLife Companies for the period
commencing on January 1, 1999 and ending on the Closing Date, as reflected in
the Closing Statement (the "Aggregate Target Capital Amount") minus any amounts
payable by PFG pursuant to clause (A) above. For purposes of this Section
2.3(e), "earnings" means operating earnings of the Companies and specifically
excludes (A) earnings from wholly owned Subsidiaries that are not Companies and
the earnings of the Companies otherwise includable in another Company's earnings
if duplicative or redundant, (B) earnings that do not increase surplus,
including, without limitation, the amortization of the ceding commission of
Cologne Life Reinsurance Company ("Cologne Re") at Union Bankers, (C) tax
payments or liabilities from wholly owned Subsidiaries (including the Companies)
and (D) earnings associated with the transactions contemplated or required by
this Agreement, including without limitation those set forth in Annex C. Such
payment will be made by wire transfer of immediately available funds to such
account as the party entitled to receive such payment specifies in writing to
the party required to make such payment. "Target Capital Amount" means capital
and surplus of: (i) $3.3 million, in respect of ConLife; (ii) $14.0 million, in
respect of Union Bankers (including the capital and surplus of Marquette); (iii)
$5.1 million, in respect of Marquette; (iv) $36.0 million, in respect of
PennLife (excluding amounts attributable to the ▇▇▇▇▇▇▇▇▇▇▇ Note); (v) $10.2
million, in respect of Peninsular (which amounts will be reflected in the Forms
A to be filed with the appropriate insurance regulatory authorities); and (vi)
Can.$21.946 million, in respect of PC-Canada. Sellers will use their reasonable
best efforts to cause any additional capital and surplus in the Companies over
and above the sum of their individual Target Capital Amounts (but not greater
than the Aggregate Target Capital Amount) to be contributed to PennLife;
provided, that for purposes only of this sentence, the Target Capital Amount for
PC-Canada will be deemed to be $500,000 or actual capital and surplus in
accordance with SAP, if greater.
(f) At the Closing, PFI will have $4.5 million in cash
recorded on its balance sheet.
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(g) If Buyer does not request that Sellers recapture the
Lincoln National Agreement prior to the Closing, the Target Capital Amount for
PennLife and the Aggregate Target Capital Amount will be calculated without
giving effect to the surplus generated as a result of the Lincoln National
Agreement through the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PFG, PLAC, SFC AND PCFS
PFG, with respect to all matters set forth in this Article III, jointly
and severally with PLAC, SFC and PCFS, represents and warrants to Buyer; PLAC,
with respect only to matters relating to itself and the PennLife Companies,
severally and not jointly with any other Seller (except PFG) represents and
warrants to Buyer; and SFC, with respect only to matters relating to itself and
the ConLife Companies, severally and not jointly with any other Seller (except
PFG) represents and warrants to Buyer; and PCFS, with respect to matters
relating to itself and the PCFS Assets, severally and not jointly with any other
Seller (except PFG) represents and warrants to Buyer, as follows:
SECTION 3.1 Organization and Qualification.
(a) Each of the Sellers and the Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, which as to each of the Companies is set forth
opposite its name in Section 3.1(a) of the Disclosure Schedule, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted. Sellers have
delivered or made available to Buyer a true and complete copy of the Certificate
or Articles of Incorporation and Bylaws (or similar organizational documents) of
each of the Companies.
(b) Each of the Companies is qualified or licensed to do
business as a foreign corporation or extra-provincial corporation and is in good
standing in every jurisdiction where the nature of the business conducted by it
or the properties owned or leased by it requires qualification, except where the
failure to be so qualified, licensed or in good standing would not reasonably be
expected to have a Material Adverse Effect. Schedule T of each of the PennLife
Companies' (except PC-Canada) and ConLife Companies' Annual Statements for the
year ended December 31, 1997 and the Annual Statement of PC-Canada set forth a
true and complete list of each jurisdiction in which each of the respective
PennLife Companies (including PC-Canada) and ConLife Companies is qualified or
licensed to do business and is in good standing to transact the business of life
and/or accident and health insurance.
(c) Each U.S. domiciled PennLife Company and ConLife Company
is domiciled in its jurisdiction of incorporation, is not deemed to be domiciled
in any
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other jurisdiction, and is licensed to write the types of insurance shown
in Section 3.1(c) of the Disclosure Schedule in the jurisdictions shown in such
Section, which are all the types of insurance issued by such Companies and all
the jurisdictions in which each such Company writes such insurance. Except as
set forth in Section 3.1(c) of the Disclosure Schedule, no such license is the
subject of a proceeding for suspension or revocation or any similar proceedings
and, to the knowledge of Sellers, there is no pending threat of such suspension
or revocation by any licensing authority. Each U.S. domiciled PennLife Company
and ConLife Company is a "life insurance company" within the meaning of Section
816 of the Code.
SECTION 3.2 Authorization. Sellers have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Sellers, the performance by Sellers of their respective obligations
hereunder, and the consummation by Sellers of the transactions contemplated
hereby, have been duly authorized by their respective Boards of Directors and,
where applicable, their respective shareholders. No other corporate action on
the part of Sellers is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each Seller and
constitutes a valid and binding obligation of each Seller, enforceable against
each Seller in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
SECTION 3.3 No Violation. Except as set forth in Section 3.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement by
Sellers, the performance by Sellers of their obligations hereunder nor the
consummation by Sellers or the Companies of the transactions contemplated hereby
will (a) violate, conflict with or result in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws (or similar organizational
documents) of any Seller or any of the Companies, (b) violate or conflict with
or result in a violation or breach of, or constitute a default or give rise to
any right of termination or acceleration (with or without due notice or lapse of
time or both) or result in the acceleration of any payments under the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, license, lease or agreement to which any Seller or any of the Companies
is a party or by which any of their assets is bound, (c) violate any order,
writ, judgment, injunction, decree, statute, rule or regulation of any
Governmental Authority applicable to any Seller or any of the Companies or any
of their respective assets or (d) result in the creation of any Lien upon any of
the assets of any Seller, any of the Companies or PCFS (other than any Liens
created by Buyer), except in the cases of clauses (b), (c) and (d) above, for
those violations,
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conflicts, breaches and defaults which would not reasonably be expected to have
a Material Adverse Effect.
SECTION 3.4 Capitalization of the Companies.
(a) The authorized capital stock of PennLife consists of
50,000 PennLife Shares. As of the date this Agreement is being amended and
restated, there are 45,946 PennLife Shares issued and outstanding, all of which
have been validly issued, are fully paid and non-assessable and were not issued
in violation of any preemptive rights. The authorized capital stock of PFI
consists of 1,000 PFI Shares. As of the date hereof, there are 1,000 PFI Shares
issued and outstanding, all of which have been validly issued, are fully paid
and non-assessable and were not issued in violation of any preemptive rights.
The authorized capital stock of ConLife consists of 50,000 ConLife Shares. As of
the date hereof, there are 49,998 ConLife Shares issued and outstanding, all of
which have been validly issued, are fully paid and non-assessable and were not
issued in violation of any preemptive rights. The authorized capital stock of
Union Bankers consists of 1,360,000 Union Bankers Shares. As of the date hereof,
there are 1,334,001 Union Bankers Shares issued and outstanding, all of which
have been validly issued, are fully paid and non-assessable and were not issued
in violation of any preemptive rights. The authorized capital stock of Marquette
consists of 2,100,000 Marquette Shares. As of the date hereof, there are 175,000
Marquette Shares issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. The authorized capital stock of Peninsular consists of
7,200,000 Peninsular Shares. As of the date hereof, there are 1,208,599
Peninsular Shares issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. The authorized capital stock of PC-Canada is unlimited. As of
the date hereof, there are ▇▇▇ ▇▇-▇▇▇▇▇▇ ▇▇▇▇▇▇ Shares and 100 PC-Canada
Preferred Shares issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights.
(b) Except as set forth in Section 3.4(b) of the Disclosure
Schedule, there are no (i) options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating any Company to issue any
additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of such Company, (ii) agreements or commitments obligating such Company to
repurchase, redeem or otherwise acquire any shares of its capital stock, (iii)
restrictions on transfer of any shares of capital stock of such Company (other
than pursuant to this Agreement) or (iv) voting or similar shareholder
agreements relating to any shares of capital stock of such Company.
(c) The Peninsular Shares and the PC-Canada Shares are owned
beneficially and of record by PennLife, free and clear of all Liens. The PFI
Shares are owned beneficially and of record by PFG, free and clear of all Liens.
The
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ConLife Shares are owned beneficially and of record by SFC, free and clear of
all Liens, except as set forth in Section 3.4(c) of the Disclosure Schedule. The
Union Bankers Shares are owned beneficially and of record by ConLife, free and
clear of all Liens, except as set forth in Section 3.4(c) of the Disclosure
Schedule. The Marquette Shares are owned beneficially and of record by Union
Bankers, free and clear of all Liens. The PennLife Shares are owned beneficially
and of record by PLAC, free and clear of all Liens. At the Closing, good and
valid title to the Shares shall be conveyed to Buyer or the other parties as
provided for in Section 2.2, in the manner contemplated by Section 2.2, free and
clear of all Liens, other than those which may be created by Buyer.
(d) Except as set forth in Section 3.4(d) of the Disclosure
Schedule, none of the Companies owns, directly or indirectly, 5% or more of the
outstanding voting securities of or otherwise possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies of any
Person, other than capital stock of one of the Companies owned by another
Company and securities held for investment purposes only.
SECTION 3.5 PFI Subsidiaries and PCFS Assets.
(a) Section 3.5(a) of the Disclosure Schedule sets forth (i)
the name of all Subsidiaries of PFI (the "PFI Subsidiaries") and their
respective jurisdictions of incorporation and (ii) the name and number of all
authorized, issued and outstanding shares of capital stock of each PFI
Subsidiary. Except for the PFI Subsidiaries, PFI directly or indirectly does not
own or have the power to vote the shares of any capital stock or other ownership
interest or have ordinary voting power to elect the majority of directors of any
corporation or other entity or other Person or body performing a similar
function of any such entity, as the case may be.
(b) All of the outstanding shares of capital stock of each PFI
Subsidiary have been duly authorized and validly issued, are fully paid and
non-assessable, have not been issued in violation of any preemptive rights, and
are owned of record and beneficially by the entities named in Section 3.5(a) of
the Disclosure Schedule, free and clear of any Liens except as set forth in
Section 3.5(a) of the Disclosure Schedule.
(c) Except as set forth in Section 3.5(c) of the Disclosure
Schedule, there are no (i) options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating any of the PFI
Subsidiaries to issue any additional shares of capital stock of such Subsidiary
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, (ii) agreements or
commitments obligating any such Subsidiary to repurchase, redeem or otherwise
acquire any shares of its capital stock, (iii) restrictions on the transfer of
any shares of capital stock of any such Subsidiary (other than pursuant to this
Agreement) or (iv) voting or similar shareholder agreements relating to any
shares of capital stock of any such Subsidiary.
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(d) PCFS has good and indefeasible title to all of the PCFS
Assets, in each case free and clear of all Liens, and PCFS will convey to Buyer
good and indefeasible title to all of the PCFS Assets, in each case free and
clear of all Liens other than those which may be created by Buyer.
SECTION 3.6 Consents and Approvals. Except as set forth in Section 3.6
of the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any Governmental Authority is
necessary for the consummation by any Seller or the Companies of the
transactions contemplated by this Agreement other than consents and approvals of
or filings or registrations with (a) the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (b) the insurance
departments of the States of Pennsylvania and North Carolina and the federal or
provincial government and other requisite federal and provincial regulatory
authorities of Canada (the "PennLife Insurance Approvals") and the insurance
department of the State of Texas (the "ConLife Insurance Approvals").
SECTION 3.7 Financial Statements; Reserves.
(a) Sellers have previously delivered to Buyer true and
complete copies of the following (the "SAP Financial Statements"):
(i) the Annual Statements for each PennLife Company
and ConLife Company for each of the years ended December 31, 1996 and 1997 and
for Executive Fund Life Insurance Company for the year ended December 31, 1995,
in each case as filed with the departments of insurance in the respective states
of domicile or Canada, as the case may be, of each PennLife Company and ConLife
Company including all exhibits, interrogatories, notes and schedules thereto and
any actuarial opinion, affirmation or certification filed in connection
therewith;
(ii) the Quarterly Statements for each PennLife
Company and ConLife Company for the quarters ended March 31, June 30 and
September 30, 1998 including all exhibits, interrogatories, notes and schedules
thereto; and
(iii) the statutory annual statements and quarterly
statements of each PennLife Company and ConLife Company which were filed for
1996, 1997 or 1998 (with respect to the quarters ended March 31, June 30 and
September 30) in any jurisdiction other than such Company's jurisdiction of
domicile and that differ from the corresponding Annual Statements and Quarterly
Statements for such periods.
Except as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP
Financial Statements were, and when delivered in accordance with the provisions
of Section 5.18, the 1998 SAP Financial Statements will be, prepared in all
material respects in accordance with SAP. Except as set forth in Section 3.7(a)
of the Disclosure Schedule, the SAP Financial Statements present fairly in all
material respects and, when delivered in accordance with the provisions of
Section 5.18, the 1998 SAP Financial Statements will present fairly in all
material
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respects, the statutory financial position of the applicable Company as of the
respective dates thereof and the related summary of operations and changes in
capital and surplus and in cash flows of such Company for and during the
respective periods covered thereby in conformity with SAP, applied on a
consistent basis.
(b) Except as set forth in Section 3.7(b) of the Disclosure
Schedule, all statutory reserves and other similar amounts with respect to
insurance as established or reflected in the December 31, 1997 Annual Statement
and September 30, 1998 Quarterly Statement of each PennLife Company and ConLife
Company were determined (and, when delivered in accordance with the provisions
of Section 5.18, all statutory reserves and other similar amounts with respect
to insurance as reflected or established in the 1998 SAP Financial Statements
will be determined) in all material respects in accordance with SAP and sound
actuarial practice, based on actuarial assumptions and methodologies that were
(or will be), as of the date of preparation, in compliance in all material
respects with, and met (or will meet) in all material respects the requirements
of the insurance laws of the respective states of domicile of, the PennLife
Companies and ConLife Companies. Except as set forth in Section 3.7(b) of the
Disclosure Schedule, each PennLife Company and ConLife Company owns assets that
qualify as legal reserve assets under insurance laws applicable to such Company
in an amount at least equal to all such reserves and other similar amounts
required by such laws to be owned by such Company.
(c) As of the date this Agreement was amended and restated,
Sellers have recorded in accordance with GAAP and SAP additional reserves of at
least $25 million relating to adverse reserve development applicable to the
disability income claim reserves of PennLife for 1998 and prior years, which
additional reserves have not been released.
(d) Sellers have previously delivered or made available to
Buyer a true and complete copy of the unaudited combined financial statements
for the Companies (and PCFS, to the extent required under Item 13 of Schedule
14A under the Exchange Act for purposes of the Proxy Statement) as at and for
the nine-month period ended September 30, 1998 (the "Unaudited Financial
Statements"). The Unaudited Financial Statements fairly present in all material
respects and, when delivered in accordance with the provisions of Section 5.18,
the Audited Financial Statements, taken together with the notes thereto, will
fairly present in all material respects the financial position and results of
operations of the Companies (and PCFS, to the extent required under Item 13 of
Schedule 14A under the Exchange Act for purposes of the Proxy Statement) as of
the respective dates and for the periods indicated therein, in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied except as identified in the report delivered by the Reserves Consultants
pursuant to Section 5.3(b) hereof and, in the case of the Unaudited Financial
Statements, for the absence of notes. The Unaudited Financial
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Statements were prepared consistent with past practices of the Companies in the
preparation of unaudited financial statements (subject to normal, recurring
year-end audit adjustments that in the aggregate are not materially adverse). As
used herein, "Financial Statements" means the Unaudited Financial Statements,
the Audited Financial Statements and the SAP Financial Statements, collectively.
SECTION 3.8 Absence of Undisclosed Liabilities. As of the date hereof,
and as of the date of the 1998 Audited Financial Statements, except for matters
relating to the transactions contemplated by this Agreement, there are and will
be no liabilities or obligations of the Companies or PCFS (including without
limitation any Liens) that are required to be reflected on a balance sheet
prepared in accordance with SAP or GAAP, as applicable, other than (a)
liabilities and obligations reserved against in the Financial Statements and not
heretofore discharged, (b) policyholder benefits payable or other liabilities or
obligations arising in the ordinary course of business after September 30, 1998,
or (c) liabilities and obligations disclosed in Section 3.8 of the Disclosure
Schedule.
SECTION 3.9 Absence of Certain Changes. Except as disclosed in Section
3.9 of the Disclosure Schedule or as permitted or contemplated by this
Agreement, since September 30, 1998, none of the Companies or PCFS has (a)
experienced any change, event or condition which, individually or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect, (b) conducted its business in any material respect other than in the
ordinary course, (c) except in the ordinary course of business, incurred any
indebtedness for borrowed money or issued any debt securities or assumed,
guaranteed or endorsed the obligations of any other Person, (d) except in the
ordinary course of business, (i) sold, transferred or otherwise disposed of any
of its property or assets or (ii) mortgaged or encumbered any of its property or
assets, (e) suffered any material casualty losses not covered by insurance, (f)
repurchased any of its capital stock or any capital stock of any of its
Subsidiaries, (g) declared, set aside or paid any dividend or other distribution
in respect of its capital stock, other than ordinary dividends and payments
pursuant to the ConLife Surplus Notes permitted under applicable insurance laws,
(h) amended its Certificate or Articles of Incorporation or Bylaws (or similar
organizational documents) or merged with or into or consolidated with any other
Person, (i) split, combined or reclassified its capital stock, (j) issued or
sold (or agreed to issue or sell) any of its equity securities or any options,
warrants, conversion or other rights to purchase any such securities or any
securities convertible into or exchangeable for such securities, or granted, or
agreed to grant any such rights, (k) increased the rates of compensation
(including bonuses) payable or to become payable to any of its officers,
employees, agents, independent contractors or consultants other than increases
made in the ordinary course of business, (l) entered into any new or amended any
existing employment contracts, severance agreements or consulting contracts or
instituted or agreed to institute any increase in benefits or altered its
employment practices or the terms and conditions of employment in each case
other than in the ordinary course of business, (m) changed in any material
respect its underwriting, actuarial or tax accounting methods, principles or
practices,
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(n) in the case of the PennLife Companies and the ConLife Companies, ceased its
lead generation activities other than in the ordinary course of business, (o) in
the case of the PennLife Companies and the ConLife Companies, terminated any
material reinsurance or coinsurance contract (including without limitation, any
surplus relief or financial reinsurance contract), whether as reinsurer or
reinsured other than in the ordinary course of business, (p) entered into any
joint ventures or partnerships of any kind, or (q) entered into any contract or
other agreements to do any of the foregoing.
SECTION 3.10 Litigation. Section 3.10 of the Disclosure Schedule sets
forth a list, as of the date hereof, of all material actions, suits,
arbitrations, investigations or proceedings ("Litigation") pending or, to the
knowledge of Sellers, threatened against any of the Companies or PCFS before any
Governmental Authority or arbitrator. Except as set forth in Section 3.10 of the
Disclosure Schedule, none of the Companies is in default under any material
judgment, decree, injunction or order of any Governmental Authority or
arbitrator outstanding against it.
SECTION 3.11 Property; Liens and Encumbrances.
(a) Section 3.11(a) of the Disclosure Schedule contains a
complete and accurate list of all real property owned or leased by the Companies
as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the Disclosure
Schedule or in the Financial Statements, all properties and assets owned by the
Companies (the "Owned Properties") or leased by the Companies (the "Leased
Properties") are free and clear of all liens, pledges, claims, security
interests, mortgages, assessments, easements, rights of way, covenants,
restrictions, rights of first refusal, defects in title, encroachments and other
burdens (collectively, "Liens") except (i) statutory Liens not yet delinquent or
the validity of which are being contested in good faith by appropriate actions,
(ii) purchase money Liens arising in the ordinary course, (iii) Liens for taxes
not yet delinquent, (iv) Liens reflected in the Financial Statements (which have
not been discharged) and (v) Liens which in the aggregate do not materially
detract from the value or, in the case of personal property, materially impair
the use by the Companies of the property subject thereto or, in the case of real
property, materially impair the present and continued use of such property in
the usual and normal conduct of the business of the Companies. The Companies
have good and indefeasible title to the Owned Properties and good and valid
leasehold interests in the Leased Properties and there are no pending or, to the
knowledge of Sellers, threatened condemnation proceedings affecting any of the
Owned Properties or Leased Properties. To the knowledge of Sellers, the use,
occupancy and condition of each parcel of real property that is an Owned
Property or a Leased Property is in compliance in all material respects with all
applicable laws.
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SECTION 3.12 Certain Agreements.
(a) Except as disclosed in Section 3.12 of the Disclosure
Schedule or in the Financial Statements, none of the Companies or PCFS is a
party to any written (a) agreement, contract, indenture or other instrument
relating to the borrowing of money or the guarantee of any obligation for the
borrowing of money; (b) employment, consulting, compensation or severance
agreement with any of its directors, employees or consultants; (c) agreement,
contract or commitment limiting or restraining it from engaging or competing in
any business; (d) lease pursuant to which it leases the real property set forth
in Section 3.11(a) of the Disclosure Schedule; (e) distribution, dealer,
representation, commission or agency agreement, other than agency agreements
with insurance agents in the ordinary course of business; (f) contract or
agreement with any of its affiliates that will continue after Closing; or (g)
any other contract that is material to the businesses of the Companies to the
extent such contract would be required to be filed pursuant to Item 601(b)(10)
of Regulation S-K under the Exchange Act if the Companies (as a whole) were
subject to the reporting requirements thereunder (each of the foregoing a
"Material Contract"). Each Material Contract is in full force and effect and has
been complied with in all material respects by the Companies and PCFS and, to
the knowledge of Sellers, has been complied with in all material respects by all
other parties thereto. Except as set forth in Section 3.12 of the Disclosure
Schedule, no consent is required under any Material Contract in connection with
the consummation of the transactions contemplated by this Agreement.
(b) Sellers have delivered to Buyer copies of all compensation
agreements, and have otherwise disclosed to Buyer in Section 3.12 of the
Disclosure Schedule all compensation arrangements, between Sellers and/or the
Companies on the one hand, and ▇▇▇▇▇▇ ▇▇▇▇▇▇ on the other hand.
SECTION 3.13 Employee Benefit Plans. Section 3.13(a) of the Disclosure
Schedule contains (i) a true and complete list by employer of all Persons
employed by the Companies, (ii) all ConLife Employees and PCFS Employees who
will be offered employment as contemplated by Section 5.13 and (iii) the terms
of any severance plans pursuant to which any Company Employee would be entitled
to receive payments.
(a) No Seller or any of their affiliates and none of the
Companies (i) currently maintains, administers or contributes to or has any
liability under or with respect to, other than benefits claims in the ordinary
course of business, or (ii) during the six year period preceding the Closing
Date maintained, administered or contributed to: (A) in respect of any plans or
employees in the United States, any employee benefit plan, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including without limitation, any multiemployer plan as defined in
Section 3(37) of ERISA ("Multiemployer Plan") or any other plan subject to Title
IV of ERISA; or (B) any employment contract, bonus, deferred compensation,
incentive compensation, performance compensation, stock
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purchase, stock option, stock appreciation, phantom stock, saving and profit
sharing, severance or termination pay other than statutory or the common law
requirements for reasonable notice, health or other medical, salary
continuation, vacation, sick leave, holiday pay, fringe benefit, reimbursement
program, incentive, life, disability or other (whether insured or self-insured)
insurance, supplementary unemployment benefit, pension retirement, supplementary
retirement, welfare or other employee plan, program, policy or arrangement,
whether written or unwritten, for the benefit of PFI Employees, PCFS Employees,
PennLife Employees or ConLife Employees, except as described in Section 3.13(a)
of the Disclosure Schedule ("Benefit Plans"), but for greater certainty
excluding any such Benefit Plans which are required to be maintained,
administered or complied with under applicable law.
(b) All Benefit Plans comply in all material respects with and
are operated in all material respects in accordance with their terms and
applicable laws and, in respect of U.S. Benefit Plans, all such Benefit Plans
comply in all material respects with and are, and during the six year period
preceding the Closing Date have been, operated in all material respects in
accordance with their terms and in accordance with ERISA and the Code.
(c) True and complete copies of each written Benefit Plan and
a description of any unwritten benefit plan, summary plan descriptions, and the
most recent annual reports on Form 5500, including schedules, audited financial
statements and actuarial valuation reports and funding agreements, if any, have
been delivered to Buyer.
(d) Each Benefit Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS as
to its qualification under the Code and to the effect that any trust of such
Benefit Plan is exempt from taxation under Section 501(a) of the Code, all of
which have been delivered or made available to Buyer; and nothing has occurred
since the date of such determination letter that reasonably would be expected to
negatively affect such qualification or exemption. Except as disclosed in
Section 3.13(d) of the Disclosure Schedule, all Canadian Benefit Plans are duly
registered where required by applicable law (including registration with the
relevant tax authorities where such registration is required to qualify for tax
exemption or other beneficial tax status) and are in material compliance with,
all applicable legislation and administrative guidelines issued by the
regulatory authorities having jurisdiction over such plans.
(e) None of the Companies or any entity required to be
aggregated with any of the Companies pursuant to Code section 414 or ERISA
section 4001(b) ("ERISA Affiliate") have incurred or are reasonably expected to
incur, either directly or indirectly, any liability (other than premiums) to the
Pension Benefit Guaranty Corporation ("PBGC"). No ERISA Affiliate has
contributed to or been obligated to contribute to a Multiemployer Plan during
the six year period preceding the Closing Date.
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(f) Except as disclosed in Section 3.13(f) of the Disclosure
Schedule, there are no pending or, to the knowledge of Sellers, threatened
actions, suits, claims, trials, arbitrations, investigations or other
proceedings by any person, including any present or former participant or
beneficiary under any Benefit Plan (or any beneficiary of any such participant
or beneficiary) involving any Benefit Plan or any rights or benefits under any
Benefit Plan other than ordinary and usual claims for benefits by participants
or beneficiaries thereunder. There has been no failure to act on the part of
Sellers, their affiliates, the Companies, or, to the knowledge of Sellers, any
funding agent or any administrator of any of the Benefit Plans that could
reasonably be expected to subject Sellers, their affiliates, the Companies or
the fund of any such Benefit Plan to the imposition of any penalty with respect
to any Benefit Plans, whether by way of indemnity or otherwise. All
contributions required to have been made or remitted by Sellers or the Companies
to any Benefit Plan under the terms of any such plan any agreement or any other
applicable law have been made within the time prescribed by any such plan,
agreement or law. No "reportable events" (as defined in ERISA section 4043),
"prohibited transactions" (as defined in ERISA section 406) or "accumulated
funding deficiency" (as defined in ERISA section 302) have occurred with respect
to any Benefit Plan for which liability would be incurred by Buyer.
(g) Except as disclosed in Section 3.13(g) of the Disclosure
Schedule, neither PFG nor any of its affiliates maintains or contributes to any
Benefit Plan which provides, or has any liability or obligation to provide, life
insurance, medical or other employee welfare benefits to PFI Employees, PCFS
Employees, PennLife Employees or ConLife Employees (or their beneficiaries) upon
and/or after their retirement, except as may be required by U.S. or Canada
federal, state, provincial or local laws, rules or regulations, and all such
Benefit Plans may be amended and terminated in accordance with the terms
thereof.
(h) Section 3.13(h) of the Disclosure Schedule properly and
adequately reflects, and in the case of clause (ii) below, reflects in
accordance with accounting principles agreed to by Buyer and the Companies and
reflected in Section 3.13(h) of the Disclosure Schedule, any and all liabilities
and obligations of the Companies, on a company-by-company basis, as of January
1, 1998 (or such more recent date as is practicable) for or in respect of: (i)
severance benefits (except for statutory or common law requirements for
reasonable notice); (ii) post-retirement welfare benefits payable in respect of
any PFI Employees, PCFS Employee, PennLife Employees or ConLife Employees who
have retired as of such date; and (iii) any short term disability compensation
or benefits in respect of any active PFI Employees, PCFS Employee, PennLife
Employees or ConLife Employees.
(i) Except as disclosed in Section 3.13(i) of the Disclosure
Schedule, none of the Benefit Plans contains any provision which would result in
any additional benefits, accelerated vesting and/or accelerated payments or
which would subject any employee to an excise tax or result in the loss of
deductibility under Sections 280G or 4999 of the Code solely as a result of the
consummation of the
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transactions contemplated by this Agreement. No step has been taken, no event
has occurred and no condition or circumstance exists that has resulted or could
reasonably result in any Canadian Benefit Plan being ordered or required to be
terminated or wound-up in whole or in part or having its registration under any
applicable law being refused or revoked or being placed under the administration
of any trustee or receiver or any regulatory authority.
(j) None of the Companies, or any organization with respect to
which such Company is a successor or parent corporation (within the meaning of
ERISA section 4069) has engaged in any transaction described in ERISA section
4069.
(k) Since the date of the documents provided in accordance
with Section 3.13(c) above, no promises or commitments have been made by Sellers
or any of their affiliates or the Companies to amend any Benefit Plan or to
provide increased benefits thereunder, except as required by applicable law or
by the Benefit Plans.
(l) Any Benefit Plan that is a pension plan registered under
the Income Tax Act (Canada) which has been created as a result of the division
of a predecessor pension plan or the merger of one or more pension plans, has
received approval therefor from all appropriate regulatory authorities.
(m) Except as permitted by the Canadian Benefit Plans and
applicable law, there has been no withdrawal of surplus assets or any other
amounts from any of the Canadian Benefit Plans other than proper payments of
benefits to eligible beneficiaries, refunds of over-contributions to plan
members and permitted payments of reasonable expenses incurred by or in respect
of such Benefit Plan, for which there is any unsatisfied liability.
(n) All employer contribution holidays have been permitted by
the terms by the Canadian Benefit Plans and have been in accordance with
applicable law, except where there is no unsatisfied liability.
SECTION 3.14 Taxes. Except as set forth in Section 3.14 of the
Disclosure Schedule:
(a) all Tax Returns required to be filed by or with respect to
each of the Companies have been filed, and the Companies have paid all Taxes
that are shown to be due on such Tax Returns and all information provided with
respect to such Tax Returns is complete and accurate in all material respects;
(b) the Companies have paid all Taxes owed by such Companies
(whether or not shown on any Tax Return) for all taxable periods through and
including the Closing Date and there are not and will not be any additional
liabilities for Taxes for any such period other than as reflected in the
Financial Statements as
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current Taxes and, with respect to any period between the latest Financial
Statements and the Closing Date, as reflected in the Closing Statement;
(c) the Companies have given or otherwise made available to
Buyer correct and complete copies of all Tax Returns, examination reports and
statements of deficiencies for periods ending, or transactions consummated,
after December 31, 1994;
(d) there are no outstanding agreements extending or waiving
the statutory period of limitation applicable to any claim for, or the period
for the collection or assessment or reassessment of, Taxes due from any Company
for any taxable period;
(e) no audit or other proceeding by any Governmental Authority
is pending or, to the knowledge of Sellers, threatened with respect to any Taxes
due from or with respect to any Company and no claim has been made by any
Governmental Authority in a jurisdiction where any of the Companies does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction;
(f) there are no Liens for Taxes upon the assets or properties
of any of the Companies, except for statutory Liens for current Taxes not yet
due;
(g) no Company is a party to any agreement relating to the
sharing or allocation of, or indemnification agreement with respect to, Taxes,
or any similar contract or arrangement;
(h) each U.S. domiciled PennLife Company and ConLife Company
is an "insurance company" within the meaning of Treas. Reg. Section 1.801-3(a)
(under former Section 801 of the Code) and subject to taxation under Subchapter
L of the Code for the taxable period ending on the Closing Date and for all
prior taxable periods for which the statute of limitations has not expired;
(i) none of the Companies (i) has income that is includable in
computing the taxable income of a United States person (defined in Section 7701
of the Code) under Section 951 of the Code and (ii) is a passive foreign
investment company within the meaning of Section 1297 of the Code;
(j) none of the Companies has filed a consent under Section
341(f) of the Code;
(k) no property owned by any of the Companies (i) is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Return Act of 1986,
(ii) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or
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(iii) is tax-exempt bond financed property within the meaning of Section 168(g)
of the Code;
(l) none of the Companies is a party to any contract,
agreement or other arrangement which could result in the payment of amounts that
could be nondeductible by reason of Section 162(m) of the Code;
(m) none of the Companies has agreed, or is required to make,
any adjustment under Section 481(a) or Section 807(f) of the Code;
(n) none of the Companies has been a member of an affiliated
group filing a consolidated federal Income Tax Return (other than a group the
common parent of which was PLAC (the "PLAC Group"), in the case of the PennLife
Companies, ConLife (the "ConLife Group"), in the case of the ConLife Companies,
PFG (the "PFG Group"), in the case of the PFI Companies) or has any liability
for Taxes of any Person (other than any member of the PLAC Group, the ConLife
Group or the PFG Group, as the case may be) under Treas. Reg. Section 1.1502-6,
Section 1.1502-78 or similar provision of state, local or foreign law or
regulation, as a transferee or successor, by contract or otherwise;
(o) federal consolidated income Tax Returns or extensions to
file have been (or will be timely) filed by or on behalf of the PLAC Group, the
ConLife Group and the PFG Group for periods with filing dates prior to the
Closing Date;
(p) the Companies have each withheld from their respective
employees, independent contractors, creditors, stockholders and third parties
and timely paid to the appropriate taxing authority proper and accurate amounts
in all respects through all periods in compliance with all Tax withholding and
remitting provisions of applicable laws and have each complied in all material
respects with all Tax information reporting provisions of all applicable laws;
(q) no Seller is a foreign person within the meaning of
Section 1445 of the Code;
(r) the amount of the policyholders surplus account and
shareholder surplus account (as defined in Section 815 of the Code) of each of
the U.S. Insurance Companies is accurately set forth in Section 3.14 of the
Disclosure Schedule;
(s) each U.S. Insurance Company is taxable as a life insurance
company within the meaning of Section 816 of the Code;
(t) all life insurance contracts issued by each U.S. Insurance
Company (whether developed or administered by or reinsured with any unrelated
party) that are subject to Section 7702 of the Code qualify as "life insurance
contracts" within the meaning of Section 7702(a) of the Code;
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(u) all contracts issued by each U.S. Insurance Company
(whether developed or administered by or reinsured with any unrelated party)
that are subject to Section 817 of the Code and the Treasury Regulations
promulgated thereunder have met the diversification requirements applicable
thereto since the issuance of the contract;
(v) all annuity contracts issued by each U.S. Insurance
Company (whether developed or administered by or reinsured with any unrelated
party) that are subject to Section 72(s) of the Code contain all of the
necessary provisions of Section 72(s) of the Code;
(w) the Tax treatment under the Code of all insurance, annuity
or investment policies or contracts; all financial products or annuities; or any
similar or related policy, contract, plan or product, whether individual, group,
or otherwise, issued or sold by any of the U.S. Insurance Companies (whether
developed or administered by or reinsured with any unrelated party) is and at
all times has been the same or not less favorable to the purchaser,
policyholder, or beneficiaries thereof than the Tax treatment under the Code for
which such contracts (products, etc.) qualified or purported to qualify or which
the Insurance Companies represented could be obtained at the time of its
issuance, purchase, modification, or exchange. For purposes of this Section
3.14(w), the provisions of the Code relating to the Tax treatment of such
contracts shall include, but shall not be limited to, Sections 72, 79, 101, 104,
105, 106, 125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505,
817, 817A, 818, 1035, 7702, and 7702A of the Code;
(x) any life insurance contract issued by any U.S. Insurance
Company (whether developed or administered or reinsured with any unrelated
party) which is a modified endowment contract under Section 7702A of the Code
(each, an "MEC") has been marketed as such at all relevant times or the
policyholder otherwise has consented to such MEC status;
(y) all U.S. Insurance Companies have computed their
respective tax reserves in accordance with the requirements of Sections 807, 811
and 846 of the Code;
(z) all annuity contracts issued by each U.S. Insurance
Company (whether developed or administered by or reinsured with any unrelated
party) that are provided under or connected with a plan described in Section
401(a), 403(a) or 403(b) of the Code or which is an individual retirement
annuity or provided under an individual retirement account or annuity, satisfies
the federal income tax laws applicable to such annuity contract;
(aa) there are no currently pending or, to the knowledge of
Sellers, threatened federal, state, provincial, local or foreign audits or other
administrative or judicial proceedings with regard to the Tax treatment of any
product or plan sold,
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issued or administered by the Insurance Companies (whether developed by or
reinsured with any unrelated third party);
(ab) no Insurance Company is a party to any hold harmless,
sharing, allocation or indemnification agreement with respect to the Tax
qualification or treatment of any product or plan sold, issued or administered
by any Insurance Company (whether developed by or reinsured with any unrelated
third party);
(ac) there is no claim, audit, action, suit, proceeding or
investigation now pending or threatened against, with respect to or in
limitation of the net operating loss carryforwards of the Companies as set forth
in Section 3.14 of the Disclosure Schedule (the "NOLs") as of the Closing Date,
including without limitation any limitations under Section 382 of the Code
(other than limitations incurred in connection with the Closing Transactions);
(ad) PennLife is a "qualified insurance corporation" within
the meaning of Section 810 of the Income Tax Regulations (Canada) for the
purposes of Section 116 of the Income Tax Act (Canada) and no Section 116
certificate is required to be obtained pursuant to the Income Tax Act (Canada)
in respect of the transfer of the PC-Canada Shares by PennLife to PLAC;
(ae) PennLife is not and will not be required to pay any Taxes
pursuant to subsection 219(5.1) of the Income Tax Act (Canada) in respect of any
period ending on or prior to the Closing Date and neither PennLife nor PC-Canada
has made or will make in respect of any period ending on or prior to the Closing
Date any election pursuant to subsection 219(5.2) of the Income Tax Act
(Canada);
(af) PC-Canada is a "life insurance corporation" as defined
for purposes of the Income Tax Act (Canada);
(ag) PennLife and PC-Canada are registered under Part IX of
the Excise Tax Act (Canada); and
(ah) each of PennLife and PC-Canada has remitted all Canada
Pension Plan and Quebec Pension Plan contributions, employment insurance
premiums, employer health taxes, workers' compensation premiums and assessments
and any other Taxes payable by it for any period ending on or before the Closing
Date in respect of its employees to the appropriate taxing authority within the
time required by law.
SECTION 3.15 Compliance with Applicable Law; Permits; Policies.
(a) The businesses of the Companies and PCFS are being
conducted in all material respects in compliance with all applicable provisions
of any U.S. and Canadian federal, state, provincial, local or foreign statute,
law, ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or
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other governmental authorization or approval applicable to them, except as set
forth in Section 3.15(a) of the Disclosure Schedule and except for such
noncompliance as has not had or could not reasonably be expected to have a
Material Adverse Effect.
(b) Each Company and PCFS own or validly hold all licenses,
franchises, permits, approvals, authorizations, exemptions, classifications,
certificates, registrations and similar documents or instruments that are
required for its business and operations (in the case of PCFS, relating to the
PCFS Assets), except for those the failure of which to have has not had or could
not reasonably be expected to have a Material Adverse Effect (the "Required
Permits"). All Required Permits relating to insurance are set forth in Schedule
T of each of the PennLife Companies' and ConLife Companies' Annual Statements
for the year ended December 31, 1997, and all other Required Permits are listed
in Section 3.15(b) of the Disclosure Schedule. In all cases, the Required
Permits are valid and in full force and effect and, except as disclosed in
Section 3.15(b) of the Disclosure Schedule, none of Sellers or any Company has
received any notice of any inquiry or proceeding that could reasonably be
expected to result in the suspension, revocation or material limitation of any
such permit; and to the knowledge of Sellers, there is no reasonable basis for
any such suspension, revocation or limitation. None of the Companies or PCFS is
currently the subject of any supervision, conservation, rehabilitation,
liquidation, receivership, insolvency or other similar proceeding nor, other
than as described in Section 3.15(b) of the Disclosure Schedule, are any of the
Companies or PCFS operating under any formal or informal agreement or
understanding with the licensing authority of any State which restricts its
authority to do business or requires it to take, or refrain from taking, any
action.
(c) Except as disclosed in Section 3.15(c) of the Disclosure
Schedule, all forms of insurance policies and riders thereto currently issued by
any PennLife Company or ConLife Company are, to the extent required under
applicable laws, on forms approved by applicable insurance regulatory
authorities of the jurisdictions in which issued or have been filed with and not
objected to by such insurance regulatory authorities within the period provided
for such objection and any premium rates with respect to such policies or riders
required to be filed with or approved by such applicable insurance regulatory
authorities have been so filed or approved and premiums charged conform thereto.
No material deficiencies have been asserted by any Governmental Authority with
respect to any such filings which have not been cured or otherwise resolved to
the satisfaction of such Governmental Authority.
(d) Except as set forth in Section 3.15(d) of the Disclosure
Schedule, each Company (exclusive of their independent agents) and, to the
knowledge of Sellers, their independent agents, have marketed, sold and issued
products of such Company in compliance in all material respects with all laws
applicable to the business of such Company in the respective jurisdictions in
which such products have been sold, including but not limited to laws regulating
advertisements, requiring mandatory disclosure of policy information, requiring
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employment of standards to determine if the purchase of a policy or contract is
suitable for an applicant, prohibiting the use of unfair methods of competition
and deceptive acts or practices and regulating replacement transactions. For
purposes of this Section 3.15(d), "advertisement" means any material designed to
create public interest in life and health insurance policies, annuity contracts
or in an insurer, or in an insurance producer, or to induce the public to
purchase, increase, modify, reinstate, borrow on, surrender, replace or retain
such a policy or contract, and (ii) "replacement transaction" means a
transaction in which a new life or health insurance policy or annuity contract
is to be purchased by a prospective insured and the proposing producer should
know that one or more existing life or health insurance policies or annuity
contracts is to be lapsed, forfeited, surrendered, reduced in value or pledged
as collateral. Except as set forth in Section 3.15(d) of the Disclosure
Schedule, Sellers have not received notice (written or oral) and are not
otherwise aware of any review or investigation by any Governmental Authority of
any marketing conduct and/or selling practices of the Companies or their
independent agents, other than periodic market conduct examinations arising in
the ordinary course of business and Attorney General inquiries in connection
with which no material issues have been raised that have not been resolved to
the satisfaction of the relevant insurance authorities or Attorneys General, as
the case may be.
(e) Except as set forth in Section 3.15(e) of the Disclosure
Schedule, no agent of any of the Companies has any claim against any of the
Companies for any compensation or other amounts (the "Agent Compensation")
(other than the Pre-Sale Obligations, Post-Closing Compensation Obligations or
sales commissions and advances in the ordinary course of business and except for
commitments made by Buyer or by a designee of Buyer on Buyer's behalf, including
PFG but only to the extent PFG is specifically authorized by Buyer in writing).
(f) The Companies have previously delivered or made available
to Buyer true and complete copies of the reports (or the most recent draft
thereof, to the extent any final report is not available) reflecting the results
of the two most recent financial examinations and market conduct examinations of
any of the Companies issued by any insurance regulator.
(g) Except as set forth in Section 3.15(g) of the Disclosure
Schedule, no insurance policy gives the holder thereof the right to receive
dividends, distributions or other benefits based on the earnings or revenues of
such Company.
(h) The PennLife Companies and the ConLife Companies have (i)
timely paid all material state and Canadian guaranty association assessments
that are due, or claimed or asserted by any insurance regulatory authority to be
due, from such Companies, or (ii) provided for all such material assessments in
their statutory financial statements, filed with the appropriate insurance
regulatory authority, to the extent necessary to be in conformity in all
material respects with SAP for such statements.
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(i) Except as set forth in Section 3.15(i) of the Disclosure
Schedule, the December 31, 1997 SAP Financial Statements list all material funds
maintained in a state of licensure by any of the PennLife Companies or the
ConLife Companies under any applicable insurance law (each a "Deposit"),
including, without limitation, any Deposit the beneficial interest of which may
have been transferred in connection with a Reinsurance Agreement. Except as set
forth in Section 3.15(i) of the Disclosure Schedule, the December 31, 1997 SAP
Financial Statements accurately set forth as of December 31, 1997 the dollar
amount of each such Deposit and the name of the depository in which such Deposit
is maintained.
SECTION 3.16 Brokers Fees and Commissions. Except for ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇-▇▇▇▇, ▇▇▇▇▇▇ Inc., no Seller and no Company (or their respective
directors, officers, employees or agents) has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby. PFG
shall be solely responsible for the fees and expenses of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney
and ▇▇▇-▇▇▇▇, ▇▇▇▇▇▇ Inc. in connection with the transactions contemplated
hereby.
SECTION 3.17 Proprietary Rights; Year 2000 Compliance. (a) Except as
disclosed in Section 3.17(a) of the Disclosure Schedule, each Company owns or
possesses the right to use all material trademarks, service marks, patents,
patent rights, assumed names, logos, trade secrets, copyrights and trade names
("Intellectual Property") and all material computer software, programs and
similar systems that are used by it in the conduct of its business and PCFS owns
or possesses the right to use all Intellectual Property and all material
computer software, programs and systems that are used by PCFS in the conduct of
its business, and all such assets and rights are included in the PCFS Assets.
All such Intellectual Property and material computer software, programs and
similar systems are in full force and effect in accordance with their terms.
None of the Companies or PCFS has received any notice of any conflict with or
violation or infringement of or any claimed conflict with or violation or
infringement of, any asserted rights of any other Person with respect to any
such Intellectual Property or computer software, programs, or similar systems.
None of the Companies or PCFS is in conflict with or in violation or
infringement of any asserted rights of any other Person with respect to any such
Intellectual Property or computer software, programs, or similar systems, except
to the extent that any such conflict, violation or infringement does not have,
or could not be reasonably expected to have, a Material Adverse Effect.
(b) Except as disclosed in Section 3.17(b) of the Disclosure
Schedule, all material computer hardware and software (including all computer
hardware and software in embedded systems) used by the Companies and PCFS
(whether such hardware and software is owned by the Companies or PCFS or
licensed from third parties) (collectively, the "Technology Systems") is
designed or is being modified to be used prior to, during and after the calendar
year 2000 and the Companies have taken measures they believe to be sufficient to
prepare such hardware and software to continue to operate during each such time
period to accurately process date data (including, but not limited to
calculating, comparing and sequencing) from,
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into and between the twentieth and twenty-first centuries, including leap year
calculations.
SECTION 3.18 Insurance. Section 3.18 of the Disclosure Schedule
summarizes the amount and scope of the insurance currently in force insuring the
Companies and the PCFS Assets and their respective operations and properties
against loss or liability. All such policies or contracts of insurance are in
material compliance with all applicable laws and all Material Contracts to which
any of the Companies or PCFS is a party. All insurance policies pursuant to
which any such insurance is provided are in full force and effect. No notice of
cancellation or termination of any such insurance policy has been given to any
Company or PCFS and all premiums required to be paid in connection with such
insurance policies have been paid in full.
SECTION 3.19 Environmental Matters. Except as disclosed on Section 3.19
of the Disclosure Schedule:
(a) the operations of the Companies and the real property
currently owned, leased or operated by the Companies or included in the PCFS
Assets are in compliance and, during the period of the ownership or tenancy of
the Companies and PCFS have been in compliance, with all applicable
Environmental Laws, except for such noncompliance as would not reasonably be
expected to have a Material Adverse Effect;
(b) no judicial or administrative proceedings or
investigations are pending or, to the knowledge of Sellers, threatened against
any of the Companies or to the extent relating to the PCFS Assets, PCFS,
pursuant to any applicable Environmental Laws, except for judicial or
administrative proceedings or investigations that could not reasonably be
expected to have a Material Adverse Effect;
(c) no condition exists on any real property currently (or to
the knowledge of Sellers, formerly) owned, operated or leased by any of the
Companies or included in the PCFS Assets arising out of or resulting from any
Release of any Hazardous Material that could reasonably be expected to result in
the Companies or PCFS incurring any liability under Environmental Laws that
would have a Material Adverse Effect and no such property is listed or has been
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
(CERCLIS) or any analogous state or Canadian federal or provincial lists; and
(d) Sellers have delivered or made available to Buyer copies
of all environmental investigations, audits, assessments or other analyses
conducted by or on behalf of, or which are otherwise in the possession of,
Sellers or any Company relating to any real property currently or formerly owned
or leased by any of the Companies or included in the PCFS Assets.
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SECTION 3.20 Books and Records. Copies of all the minute books and
stock record books of the Companies have been delivered or made available to
Buyer for inspection and contain accurate records of all meetings of, and
written consents by, the boards of directors (and any committees thereof) and
shareholders of the Companies from January 1, 1995 to the date hereof and, to
the knowledge of Seller, since their respective incorporations.
SECTION 3.21 Bank Accounts. Section 3.21 of the Disclosure Schedule
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions ("Banks")
at which each of the Companies has an account or safe deposit box or maintains a
banking, custodial, trading, trust or other similar relationship ("Accounts"),
(b) a true and complete list and description of each such Account, including a
list of all authorized signatories and (c) a true and complete description of
all Accounts included in the PCFS Assets and a list of the names and locations
of all Banks where such Accounts are located.
SECTION 3.22 Insurance and Reinsurance.
(a) Section 3.22(a) of the Disclosure Schedule is a true and
complete description of each material contract providing for reinsurance,
coinsurance, excess insurance, ceding of insurance, assumption of insurance or
indemnification of insurance liabilities to which any PennLife Company or
ConLife Company is a party which is currently in effect (the "Reinsurance
Agreements").
(b) Except as required by law or as disclosed in Section
3.22(b) of the Disclosure Schedule, all amounts payable as of the date of this
Agreement by any PennLife Company or ConLife Company under any Reinsurance
Agreement and, to the knowledge of Sellers, all amounts payable as of the date
of this Agreement by any other Person that is a party to any Reinsurance
Agreement have been paid in accordance with the terms of the contracts under
which they arose except, in each case, for immaterial non-payments or
discrepancies that would not adversely affect any of the rights of any PennLife
Company or ConLife Company under any such Reinsurance Agreement. Except as
disclosed in Section 3.22(b) of the Disclosure Schedule, to the knowledge of
Sellers, no reinsurer (other than the Companies) that is a party to any of the
Reinsurance Agreements has a valid defense to payment of its material
obligations under such Reinsurance Agreements or is in default in any material
respect under any Reinsurance Agreement and Seller is not aware of any
impairment of the financial condition of any such other party to the extent that
a default thereunder could reasonably be anticipated. Each Reinsurance Agreement
is in compliance in all material respects with applicable insurance laws and
regulations regarding life and health reinsurance agreements. The Companies have
not entered into any transaction or series of transactions that are required to
be recorded as financial reinsurance pursuant to SAP.
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(c) As of the date hereof, the A.M. Best rating presently held
by any of the Companies has not been reduced since August 27, 1998, and other
than as set forth in Section 3.22(c) of the Disclosure Schedule, the Sellers
have not, as of the date hereof, received any notice of any intended or
potential downgrading by A.M. Best.
SECTION 3.23 Labor Matters.
(a) None of the Companies is a party to any labor or
collective bargaining agreement.
(b) No employees of any Company and none of the ConLife
Employees or PCFS Employees are represented by any labor organization that is
certified to represent such employees under the National Labor Relations Act or
other applicable law. No labor organization or group of employees of any Company
or any ConLife Employees or PCFS Employees has made a pending demand for
recognition, certification, successor rights or a related employer declaration,
and there are no representation, certification, successor rights or related
employer proceedings or petitions or applications for certification seeking a
representation proceeding presently pending or threatened to be brought before
or filed with the National Labor Relations Board or any other labor relations
tribunal or authority. To the knowledge of Sellers, there are no organizing
activities involving any Company or PCFS or Services pending with any labor
organization or group of employees of any Company or any ConLife Employees or
PCFS Employees.
(c) Except as set forth in Section 3.23(c) of the Disclosure
Schedule, there are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened against or involving any Company or Services or PCFS, to the extent
applicable to the ConLife Employees or PCFS Employees who are currently employed
by Services or PCFS, as the case may be.
(d) Each of the Companies and Services (with respect to the
ConLife Employees) and PCFS (with respect to the PCFS Employees) is in
compliance with all laws, regulations and orders applicable to such Company or
the ConLife Employees or PCFS Employees, as the case may be, relating to the
employment of labor, including all such laws, regulations and orders relating to
wages, hours, employment standards, WARN, collective bargaining, discrimination,
civil rights, safety and health, workers' compensation and the collection and
payment of withholding and/or social security taxes and any similar tax, other
than such noncompliance that could not reasonably be expected to have a Material
Adverse Effect.
(e) There is no "mass layoff," "plant closing" or similar
event as defined by WARN or similar Canadian legislation with respect to any of
the
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Companies; provided, that no representation is made as to actions taken by Buyer
in connection with or after the Closing.
(f) Except as set forth in Section 3.23(f) of the Disclosure
Schedule, as of the date hereof, there are no pending or, to the knowledge of
Sellers, threatened complaints, charges or claims against any Company or
Services or PCFS brought or filed with any Governmental Authority, arbitrator or
court based on, arising out of, in connection with or otherwise relating to the
employment or termination of employment by any Company or Services or, to the
extent relating to the PCFS Employees, PCFS, of any individual.
SECTION 3.24 Affiliate Transactions. Section 3.24 of the Disclosure
Schedule sets forth, as of the date hereof, all contracts, agreements,
obligations, commitments and liabilities between any of the Companies and/or
between any of the Companies and PFG or any of PFG's affiliates (other than the
Companies). All such transactions which were required to have been identified or
reported to or approved by the applicable departments of insurance have been
identified, reported and/or approved.
SECTION 3.25 Bonuses. Except as set forth on Section 3.25 of the
Disclosure Schedule, no current or former officer, director or employee or agent
of any of the Companies is a party to or beneficiary of any contract or other
agreement pursuant to which such Person shall receive or is entitled to receive
any retention or other transaction bonus or other payment (a "Transaction
Bonus") from any Company in connection with the transactions contemplated
hereby.
SECTION 3.26 All Related Assets. As of the Closing Date, immediately
following the Closing Transactions, the Companies will own, lease or license all
property and assets necessary to carry on their business and operations as
presently conducted (except to the extent such property or assets have been
transferred or disposed of in connection with the Pre-Closing Restructuring
Transactions), all such assets and properties (other than as Buyer and Sellers
may mutually agree) will be conveyed to Buyer (either indirectly by means of the
transfer of Shares or through the transfer of the PCFS Assets in accordance with
Section 2.2) at the Closing and will as of the Closing permit Buyer to conduct
such businesses and operations in the same manner as such businesses and
operations have been conducted prior to the Closing (except to the extent such
property or assets have been transferred or disposed of in connection with the
Pre-Closing Restructuring Transactions).
SECTION 3.27 Litigation Arising Between Signing and Closing. The
Litigation pending or, to the knowledge of Sellers, threatened against any of
the Companies or PCFS before any Governmental Authority or arbitrator as of the
Closing Date (including the New Litigation and New Employee Claims), considered
in the aggregate, will not expose the Companies to any materially greater risks
or liabilities than the Litigation set forth on Section 3.10 of the Disclosure
Schedule, considered in the aggregate.
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ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER AND AMERICAN EXCHANGE
Buyer and, where indicated, American Exchange, hereby represent and
warrant to Sellers as follows:
SECTION 4.1 Organization; Qualifications and Operations. Each of Buyer
and its Subsidiaries (collectively, the "Buyer Parties") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted and, in the case of Buyer, to own directly or
indirectly the Shares and the PCFS Assets. Each Buyer Party is qualified or
licensed to do business and is in good standing in each jurisdiction in which
the ownership or leasing of property by it or the conduct of its business
requires such licensing or qualification, except where the failure to be so
qualified or licensed will not affect Buyer's ability to consummate the
transactions contemplated by this Agreement and will not have a material adverse
effect on the business, results of operations or financial condition of the
Buyer Parties, taken as a whole (a "Buyer Material Adverse Effect").
SECTION 4.2 Authorization. Buyer has full corporate power and authority
to execute and deliver this Agreement and each other document to be delivered by
Buyer in connection herewith, including the UAFC Share Purchase Agreement, and
to consummate the transactions contemplated hereby and thereby. American
Exchange has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery by each of Buyer and American Exchange of this Agreement and the
UAFC Share Purchase Agreement (in the case of Buyer only), the performance by
Buyer and American Exchange of their respective obligations hereunder and
thereunder, and the consummation by Buyer and American Exchange of the
transactions contemplated hereby and thereby, have been duly authorized by
Buyer's and American Exchange's Board of Directors. Except for the approval of
the shareholders of Buyer of the matters requiring shareholder approval set
forth in the UAFC Share Purchase Agreement, no other corporate proceeding on the
part of either Buyer or American Exchange is necessary to authorize the
execution and delivery of this Agreement and each other document to be delivered
by Buyer in connection herewith, including the UAFC Share Purchase Agreement, or
to consummate the transactions contemplated hereby and thereby. Simultaneously
with the execution of this Agreement on December 31, 1998, (i) shareholders
owning at least 51% of the issued and outstanding voting securities of Buyer and
(ii) shareholders owning at least 51% of the issued and outstanding Series C-1
Convertible Preferred Stock of Buyer (the "Series C-1 Holders") executed a
voting agreement in the form attached hereto as Annex B, pursuant to which such
shareholders agreed to vote in favor of the matters
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requiring shareholder approval set forth in the UAFC Share Purchase Agreement
(which percentage of shareholders, in respect of the issued and outstanding
voting securities and in respect of the Series C-1 Holders, voting as a separate
class, is sufficient to approve such matters). Each of this Agreement and the
UAFC Share Purchase Agreement (in the case of Buyer only) has been duly and
validly executed and delivered by each of Buyer and American Exchange and
constitutes a valid and binding obligation of Buyer enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 4.3 No Violation. Subject to the receipt by Buyer of the Buyer
Approvals identified in Section 4.5 below and except as set forth in Section 4.3
of the Disclosure Schedule, neither the execution and delivery by each of Buyer
and American Exchange of this Agreement or by Buyer of the UAFC Share Purchase
Agreement, the performance by Buyer and American Exchange of their respective
obligations hereunder and thereunder nor the consummation by each of Buyer and
American Exchange of the transactions contemplated hereby and thereby will (a)
violate, conflict with or result in any breach of any provision of the Articles
of Incorporation or Bylaws of any Buyer Party, (b) violate or conflict with or
result in a violation or breach of, or constitute a default (with or without due
notice or lapse of time or both) under the terms, conditions or provisions of
any note, bond, mortgage, indenture or deed of trust, or any license, lease or
agreement to which any Buyer Party is a party or by which any of their assets is
bound or (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any Governmental Authority applicable to any Buyer Party
or any of their assets, except in each case as would not have a Buyer Material
Adverse Effect.
SECTION 4.4 Capitalization. As of the date hereof, the authorized
capital stock of Buyer consists of: (i) 20,000,000 shares of common stock, par
value $0.01 per share ("Buyer Common Stock"); (ii) 500 shares of Series B
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Series B Preferred"); (iii) 100,000 shares of Series C Convertible Preferred
Stock, par value $1.00 per share, of the Company (the "Series C Preferred");
(iv) 22,500 shares of Series D-1 Convertible Preferred Stock, par value $1.00
per share, of the Company (the "Series D-1 Preferred"); and (v) 17,500 shares of
Series D-2 Convertible Preferred Stock, par value $1.00 per share, of the
Company (the "Series D-2 Preferred"). As of the date hereof, Buyer has 7,638,057
shares of Buyer Common Stock, 400 shares of Series B Preferred, 51,680 shares of
Series C Preferred, 22,500 shares of Series D-1 Preferred and no shares of
Series D-2 Preferred issued and outstanding. All of such outstanding shares have
been validly issued, are fully paid and, except as provided under Section 630 of
the Business Corporation Law of New York (relating to employee wages),
nonassessable, and were not issued in violation of any preemptive rights. Except
as set forth in Section 4.4 of the Disclosure Schedule, as of the date
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hereof, there are 2,673,991 warrants to purchase Buyer Common Stock issued and
outstanding.
SECTION 4.5 Consents and Approvals. Except as set forth in Section 4.5
of the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any third party or any
Governmental Authority is necessary for Buyer and American Exchange to enter
into this Agreement or the UAFC Share Purchase Agreement (in the case of Buyer
only) or for the consummation by Buyer and American Exchange of the transactions
contemplated by this Agreement or the UAFC Share Purchase Agreement (in the case
of Buyer only) other than consents and approvals of or filings or registrations
with (a) the DOJ pursuant to the HSR Act, (b) the PennLife Insurance Approvals
and the ConLife Insurance Approvals, (c) the insurance departments of the States
of New York, Texas, Florida; (d) and the federal and provincial governments of
Canada, (e) the Commission pursuant to the requirements of the Exchange Act and
(f) the approval of the shareholders of Buyer at a special meeting of
shareholders of Buyer of the matters requiring shareholder approval as set forth
in the UAFC Share Purchase Agreement, in accordance with New York law and the
rules of Nasdaq (collectively, the "Buyer Approvals").
SECTION 4.6 Brokers' Fees and Commissions. Except for Chase Securities
Inc. ("Chase Securities"), Capital Z Management Inc., Chase Bank and Advest,
Inc. ("Advest"), neither Buyer nor any of its directors, officers, employees or
agents has employed any investment banker, broker or finder in connection with
the transactions contemplated hereby. Buyer shall be solely responsible for the
fees and expenses of Chase Securities, Capital Z Management Inc., Chase Bank and
Advest in connection with the transactions contemplated hereby.
SECTION 4.7 Purchase for Investment. Each of Buyer and American
Exchange is acquiring the Shares (as applicable) for its own account for
investment purposes and not with a view to the distribution of the Shares (as
applicable). Each of Buyer and American Exchange has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Shares (as applicable). Each of
Buyer and American Exchange is an "accredited investor" as defined in Rule 501
of the Securities Act of 1933, as amended. Neither Buyer nor American Exchange
will, directly or indirectly, dispose of the Shares except in compliance with
applicable federal and state securities laws.
SECTION 4.8 Financing. Concurrently with the initial execution of this
Agreement, Buyer entered into a Stock Purchase Agreement (the "UAFC Share
Purchase Agreement") with Capital Z Financial Services Fund II, L.P. ("Capital
Z"), which is being amended on the date hereof, pursuant to which Buyer has
agreed to issue and sell to Capital Z, and Capital Z has agreed to purchase and
acquire from Buyer, on the terms and subject to the conditions contained
therein, shares of Buyer Common Stock (subject to adjustment in accordance with
the UAFC Share Purchase Agreement) for the purchase price set forth in the UAFC
Share Purchase Agreement.
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The proceeds of such issuance will be used to fund a portion of the Purchase
Price. In addition, Chase Manhattan Bank, N.A. ("Chase Bank") and Chase
Securities have issued a commitment letter (the "Chase Commitment") for the
Chase Bank Facility, the proceeds of which will be used to finance the balance
of the Purchase Price. True and complete copies of the UAFC Share Purchase
Agreement and the Chase Commitment have been delivered to PFG.
SECTION 4.9 SEC Reports. Except as set forth in Section 4.9 of the
Disclosure Schedule, Buyer has timely filed with the Commission (a) Buyer's
Annual Report on Form 10-K for the year ended December 31, 1997, (b) Buyer's
Quarterly Reports on Form 10-Q for the quarters ended March 31 June 30, and
September 30, 1998, (c) all proxy statements relating to meetings of
shareholders of Buyer occurring in 1997 and 1998, (d) all Current Reports on
Form 8-K required to be filed since January 1, 1998, (e) all amendments and
supplements required to be filed to all such reports, and (f) all other forms,
reports, statements and other documents required to be filed with the Commission
(all such documents in clauses (a) through (f) herein are referred to as the
"SEC Reports"). Such SEC Reports filed with the Commission were prepared in all
material respects in accordance with the requirements of applicable law and did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading in light of the
circumstances under which they were made. Buyer has delivered or made available
to Sellers true and complete copies of all of the SEC Reports.
SECTION 4.10 Absence of Undisclosed Liabilities. Except as set forth in
Section 4.10 of the Disclosure Schedule, as of the date hereof, and as of the
Closing Date, except for matters relating to the transactions contemplated by
this Agreement or as disclosed in the SEC Reports filed prior to the date
hereof, there are no liabilities or obligations of the Buyer Parties that are
required to be reflected on a balance sheet prepared in accordance with GAAP
other than (a) liabilities and obligations reserved against in the financial
statements constituting a part of the SEC Reports and not heretofore discharged,
(b) policyholder benefits payable or other liabilities or obligations arising in
the ordinary course of business, or (c) liabilities and obligations disclosed in
Section 4.10 of the Disclosure Schedule.
SECTION 4.11 Absence of Certain Changes. Except as disclosed in Section
4.11 of the Disclosure Schedule or the SEC Reports filed prior to the date
hereof or as permitted or contemplated by this Agreement, since September 30,
1998, none of the Buyer Parties has (a) experienced any change, event or
condition which, individually or in the aggregate, has had or could reasonably
be expected to have a Buyer Material Adverse Effect or (b) conducted its
business in any material respect other than in the ordinary course.
SECTION 4.12 Compliance with Applicable Law; Permits; Licenses. Except
as set forth in Section 4.12 of the Disclosure Schedule:
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(a) The businesses of the Buyer Parties are being conducted in
all material respects in compliance with all applicable provisions of any
material federal, state, local or foreign statute, law, ordinance, rule,
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to them,
except for such noncompliance as has not had or could not reasonably be expected
to have a Buyer Material Adverse Effect.
(b) Each Buyer Party owns or validly holds all material
licenses, franchises, permits, approvals, authorizations, exemptions,
classifications, certificates, registrations and similar documents or
instruments that are required for its business and operations, except for those
the failure of which to have has not had or could not reasonably be expected to
have a Buyer Material Adverse Effect. All such licenses, franchises, permits,
approvals, authorizations, exemptions, classifications, certificates,
registrations and similar documents or instruments are valid and in full force
and effect and none of the Buyer Parties has received any notice of any inquiry
or proceeding that could reasonably be expected to result in the suspension,
revocation or material limitation of any such license; and to the knowledge of
Buyer, there is no reasonable basis for any such suspension, revocation or
limitation. None of the Buyer Parties is currently the subject of any
supervision, conservation, rehabilitation, liquidation, receivership, insolvency
or other similar proceeding nor are any of the Buyer Parties operating under any
formal or informal agreement or understanding with the licensing authority of
any State which restricts its authority to do business or requires it to take,
or refrain from taking, any action.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business Prior to the Closing. Except as
expressly contemplated by this Agreement (including without limitation the
Pre-Closing Restructuring Transactions (defined below), the Closing Transactions
and the other transactions described as conditions to the consummation of the
transactions contemplated by this Agreement specified in Article VI hereof), as
set forth in Section 5.1 of the Disclosure Schedule or with the prior written
consent of Buyer (not to be unreasonably withheld or delayed), during the period
from the date of this Agreement to the Closing, PFG and PLAC will cause each
PennLife Company to, PFG and SFC will cause each ConLife Company and Services
to, and PFG will cause each PFI Company and PCFS to, conduct its business and
operations according to its ordinary and usual course of business and will use
all reasonable efforts consistent therewith to preserve intact and, as
applicable, maintain in good repair its properties, assets and business
organizations, to keep available the services of its officers, agents and
employees and to maintain satisfactory relationships with policyholders, agents
and regulators, in each case in the ordinary course of business. Without
limiting the generality of the foregoing, and except as otherwise provided in
this Agreement and as set forth in Section 5.1 of the Disclosure Schedule or
with the prior written consent
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of Buyer (not to be unreasonably withheld or delayed), prior to the Closing, PFG
and PLAC will not permit any of the PennLife Companies to, PFG and SFC will not
permit any of the ConLife Companies or Services to, and PFG will not permit any
of the PFI Companies or PCFS to:
(a) propose or adopt any amendment to its Certificate or
Articles of Incorporation or Bylaws (or similar organizational documents);
(b) except in the ordinary course of business, incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse the obligations of any other Person except for obligations
of its Subsidiaries;
(c) (i) adopt any new Benefit Plan (including any stock
option, stock benefit or stock purchase plan) or amend any existing Benefit Plan
in any material respect, except for changes which are less favorable to
participants in such plans or as may be required by applicable law or (ii)
increase in any manner the rate or terms of compensation of any of its
directors, officers, agents or employees, except such increases as are granted
in the ordinary course of business consistent with past practice, or enter into
any employment, severance or collective bargaining agreement;
(d) enter into any agreement with any officer, director,
employee, general agent or sales agent of the Companies, Services or PCFS
pursuant to which such Persons will be entitled to receive from any Company any
Transaction Bonus;
(e) (i) sell, transfer or otherwise dispose of any of its
property or assets (not including those assets constituting investment
securities of the Companies, which are the subject of paragraph (f) below) other
than in the ordinary course consistent with past practices and, in any event, if
the value of such properties or assets would, individually or in the aggregate,
exceed $500,000 or (ii) mortgage or encumber any of its property or assets;
(f) except in the ordinary course consistent with past
practices, sell, transfer or otherwise dispose of any securities in the
Companies' investment portfolios;
(g) enter into or terminate any other material agreements,
commitments or contracts, except agreements, commitments or contracts made or
terminated in the ordinary course of business;
(h) (i) split, combine or reclassify the Shares, (ii) declare,
set aside or pay any dividend or other distribution payable in cash, stock or
property with respect to the Shares, other than those dividends or distributions
set forth in Section 5.1(h) of the Disclosure Schedule, (iii) issue, sell or
pledge, or authorize or propose the issuance, sale or pledge of any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or
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rights of any kind to acquire, the Shares or any of its capital stock, or (iv)
redeem, purchase or otherwise acquire directly or indirectly any of its capital
stock;
(i) except in the ordinary course of business or with respect
to capital projects approved prior to the date hereof, enter into any agreement
or commitment involving an aggregate capital expenditure or commitment exceeding
$100,000;
(j) take any action that would intentionally result in a
breach of the representations and warranties contained in Article III of this
Agreement;
(k) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization;
(l) materially change any of the tax or financial accounting
methods or practices used by it unless required by GAAP, SAP or applicable law;
(m) settle or compromise any claim (including arbitration) or
litigation, which after insurance reimbursement involves an amount in excess of
$250,000 or otherwise is material to the Company involved or the Companies taken
as a whole;
(n) file any amended Tax Return or settle or compromise any
claim relating to Taxes;
(o) make any payment, loan or advance of any amount to or in
respect of, or engage in the sale, transfer or lease of any of its property or
assets to, or enter into any contract with, any affiliate (other than those
dividends or distributions set forth in Section 5.1(h) of the Disclosure
Schedule or pursuant to arrangements already in place prior to the date hereof
and described in Section 3.24 of the Disclosure Schedule);
(p) amend the terms of or terminate any (i) Material Contracts
or Reinsurance Agreements (other than an extension of the terms, or termination
in accordance with the scheduled termination, of such Material Contract or
Reinsurance Agreements expressly required by their terms) or (ii) contracts,
agreements or arrangements with any affiliate to cause any change in the cost,
services being provided, or term of any such agreements, other than as
specifically contemplated by this Agreement;
(q) enter into or renew (other than a renewal of such contract
expressly required by the terms of such contract) any contract that would be
considered a Material Contract or Reinsurance Agreement (including any
contracts, agreements or arrangements with any affiliates);
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(r) engage in any transaction with any affiliate, except to
the extent provided in this Agreement; or
(s) agree to take any of the foregoing actions.
SECTION 5.2 Management of Companies. Sellers shall, from the date of
this Agreement through the Closing Date, cause management of the Companies to
consult on a periodic basis and in good faith with the employees and
representatives of Buyer concerning the management of the Companies' businesses,
including without limitation the policies and practices of the Companies with
respect to (i) the ceding or assumption of reinsurance or the termination or
modification of existing Reinsurance Agreements (except as contemplated by this
Agreement), (ii) significant underwriting, actuarial, Tax or accounting issues
(including matters related to Tax audits or the establishment, review and
modification of insurance and other reserves), (iii) significant matters
relating to the conditions, forms and pricing of new kinds of policies and (iv)
significant matters relating to the agency force, product distribution,
commissions and similar matters; provided, however, that management of the
Companies shall not consult with employees and representatives of Buyer on any
matter if, based on advice of counsel, management determines that such
consultation might violate the provisions of the HSR Act or any other laws.
SECTION 5.3 Access to Information.
(a) Between the date hereof and the Closing Date, PLAC, PFG
and SFC shall cause the Companies, Services and PCFS to give to Buyer and its
counsel, accountants and other authorized representatives and agents, full
access, during regular business hours and upon reasonable advance notice, to any
and all of their respective premises, properties, contracts, books and records,
and will cause their respective officers and employees to furnish to Buyer and
its representatives, except where prohibited by law, any and all data and
information pertaining, directly or indirectly, to the Companies, the ConLife
Employees, the PCFS Employees and the PCFS Assets that Buyer shall from time to
time reasonably request, and shall permit Buyer and its representatives to make
extracts and copies thereof. Buyer shall not exercise its rights under this
Section 5.3(a) in such a manner as to unreasonably interfere with the ordinary
operations of any of the Companies, Services or PCFS.
(b) As part of the foregoing review, PennLife shall, and PFG
and PLAC shall cause PennLife to, retain and permit the Reserves Consultants to
conduct independent reviews of all insurance reserves of PennLife (other than
life insurance reserves), including but not limited to disability income claim
reserves.
(c) If the transactions contemplated herein are consummated,
Buyer covenants and agrees that it shall preserve and keep the records of the
Companies delivered to it hereunder for a period of seven years from the Closing
Date, and shall make such records available to PLAC, PFG and SFC (without
charge, other than reasonable photocopying expenses if copies are so requested
by PFC, PLAC or SFC),
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as reasonably requested by PLAC, PFG and SFC in connection with any legal
proceedings by or against, or governmental investigations of, PLAC, PFG and SFC
or any of their affiliates, or in connection with any tax examination of PLAC,
PFG and SFC or any consolidated group of which any of them was a part or for any
other proper business purpose of PLAC, PFG or SFC or their affiliates.
(d) If the transactions contemplated herein are consummated,
Buyer, Sellers and the Companies jointly covenant and agree that, from and after
the Closing Date, each will use its reasonable best efforts to cooperate with
each other in connection with (i) the preparation of any Tax Return described in
Section 5.17(e) or 5.17(f) of this Agreement and (ii) any action, suit,
proceeding, investigation or audit of any of them relating to any Tax liability
that may be the subject of indemnification under Article VIII of this Agreement.
In furtherance thereof, Buyer, Sellers and the Companies further covenant and
agree to promptly respond to all inquiries related to such matters and to
provide, to the extent reasonably possible, substantiation of transactions and
to make available and furnish appropriate documents and personnel in connection
therewith.
SECTION 5.4 HSR Act Filings. As soon as practicable after the date
hereof, PFG and Buyer shall make appropriate filings with the DOJ under the HSR
Act, with respect to the transactions contemplated by this Agreement. In
connection with such filings, the parties hereto shall, in cooperation with each
other, and as promptly as reasonably practicable from time to time hereafter,
make all such further filings and submissions, and take such further action, as
may be required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
provisions of this Section 5.4. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
SECTION 5.5 State Regulatory Approvals. As soon as practicable after
the date hereof, Buyer shall file all applications and other documents, and
shall use its reasonable best efforts to obtain all consents and approvals, as
are required to be filed or obtained by it under the applicable laws of the
States of Texas, North Carolina, Pennsylvania, New York and Florida and the
federal or provincial government of Canada, as applicable, and of any other
applicable jurisdictions, including all requisite approvals of the insurance
regulatory authorities in such jurisdictions and all other governmental
approvals required for consummation of the transactions contemplated by this
Agreement, in each case as promptly as is practicable. PFG and PLAC shall cause
the PennLife Companies, PFG and SFC shall cause the ConLife Companies and
Services, to the extent necessary, and PFG shall cause the PFI Companies and
PCFS, to the extent necessary, to take all such actions (other than the payment
of money not then due and owing or the provision of other consideration) as are
reasonably requested by Buyer to assist Buyer in completing all such filings and
obtaining all such consents and approvals as are required to be made and
obtained. Buyer shall take all such actions (other than the payment of money not
then due and owing or the provision of other consideration) as are reasonably
requested by PLAC, PFG, SFC
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and ConLife to assist in completing all filings and obtaining all consents and
approvals as any of them may be required to make and obtain.
SECTION 5.6 Pre-Closing Restructuring Transactions; Other Pre-Closing
Matters.
(a) At or prior to the Closing, PLAC, PFG and SFC shall cause
to occur the transactions listed in Annex C (the "Pre-Closing Restructuring
Transactions"); provided, however, that the parties acknowledge that a portion
of the Purchase Price will be used to effect certain Pre-Closing Restructuring
Transactions simultaneously with the Closing.
(b) Prior to the Closing, Sellers shall pay in full all
amounts due or to become due in respect of the lease for ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇. In addition, prior to the Closing, PFG
will assign the ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Stadium Lease Agreement to a Subsidiary of PFG
(other than any of the Companies); provided, that if PFG is unable to assign
such lease agreement, PFG shall pay all amounts owing and due with respect to
such lease agreement for the full term thereof and shall be entitled to all of
the benefits thereof.
SECTION 5.7 Estimated Statement. PFG shall prepare and deliver (no
later than five Business Days prior to the Closing Date) to Buyer a pro forma
statement (the "Estimated Statement") reflecting PFG's good faith estimate of
the capital and surplus (excluding AVR and IMR) of the PennLife Companies and
the ConLife Companies as of the Closing Date assuming that the transactions
contemplated hereby (including the Closing Transactions and the Pre-Closing
Restructuring Transactions) occurred on and as of such date. The Estimated
Statement shall be prepared in accordance with SAP using the assumptions and
methodologies used in the preparation of the 1998 SAP Financial Statements. The
Estimated Statement will also include an estimate for each Company of its
respective tax liabilities under the tax allocation agreements listed on Exhibit
G hereto.
SECTION 5.8 Transaction Bonuses. PFG, PLAC or SFC shall pay at or prior
to Closing all Transaction Bonuses payable to those officers, directors,
employees or agents set forth on Section 3.25 of the Disclosure Schedule or
otherwise agreed by Buyer and Sellers prior to Closing in accordance with
Section 5.1(d). To the extent such payments are made by any of the Companies,
PFG, PLAC or SFC shall reimburse the relevant Companies for the full amount of
such payments at Closing. Buyer shall cause the Companies to assume all
obligations under the retention agreements referenced in Section 3.25 of the
Disclosure Schedule arising after the Closing, other than the obligation to pay
the Transaction Bonuses.
SECTION 5.9 Payments to Agents. (a) Except as provided in Sections
5.9(b) or (c) below, at or prior to Closing, PFG, PLAC or SFC shall pay any and
all amounts payable to any and all agents and other persons under compensation
arrangements made or allegedly made in connection with, in
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contemplation of or otherwise relating to the proposed management-led buyout of
PennLife (the "Pre-Sale Obligations").
(b) At or prior to Closing, Buyer will (i) enter into
investment agreements (the "Investment Agreements") with respect to the Buyer
Common Stock to be purchased by certain agents of PennLife, (ii) adopt
commission schedules and (iii) adopt stock-based and other compensation plans,
in each case on terms consistent with Schedule 5.9(b) (the "Post-Closing
Compensation Obligations").
(c) At and after the Closing, Buyer will cause PennLife to
make all cash payments that relate to the Pre-Sale Obligations to the extent
that such amounts are reserved for such purpose on the Unaudited Financial
Statements and the Audited Financial Statements and set forth in Section 5.9 of
the Disclosure Schedule.
SECTION 5.10 All Reasonable Efforts.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done as promptly as practicable,
all things necessary, proper and advisable under applicable laws and regulations
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement including, without limitation, all actions
necessary to satisfy any conditions set forth in the Chase Commitment. If at any
time after the Closing any further action is necessary or desirable to carry out
the purposes of this Agreement, including, without limitation, the execution of
additional instruments, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
(b) At the Closing, PFG will assign to Buyer the non-exclusive
right to enforce the rights of PFG under the confidentiality agreements entered
into between ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, as agent for PFG and the Companies, and the
prospective purchasers of the Companies to the extent that such rights pertain
to the Companies.
SECTION 5.11 Public Announcements. The parties hereto will consult with
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld or delayed) upon the content and timing of any press
release or other public statements with respect to the transactions contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations as advised by
counsel; provided, however, that each party will give prior notice to the other
parties of the content and timing of any such press release or other public
statement required by applicable law or by obligations pursuant to any listing
agreement with any securities exchange or any stock exchange regulations.
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SECTION 5.12 Disclosure Supplements. From time to time prior to the
Closing, PLAC, PFG and SFC may supplement or amend the Disclosure Schedule
delivered in connection herewith with respect to any matter which, if existing
or occurring at or prior to the date of this Agreement, would have been required
to be set forth or described in such Disclosure Schedule or which is necessary
to correct any information in such Disclosure Schedule which has been rendered
inaccurate thereby. Such supplements and amendments shall not be given effect
for purposes of Section 6.1(d); however, if the Closing occurs, Buyer shall be
deemed to have waived any right or claim it may otherwise have or have had on
account of any matter so disclosed in such supplement or amendment.
SECTION 5.13 Employment and Employee Benefits.
(a) Buyer shall offer or shall cause to be offered employment
to all PCFS Employees (other than such employees who are disabled for purposes
of the long-term disability plans, if any, applicable to such employees)
employed immediately prior to the Closing Date upon the same terms and
conditions of employment as in effect immediately prior to the Closing Date,
which employment shall be effective on the Closing Date; provided, however, that
Buyer shall not be obligated to offer employment to any PCFS Employees hired
between the date hereof and the Closing Date who were hired without the consent
of Buyer other than replacement employees performing functions substantially
similar to his or her predecessor. Buyer shall be liable, and shall indemnify
and hold Sellers harmless from any and all obligations or liabilities,
contingent or otherwise, relating to or arising from the employment or
termination of employment of the PennLife Employees or PFI Employees or any PCFS
Employees hired pursuant to the first sentence of this Section 5.13(a)
(together, the "Company Employees"), with respect to periods after the Closing
Date. Sellers shall be liable for, and shall indemnify and hold Buyer harmless
from any and all obligations or liabilities, contingent or otherwise, relating
to or arising from the employment or termination of employment of any other
employees of PFG or any of its affiliates (other than any of the Companies),
including any PCFS Employees not hired pursuant to the first sentence of this
Section 5.13(a) and any ConLife Employees with respect to periods up to and
after the Closing Date, except to the extent that such obligations and
liabilities are accrued for and are reflected on the Companies' balance sheets.
(b) At and following the Closing Date: (i) Buyer shall
administer and pay the claims, liabilities and expenses, and shall indemnify and
hold Sellers harmless with respect to Benefit Plans that are sponsored or
maintained by the Companies (the "Buyer Plans"), to the extent that such claims,
liabilities and expenses relate to the Company Employees and (A) relate to
periods after the Closing Date or (B) relate to periods prior to the Closing to
the extent that such claims, liabilities and expenses are accrued and are
reflected on the Companies' balance sheets; and (ii) Sellers shall indemnify and
hold Buyer harmless with respect to claims, liabilities and expenses under the
Buyer Plans, to the extent that such claims, liabilities and expenses relate to
periods prior to the Closing and are not accrued or reflected on the
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Companies' balance sheets. At and following the Closing Date, Sellers shall
administer and pay the claims, liabilities and expenses, and shall indemnify and
hold Buyer harmless, with respect to all claims, liabilities and expenses
relating to (i) any Benefit Plans that are not Buyer Plans, (ii) any "employee
benefit plans" (as defined in Section 3(3) of ERISA) other than the Benefit
Plans currently or previously sponsored by Sellers, and (iii) any pension plans,
whether or not subject to Title IV of ERISA, and any liabilities or expenses
incurred by any entity that is required to be aggregated with the Companies
pursuant to section 414(b), (c) or (m) of the Code, immediately prior to, but
not immediately after, the Closing Date, to the extent that any such claims,
liabilities and expenses are not accrued or are not reflected in the Companies'
balance sheets.
(c) Without limiting or expanding Buyer's obligations with
respect to the Post-Closing Stock-Based Compensation contemplated in Section
5.9(b) and subject to the last sentence of Section 5.13(d) Buyer shall, and
shall cause its Subsidiaries (including the Companies), to provide employee
benefits for Company Employees that are at least substantially comparable in the
aggregate to the employee benefits and compensation provided to similarly
situated Persons (i) by Sellers or their affiliates under the Benefit Plans and
compensation arrangements in effect as of the Closing Date or (ii) by Buyer
under its employee benefit plans and compensation arrangements in effect for its
employees. Buyer shall or shall cause the Companies to pay all accrued and
unpaid compensation, including vacation pay, as of the Closing Date in respect
of the Company Employees except as provided in Section 5.8 or 5.13(b).
(d) If Company Employees are included in any benefit plan
(including without limitation, provision for vacation) of Buyer or its
Subsidiaries, such employees shall receive credit for service prior to the
Closing Date with Sellers or any of their Subsidiaries or affiliates to the same
extent such service was counted under similar Benefit Plans for purposes of
eligibility, vesting and eligibility for retirement, and benefit accrual with
respect to vacation, disability and severance. Buyer shall use reasonable
efforts to provide medical, dental and health plan coverage to Company Employees
as of the Closing Date that shall not include pre-existing condition exclusions,
except to the extent such exclusions were applicable under the similar Benefit
Plan as of the Closing Date, and such plans shall provide credit for any
deductibles and co-payments applied or made with respect to each Company
Employee in the calendar year of the Closing. Buyer assumes the obligation, if
any, to provide coverage to the extent required by Part 6 of Title I of ERISA
from and after the Closing Date to Company Employees (but not any ConLife
Employees or PCFS Employees) who terminated their employment on or before the
Closing Date. No benefits are guaranteed or promised hereunder to any Company
Employee with respect to stock option, bonus or incentive plans, but may be so
provided by Buyer in its sole discretion.
(e) Prior to or effective as of the Closing Date, Sellers
shall cause the Companies to contribute or accrue employer matching
contributions for the
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portion of the calendar year prior to the Closing Date, with respect to all
Company Employees, and shall immediately thereafter fully vest all such Company
Employees' accounts under any 401(k) plan maintained by Sellers or their
Subsidiaries prior to the Closing Date for the benefit of Company Employees. As
soon as practicable after the Closing Date, Buyer shall cause a 401(k) plan
maintained by Buyer or the Companies to accept "eligible rollover
contributions," within the meaning of Section 402(f)(2)(A) of the Code, from any
401(k) plan maintained by Sellers or their Subsidiaries prior to the Closing
Date, for the benefit of Company Employees.
(f) Notwithstanding any other provision of this Section 5.13,
for the period from the Closing Date through the last day of the first calendar
month starting after the Closing Date (the "Transition Period"), Sellers agree
(i) to administer the Buyer Plans consistent with past practice in accordance
with the terms of such Buyer Plans and in compliance with applicable laws and
(ii) to the extent Company Employees on or prior to the Closing Date are
benefitting under or are covered by Benefit Plans that are not Buyer Plans,
including without limitation any medical and life insurance plan maintained by
PFG or any other Seller (but excluding any 401(k), pension or severance plan)
such Company Employees may continue to participate in and benefit under such
Benefit Plans through the last day of the Transition Period. Buyer shall bear
the costs of (i) administering the Buyer Plans for the Transition Period and
(ii) maintaining the participation of such Company Employees in the Benefit
Plans that are not Buyer Plans during the Transition Period. Buyer shall
indemnify, defend and hold harmless Sellers (other than, following the Closing,
Sellers that are Companies) from and against all Losses (as defined below) based
upon, arising out of or otherwise in respect of Sellers' services under this
Section 5.13(f); provided, however, that Sellers shall not, in the performance
of their responsibilities under this Section 5.13(f), intentionally violate the
terms of such Buyer Plans or Benefit Plans as applicable, and applicable laws
including, but not limited to, ERISA and the Code.
SECTION 5.14 Nonsolicitation. Each of PLAC, PFG and SFC and any of its
affiliates (other than the Companies) hereby agrees that, for a period
commencing on the Closing Date and ending on the second anniversary of the
Closing Date, it shall not, without Buyer's prior written consent, directly or
indirectly, solicit or hire any of the current officers, general agents or sales
agents (down to the level of district manager) of any of the Companies except
those officers disclosed in Section 5.14 of the Disclosure Schedule; provided,
however, that nothing herein shall prohibit it or any of its Subsidiaries from
publishing a general solicitation of employment in any newspaper, magazine,
trade publication or other medium or from soliciting or hiring any person who
was an officer of any of the Companies on the Closing Date but whose employment
by such Company thereafter ceases, except as a result of Sellers' solicitation
or hiring of such person in violation of the first clause of this Section 5.14.
SECTION 5.15 Acquisition Proposals. No Seller shall, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker,
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attorney or other advisor or representative acting on its behalf to, directly or
indirectly, (a) make any offer or proposal to any Person or enter into any
contract with any Person to (i) sell or otherwise transfer any of the capital
stock or assets or properties of the Companies or any of the PCFS Assets or (ii)
effect any recapitalization, refinancing, restructuring, merger, consolidation
or other business combination involving the Companies or any of the PCFS Assets;
(b) entertain, solicit, encourage, accept, negotiate or otherwise hold
substantive discussions regarding any offer or proposal from any Person to (i)
purchase or otherwise acquire any of the capital stock or assets or properties
of the Companies or any of the PCFS Assets, (ii) effect any recapitalization,
refinancing, restructuring, merger, consolidation, or other business combination
involving the Companies or any of the PCFS Assets, or (c) provide any non-public
information regarding the Companies or the PCFS Assets to any prospective
purchaser thereof. If any such offer or proposal is made to or received from any
Person, Sellers will promptly advise such Person by written notice of the terms
of this Section 5.15 and will promptly deliver a copy of such notice to Buyer.
SECTION 5.16 Section 338(h)(10) Election, Allocation of Purchase Price
under Sections 338 and 1060 and Matters Relating to SWLIC. (a) An election under
Section 338(h)(10) of the Code and any corresponding elections under the state,
local or foreign tax law (the "338(h)(10) Election") shall be made by PFG and
Buyer in respect of the purchase and sale of the PFI Shares. The parties agree
that the Purchase Price will be allocated as provided in Section 2.1 to the
assets of PCFS and PFI for all purposes (including Tax and financial accounting
purposes) in accordance with the rules under Section 338(b)(5) and Section 1060
of the Code and the Treasury Regulations promulgated thereunder. The parties
agree to cooperate in good faith in preparing the Allocation Schedule as soon as
practicable. Sellers, PCFS, PFI and Buyer will file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
(b) If requested by Buyer, Sellers shall also join in the
filing of a Section 338(h)(10) Election with respect to the purchase and sale of
the ConLife Shares. Any Tax liability resulting from such election and all costs
associated with such election shall be borne by Buyer. If such election is made,
the principles of the second, third and fourth sentences of Section 5.16(a)
shall apply.
(c) As promptly as practicable (but in no event more than 90
days) after the Closing Date, PFG shall deliver to Buyer (i) a calculation
certified by PFG's Chief Financial Officer stating ConLife's estimated tax basis
in the shares of common stock, par value $1.00 per share, of SWLIC as of the
Closing Date, which shall separately state adjustments for income, losses,
distributions, contributions and other relevant adjustments from January 1, 1998
through the Closing Date with respect to such tax basis (the "SWLIC Basis
Adjustments") and (ii) if requested by Buyer, an updated appraisal from
▇▇▇▇▇▇▇▇▇▇▇ setting forth the fair market value of SWLIC as of the latest
practical date up to and including the Closing Date (the "SWLIC Valuation
Opinion"). If Buyer requests the SWLIC Valuation Opinion, the
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costs thereof shall be shared equally by Buyer and PFG. If Buyer requests the
SWLIC Valuation Opinion, an actuary selected by Buyer shall review the SWLIC
Valuation Opinion with ▇▇▇▇▇▇▇▇▇▇▇ in order to arrive at a mutually agreed upon
fair market value of SWLIC (the "SWLIC Value"). If the SWLIC Value is greater
than $220 million plus the SWLIC Basis Adjustments, 35% of such excess shall be
recorded as a liability for Taxes on the Closing Statement with respect to
ConLife. PFG and SFC agree that unless such a liability is recorded on the
Closing Statement as set forth in the preceding sentence, they shall not take
the position in any Tax Return that the Tax basis of SWLIC immediately after the
Closing Transactions exceeds $220 million plus or minus, as the case may be, the
SWLIC Basis Adjustments.
SECTION 5.17 Tax Matters.
(a) Sellers shall be responsible for and shall pay all Taxes
imposed on the income of the Companies, including, without any limitation, any
amounts included in income under Treasury Regulation Sections 1.1502-13 and
1.1502-14, any excess loss accounts taken into income under Treasury Regulation
Section 1.1502-19 and any Taxes resulting from the transactions contemplated
under this Agreement, for all periods through and including the Closing Date to
the extent not provided as a current Tax liability on the Closing Statement.
Except as required by law, PFG, PLAC and SFC shall take no position on such Tax
Returns that relate to the Companies that would adversely affect the Companies
after the Closing Date. The income of the Companies shall be apportioned to the
period up to and including the Closing Date (excluding income after the Closing
but prior to the end of the Closing Date (i) that is not incurred in the
ordinary course of business, (ii) that is not incurred pursuant to the
transactions contemplated by this Agreement and (iii) that is caused by Buyer,
which in each case shall be attributed to the period after the Closing Date) and
the period after the Closing Date by closing the books of the Companies as of
the end of the Closing Date.
(b) PFG, PLAC and SFC shall make no election to retain any net
operating loss carryovers or capital loss carryovers of the Companies under
Treasury Regulation Section 1.1502-20(g) or any similar provision of federal,
state, local or foreign law.
(c) PFG, PLAC and SFC shall allow the Companies and its
counsel to participate in any audits of the consolidated federal income Tax
Returns of PFG, PLAC or SFC to the extent that such Tax Returns relate to the
Companies.
(d) PFG, PLAC and SFC shall immediately pay to Buyer any Tax
refund (or reduction in Tax liability) resulting from a carryback of a
postacquisition Tax attribute of any of the Companies into a consolidated,
combined or unitary Tax Return of PFG, PLAC or SFC, when such refund or
reduction is realized by PFG, PLAC or SFC. PFG, PLAC and SFC shall cooperate
with the Companies in obtaining such refunds (or reduction in Tax liability),
including through the filing of
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amended Tax Returns. PFG shall be entitled to any Tax refund (or reduction in
Tax liability) from a Tax Return for a taxable year that ends on or prior to the
Closing Date or the portion ending on the Closing Date of any taxable year that
includes the Closing Date that was not reflected on the Closing Statement and is
not described in the first sentence of this Section 5.17(d) (a "Seller Refund"),
net of any tax payable by Buyer or the Companies in respect of the receipt or
accrual of such Seller Refund or any additional correlative tax liability in
another taxable year (a "Seller Net Refund Amount"). If Buyers or any of the
Companies realize such Seller Refund in cash or through the reduction of another
Tax liability for which Buyer is responsible hereunder after the Closing Date,
they shall pay the associated Seller Net Refund Amount over to PFG within five
days of receipt.
(e) PFG, PLAC and SFC will prepare or cause to be prepared,
and file or cause to be filed in a manner consistent with past practice and in
the ordinary course of business (subject to any departure required to comply
with any applicable law) (i) all consolidated, combined, or unitary Tax Returns
of the Sellers, the PLAC Group, the ConLife Group or the PFG Group that include
the Companies for all periods that begin prior to the Closing Date and (ii) all
other Tax Returns required to be filed by or on behalf of the Companies on or
prior to the Closing Date. PFG, PLAC and SFC agree to consult with Buyer with
respect to the Tax Returns described in this section, and shall deliver drafts
of such Tax Returns to Buyer no later than 10 Business Days prior to the date,
including extensions, on which such Tax Returns are required to be filed.
(f) Buyer will prepare or cause to be prepared, and file or
cause to be filed, all Tax Returns of the Companies other than those set forth
in Section 5.17(e). Buyer will prepare all Tax Returns which reflect any Taxes
for which PFG, PLAC and SFC may be obligated to indemnify the Buyer Indemnitees
under this Agreement, in a manner consistent with past practice (subject to any
departure required to comply with any applicable law). Buyer agrees to consult
with PFG with respect to the Tax Returns described in the preceding sentence,
and shall deliver drafts of such Tax Returns to PFG no later than 10 Business
Days prior to the date, including extensions, on which such Tax Returns are
required to be filed.
(g) The Consolidated Federal Income Tax Liability Allocation
Agreement, dated December 14, 1995, among ConLife, Union Bankers and Marquette,
as amended by the First Amendment to Consolidated Federal Income Tax Liability
Allocation Agreement, dated as of January 1, 1996, among ConLife, Union Bankers,
Marquette and SWLIC (other than Section 4 thereof) shall remain in effect solely
as between ConLife and SWLIC with respect to taxable periods through and
including the Closing Date. Except as provided in the foregoing sentence,
effective as of the Closing Date, PFG, PLAC and SFC shall terminate, or cause to
be terminated, any agreements relating to the sharing or allocation of, or
indemnification agreement with respect to, Taxes, or any similar contract or
arrangement to which any of the Companies is party such that none of the
Companies has any further Tax
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liability thereunder except as provided as a current Tax liability on the
Closing Statement, which shall be paid as soon as reasonably practicable after
the Closing.
SECTION 5.18 Financial Matters; Proxy Statement. (a) As soon as
reasonably practicable following the date of this Agreement, PFG shall deliver
to Buyer true and complete copies of (i) the audited combined financial
statements of the Companies (and PCFS, to the extent required under Item 13 of
Schedule 14A under the Exchange Act for purposes of the Proxy Statement) as at
and for the years ended December 31, 1995, 1996, 1997 and 1998, together with
the notes thereto (the "Audited Financial Statements"), which shall be certified
by KPMG Peat Marwick LLP ("KPMG"), independent public accountants for PFG and
(ii) the Annual Statements for each PennLife Company and ConLife Company for the
year ended December 31, 1998, including all exhibits, interrogatories, notes and
schedules thereto and any actuarial opinion, affirmation or certification filed
in connection therewith (the "1998 SAP Financial Statements"). In addition, PFG
shall, as promptly as practicable, provide all other financial data and other
information relating to the Companies reasonably requested by Buyer, so as to
permit Buyer to satisfy any reporting or disclosure obligations of Buyer
relating to the transactions contemplated by this Agreement.
(b) As soon as reasonably practicable after the delivery to
Buyer of the Audited Financial Statements for 1995, 1996 and 1997, Buyer shall
file with the Commission a preliminary proxy statement (the "Proxy Statement")
with respect to, among other things, the solicitation of shareholder votes to
amend Buyer's certificate of incorporation to increase its authorized capital
stock. Buyer shall use its commercially reasonable efforts to promptly respond
to any comments raised by the Commission with respect to the Proxy Statement and
shall cause the definitive Proxy Statement to be mailed to the shareholders of
Buyer at the earliest practicable date. If any event with respect to Buyer, or
with respect to other information supplied by the Companies or Sellers for
inclusion in the Proxy Statement, shall occur which is required to be described
in a supplement to the Proxy Statement, such event shall be so described, and
such supplement shall be promptly filed with the Commission and, as required by
law, disseminated to shareholders of Buyer. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
SECTION 5.19 Peninsular Licenses.
(a) Prior to the Closing, Sellers shall cooperate with and
assist, and shall cause the Companies to cooperate with and assist, Buyer in
causing Peninsular (i) to remove such restrictions as is reasonably necessary to
permit Peninsular to write new business in the states in which Peninsular holds
licenses to conduct insurance business as of the date hereof and (ii) to obtain
licenses to conduct insurance business in the states listed in Section 5.19 of
the Disclosure Schedule and to obtain such product approvals in such states as
Buyer reasonably requests.
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(b) Buyer will reimburse PFG and/or PLAC, as applicable, for
all actual out-of-pocket costs incurred in connection with obtaining the
licenses and product approvals contemplated in Section 5.19(a) above.
(c) If Buyer is unable to acquire the Peninsular Shares, (i)
the Purchase Price will be reduced by the Peninsular Purchase Price, (ii) PFG or
its designee will purchase the Peninsular Shares for an amount in cash equal to
the Peninsular Purchase Price, (iii) the Aggregate Capital Amount will be
reduced by $12,725,000 and the Target Capital Amount for Peninsular will be
eliminated, and (iv) all ConLife business being reinsured by Peninsular pursuant
to the reinsurance transaction contemplated in item 9 of Annex C will be
transferred by Peninsular to a party designated by Buyer under a reinsurance
agreement containing terms reasonably satisfactory to Buyer.
SECTION 5.20 PCFS Licenses. At or prior to Closing, Sellers shall use
their commercially reasonable best efforts to obtain all software licenses (the
"PCFS Licenses") required to be obtained in connection with the sale of the PCFS
Assets to Buyer. At the Closing, Buyer shall reimburse PFG for 50% of all costs
incurred in connection with obtaining the PCFS Licenses.
SECTION 5.21 Change of Name. As soon as reasonably practicable after
the Closing Date, Buyer shall cause PC-Canada and PFI (and, to the extent
applicable, any Subsidiaries thereof) to amend their respective organizational
documents and take all other regulatory and other actions to change their
respective names to a name that does not include the word "PennCorp" or any
variant thereof. Notwithstanding the foregoing, PC-Canada and PFI (and any
applicable Subsidiaries thereof) may, until such name change occurs, continue to
use stationery, letterhead, policy forms, business cards and other property or
assets on which the name "PennCorp" or any variant thereof appears so long as
Buyer uses its reasonable efforts to cause appropriate notations to be made
thereon indicating that such Companies are divisions of UAFC and are not part of
the PennCorp Financial Group, Inc. group of companies.
SECTION 5.22 Litigation Arising Between Signing and Closing. Sellers
will provide Buyer with prompt notice in reasonable detail of any Litigation,
complaints, charges or claims against any of the Companies or PCFS before any
Governmental Authority or arbitrator initiated or, to the knowledge of Sellers,
threatened between the date hereof and the Closing Date that would have been
required to be disclosed in Section 3.10 of the Disclosure Schedule ("New
Litigation") or Section 3.23(f) of the Disclosure Schedule ("New Employee
Claims") had they arisen or been in existence on or prior to the date of this
Agreement.
SECTION 5.23 Union Bankers. If the Union Bankers Special Dividend
distributed to ConLife in accordance with Section 2.2(c) of this Agreement is
limited by any regulatory authority such that the capital and surplus of Union
Bankers (as indicated on the Estimated Statement) exceeds the Union Bankers
Target Capital
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Amount specified in Section 2.3(e) hereof, the Purchase Price specified in
Section 2.1 hereof shall be increased by the amount of such excess; provided,
that in no event shall the Purchase Price be increased pursuant to this Section
5.23 by more than $6,500,000. If the Purchase Price is increased pursuant to
this Section 5.23, there will be a corresponding increase in the Aggregate
Target Capital Amount specified in Section 2.3(e) hereof.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to the Obligations of Buyer and American
Exchange under this Agreement. The obligations of Buyer and American Exchange
under this Agreement to consummate the Closing Transactions shall be subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(a) subject to Section 5.19(c) hereof, all authorizations,
consents and approvals contemplated by Sections 3.6 and 4.5, including the
PennLife Insurance Approvals, the ConLife Insurance Approvals (which shall
include approval to restructure the capital of the PennLife Companies and the
ConLife Companies to reset unassigned surplus to not less than zero) and the
Buyer Approvals, shall have been obtained and shall be in full force and effect
and applicable regulators shall not have imposed any material and adverse
prohibitions, limitations, conditions or restrictions on Buyer or any of the
Companies in connection with the approvals by such regulators of the Forms A to
be filed by the parties as contemplated hereby, including but not limited to a
restriction on the ability of any of the Companies to pay ordinary dividends or
to write any material line of business.
(b) any waiting period applicable to the consummation of the
sale and purchase of the Shares under the HSR Act shall have expired or been
terminated;
(c) no injunction, restraining order or other ruling or order
issued by any Governmental Authority or other legal restraint or prohibition
preventing the consummation of the Closing Transactions shall be in effect;
(d) each of the obligations of PLAC, PFG, SFC and PCFS
required to be performed by it at or prior to the Closing pursuant to this
Agreement shall have been duly performed and complied with in all material
respects, and the representations and warranties of PLAC, PFG, SFC and PCFS
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date as though made at
and as of the Closing Date (except (i) as to those representations or warranties
which specifically relate to an earlier date, which need to be true and correct
in all material respects as of such specified dates and (ii) to the extent that
the representation and warranty set forth in Section 3.15(e) has been rendered
inaccurate as the result of any claims asserted with
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respect to Agent Compensation between the date hereof and the Closing), and
Buyer shall have received a certificate to that effect signed by a senior
officer of each of PLAC, PFG, SFC and PCFS;
(e) any and all material permits, consents, waivers,
clearances, approvals and authorizations of Governmental Authorities and all
material consents, licenses, waivers or approvals of any other third parties
(other than those contemplated by subparagraph (a) above), including the PCFS
Licenses, which are necessary in connection with the consummation of the Closing
Transactions and the consummation of the transactions contemplated by the UAFC
Share Purchase Agreement shall have been obtained;
(f) Buyer shall have received opinions of counsel to Sellers,
in the forms attached hereto as Annex D;
(g) Security Life and Trust Insurance Company ("Integon") and
PennLife shall have entered into a lease agreement containing the material terms
set forth on Exhibit C on terms reasonably satisfactory to Buyer pursuant to
which, following the Closing, PennLife will continue to occupy office space
currently occupied by PennLife Employees at the facility located at Wycliff Road
in Raleigh, North Carolina, for the term described in Exhibit C;
(h) Buyer or any of the Companies and AmeriLife Marketing Inc.
shall have entered into an agreement containing the material terms set forth on
Exhibit A and otherwise on terms reasonably satisfactory to Buyer;
(i) the capital and surplus (excluding AVR and IMR) of the
PennLife Companies and the ConLife Companies reflected on the Estimated
Statement shall equal or exceed the Target Capital Amount for each Company and
the Aggregate Target Capital Amount shall have been satisfied;
(j) all intercompany indebtedness owed by PFG and its
affiliates (other than the Companies) to any of the Companies or owed by the
Companies to PFG or its affiliates (other than the Companies) as listed on
Section 3.24 of the Disclosure Schedule shall have been paid in full, and all
other affiliate transactions described on Section 3.24 of the Disclosure
Schedule shall have been terminated (other than such affiliate transactions
solely among the Companies), with no further liability to any of the Companies
or relating to the PCFS Assets;
(k) the conditions set forth in the Chase Commitment shall
have been satisfied, to the satisfaction of Chase Bank and Chase Securities;
provided, however, that upon receipt of notice from Chase Bank that the reports
delivered by the Reserves Consultants and the 1998 Audited Financial Statements
are satisfactory under the terms of the Chase Commitment (which shall be deemed
satisfactory for purposes of this clause if no objection is made within 30 days
of delivery of the last of such reports and financial statements), the
conditions specified in this
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Section 6.1(k) shall no longer be conditions to the consummation by Buyer of the
Closing Transactions;
(l) the Reserves Consultants shall have completed their review
of the active life reserves of PennLife and the results of such review shall be
reasonably satisfactory to Buyer; provided, however, that Buyer shall make its
determination of the adequacy of such report within 20 days of delivery of such
report;
(m) each of the Pre-Closing Restructuring Transactions shall
have been completed or otherwise provided for to the reasonable satisfaction of
Buyer;
(n) Sellers shall have delivered to Buyer for inclusion in the
Proxy Statement the 1998 Audited Financial Statements specified in Section
5.18(a)(i) and the shareholders of Buyer shall have approved at a special
meeting of shareholders of Buyer the matters requiring shareholder approval as
set forth in the UAFC Share Purchase Agreement, in accordance with New York law
and the rules of Nasdaq;
(o) the Companies shall have received either (i) a rating of
B+ or better from A.M. Best or (ii) assurances from A.M. Best satisfactory to
Buyer that on or immediately after the Closing, the Companies will be assigned
at least a B+ rating;
(p) Buyer or a designated subsidiary of Buyer shall have
entered into an agreement with Integon, Occidental Life Insurance Company of
North Carolina and Professional Insurance Company containing the material terms
set forth on Exhibit E or otherwise on terms reasonably satisfactory to Buyer
and PFG pursuant to which Buyer or such subsidiary shall have agreed to provide
the services specified in Exhibit E for the period specified in Exhibit E; and
(q) Sellers shall have delivered to Buyer a certificate
complying with Treasury Regulations section 1.1445-2(b)(2), in form and
substance reasonably satisfactory to Buyer, duly executed and acknowledged,
certifying that Sellers are not foreign persons within the meaning of such
section.
SECTION 6.2 Conditions to the Obligations of Sellers under this
Agreement. The obligation of Sellers under this Agreement to consummate the
Closing Transactions shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions:
(a) all authorizations, consents and approvals contemplated by
Sections 3.6 and 4.5, including the PennLife Insurance Approvals, the ConLife
Insurance Approvals and the Buyer Approvals shall have been obtained and shall
be in full force and effect and applicable regulators shall not have imposed any
material and adverse prohibitions, liabilities, limitations, conditions or
restrictions on Sellers or (to the extent Sellers would be prevented from
consummating the transactions contemplated by this Agreement) the Companies, in
connection with the approvals by
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such regulators of the Forms A to be filed by the parties as contemplated hereby
including but not limited to a restriction on the ability of Union Bankers to
pay the Union Bankers Special Dividend or on the ability of the Sellers or the
Companies to make any other reallocation of capital and surplus as otherwise
permitted or required by this Agreement;
(b) any waiting period applicable to the consummation of the
sale and purchase of the Shares under the HSR Act shall have expired or been
terminated;
(c) no injunction, restraining order or other ruling or order
issued by any Governmental Authority or other legal restraint or prohibition
preventing the consummation of the Closing Transactions shall be in effect;
(d) each of the obligations of Buyer and American Exchange
required to be performed by them at or prior to the Closing pursuant to the
terms of this Agreement shall have been duly performed and complied with in all
material respects, and the representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made at and as of the
Closing Date and the representations and warranties of American Exchange
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date as though made at and as of the Closing Date (in each
case, except as to any representation or warranty which specifically relates to
an earlier date), and Sellers shall have received a certificate to that effect
signed by an officer of each of Buyer and American Exchange;
(e) Buyer or a designated subsidiary of Buyer shall have
entered into an agreement with Integon, Occidental Life Insurance Company of
North Carolina and Professional Insurance Company containing the material terms
set forth on Exhibit E or otherwise on terms reasonably satisfactory to Buyer
and PFG pursuant to which Buyer or such subsidiary shall have agreed to provide
the services specified in Exhibit E after the Closing for the period specified
in Exhibit E;
(f) Sellers shall have received an opinion of counsel to
Buyer, in the form attached hereto as Annex E; and
(g) the shareholders of Buyer shall have approved at a special
meeting of shareholders of Buyer the matters requiring shareholder approval as
set forth in the UAFC Share Purchase Agreement, in accordance with New York law
and the rules of Nasdaq.
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ARTICLE VII
CLOSING
SECTION 7.1 Closing. The closing of the Closing Transactions (the
"Closing") shall take place at the offices of Weil, Gotshal & ▇▇▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, subject to the satisfaction or waiver of the
conditions set forth in Sections 6.1 and 6.2, as soon as practicable after the
date hereof and in any event not later than June 30, 1999, or at such other time
and place and on such other date as Buyer and PFG shall agree (the "Closing
Date"). As a further condition to Closing, at the Closing:
(a) PLAC, PFG, SFC and PCFS, as applicable, shall deliver or
cause to be delivered to Buyer the following:
(i) the certificates described in Section 6.1(d);
(ii) share certificates representing all of the
Shares in appropriate form for transfer to Buyer, Buyer's designee or
American Exchange (as appropriate) duly endorsed in blank or
accompanied by stock powers duly executed in blank;
(iii) resignations of the directors of each of the
Companies;
(iv) an executed ▇▇▇▇ of Sale, Assignment and
Assumption Agreement; and
(v) a section 116 certificate in respect of the
PC-Canada shares bearing a certificate amount not less than the amount
of the PC-Canada Purchase Price; provided, that if the certificate is
not so delivered, Buyer shall make such withholdings as may be required
pursuant to the Income Tax Act (Canada).
(b) Buyer and American Exchange shall deliver or cause to be
delivered to Sellers the following:
(i) the certificate described in Section 6.2(d); and
(ii) an executed ▇▇▇▇ of Sale, Assignment and
Assumption Agreement; and
(c) Buyer shall pay or shall cause to be paid to Sellers, by
wire transfer of immediately available funds to such account or accounts as
Sellers shall have designated in writing at least two days prior to the Closing
Date, the Purchase Price.
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ARTICLE VIII
SURVIVAL/INDEMNIFICATION
SECTION 8.1 Survival of Representations and Warranties; Indemnification
Obligations.
(a) Notwithstanding any right of Buyer to investigate fully
the affairs of the Company and the Subsidiaries and notwithstanding any
knowledge of facts determined or determinable by Buyer pursuant to such
investigation or right of investigation, Buyer has the right to rely fully upon
the representations, warranties, covenants and agreements of Sellers contained
in this Agreement or in any documents delivered pursuant to this Agreement. All
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement and the Closing (except that the
representations and warranties contained in Sections 4.9, 4.10, 4.11 and 4.12
shall not survive the Closing). The representations and warranties of Sellers
contained in this Agreement shall terminate and expire (i) with respect to any
Claim (as defined below) based on the representations and warranties contained
in Section 3.14 (a "Tax Representation Claim") on the date which is 30 days
after the date upon which the liability to which any such Tax Representation
Claim may relate is barred by all applicable statutes of limitations (including
all periods of extension, whether automatic or permissive); (ii) with respect to
any Claim based on the representations and warranties contained in Section 3.19,
three years after the Closing Date; (iii) with respect to any Claim based on the
representations and warranties contained in Section 3.13, on the date upon which
the liability to which any such Claim may relate is barred by all applicable
statutes of limitations (including all periods of extension, whether automatic
or permissive); and (iv) with respect to any Claim based on any other
representation and warranty (except for those representations and warranties in
Sections 3.1, 3.2, 3.4, 3.5 and 3.16 (the "Fundamental Representations"), all of
which Fundamental Representations shall survive without limitation), on the date
which is 18 months after the Closing Date. Unless a specified period is set
forth in this Agreement (in which event such specified period will control), the
covenants and agreements of this Agreement will survive the Closing and remain
in effect indefinitely.
(b) PFG, with respect to all matters contemplated by this
Agreement, jointly and severally with PLAC, SFC and PCFS; PLAC, with respect
only to matters relating to itself and the PennLife Companies, severally and not
jointly with any other Seller (except PFG); SFC, with respect only to matters
relating to itself and the ConLife Companies, severally and not jointly with any
other Seller (except PFG); and PCFS, with respect only to matters relating to
itself, severally and not jointly with any other Seller (except PFG), will
indemnify, defend and hold harmless Buyer and, following the Closing, the
Companies (together with their respective directors, officers, employees,
affiliates, successors and assigns, the "Buyer Indemnitees") from and against
all actions, causes of action, suits, claims, complaints, demands, litigations,
or legal, administrative or arbitral proceedings or
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investigations ("Claim"), losses, liabilities, damages (excluding any indirect,
consequential or special damages), deficiencies, judgments, assessments, fines,
settlements, costs or expenses (including interest, penalties and fees,
reasonable expenses and disbursements of outside attorneys, experts and
consultants) incurred by the indemnified party in any action or proceeding
between the indemnifying party and the indemnified party or between the
indemnified party and any third party, or otherwise ("Losses") based upon,
arising out of or otherwise in respect of:
(i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Sellers contained in
this Agreement or in any documents delivered by Sellers pursuant to
this Agreement (including any breach of the representation and warranty
in Section 3.15(e) relating to claims for Agent Compensation not listed
in Section 3.15(e) of the Disclosure Schedule); provided, that for
purposes of this Section 8.1(b)(i) only, any inaccuracy in or breach of
a representation or warranty shall be determined without reference to
any materiality or Material Adverse Effect qualifier (other than such
qualifier contained in Section 3.27 hereof) that may be set forth
therein;
(ii) any derivative lawsuits or lawsuits based upon
violations of federal and state securities laws against PFG or its
affiliates or their respective officers and directors which are pending
as of the date of this Agreement or which may be brought after the date
of this Agreement, whether or not Buyer, the Companies or any Buyer
Indemnitee is named or joined as a party thereto; provided, that Buyer
shall not be entitled to indemnification under this Section 8.1(b)(ii)
for any Losses incurred by Buyer in connection with such lawsuits that
result from any actions of Buyer that are independent from, and not in
breach or violation of, any of the transactions or other matters
contemplated by this Agreement or any other documents executed and
delivered in connection with the transactions contemplated by this
Agreement;
(iii) any Taxes of any member of an affiliated,
consolidated, combined, or unitary group of which any of the Companies
is or was a member on or prior to the Closing Date by reason of the
liability of the Companies pursuant to Treasury Regulation Section
1.1502-6(a) or any analogous or similar state, local or foreign law or
any contractual liability for Taxes of any party other than the
Companies;
(iv) any Phase III Taxes of any Company relating to
any period up to and including the Closing Date;
(v) any Phase III Taxes of any Company relating to
any period after the Closing Date up to and including five taxable
years following the Closing Date and all or any portion of any later
taxable year through and including the fifth anniversary of the Closing
Date; provided, that if any Phase III Taxes arise after the Closing
Date as a result of any action taken by
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Buyer, Buyer shall only be entitled to be indemnified for 75% of such
Taxes; provided further, that PFG, SFC and PLAC shall not be liable
hereunder with respect to any Phase III Taxes caused solely by Buyer's
failure to make reasonable efforts, for such period, to (A) maintain in
force the reinsurance agreement between ConLife and Peninsular
contemplated by item 8 of Annex C (unless otherwise required by
applicable regulators) and (B) maintain Peninsular as a life insurance
company within the meaning of Section 816 of the Code;
(vi) any reductions in or limitations on the NOLs
resulting from any challenge by a Governmental Authority or limitation
imposed under the Code (other than limitations imposed solely by reason
of the Closing Transactions), including without limitation any
increased liability or Taxes with respect to periods after the Closing;
(vii) in the event the NOLs available for carryover,
as provided in Section 3.14(ac), are less than $20 million, the amount
of the difference multiplied by 35%, utilizing a discount rate of 15%
per annum, utilizing the date when such unavailable amount of NOLs
would otherwise have been available and reflecting the principles of
Section 382 of the Code, will constitute the amount of Buyer's loss. An
example of the application of this calculation is set forth in Exhibit
F.
(viii) any of the Pre-Closing Restructuring
Transactions (whether such Losses relate to Taxes or otherwise);
(ix) any Taxes, or for any Loss of Tax benefits,
incurred in connection with or as a result of any 338(h)(10) Election
pursuant to Section 5.16 of this Agreement;
(x) any Taxes related to the Closing Transactions;
(xi) the Transaction Bonuses and the Pre-Sale
Obligations (other than any Losses resulting from the failure by Buyer
to perform its obligations under Section 5.9(b) or (c));
(xii) any liabilities of PCFS that Buyer has not
expressly assumed;
(xiii) the failure of PCFS to comply, in connection
with the sale of the PCFS Assets, with all applicable bulk sales or
bulk transfer laws;
(xiv) the presence at any time prior to the Closing
of underground fuel storage tanks at, or the use prior to the Closing
as an auto service station of, the commercial property located at ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇
▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (referred to in Section 3.19 of the
Disclosure Schedule) and arising pursuant to Environmental Laws; and
(xv) the wrongful discharge claim by ▇▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ (item 16 of Section 3.10 of the Disclosure Schedule), the
discrimination claim by ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ (item 6 of Section 3.10
of the Disclosure Schedule) and the discrimination claim by ▇▇▇▇▇▇
▇▇▇▇▇▇ (item 18 of Section 3.10 of the Disclosure Schedule).
SECTION 8.2 Obligation of Buyer to Indemnify. Buyer agrees to
indemnify, defend and hold harmless Sellers (other than, following the Closing,
the Companies) and their respective directors, officers, employees, affiliates,
successors and assigns from and against all Losses based upon, arising out of or
otherwise in respect of (i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Buyer or American Exchange
contained in this Agreement or in any documents delivered by Buyer or American
Exchange pursuant to this Agreement and (ii) a breach by Buyer of its
obligations under Section 5.9(b) or (c) of this Agreement, including the
Post-Closing Compensation Obligations.
SECTION 8.3 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. The party making a claim
under this Article VIII is referred to as the "Indemnitee," and the party
against whom such claims are asserted under this Article VIII is referred to as
the "Indemnifying Party." All claims by any Indemnitee under this Article VIII
shall be asserted and resolved as follows: Promptly after receipt by the
Indemnitee of notice of any Claim or circumstances which, with the lapse of
time, would or might give rise to a Claim or the commencement (or threatened
commencement) of a Claim including any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Indemnitee shall give
notice thereof (the "Claims Notice") to the Indemnifying Party. The Claims
Notice shall describe the Asserted Liability in reasonable detail, and shall
indicate the amount (estimated, if necessary and to the extent feasible) of the
Loss that has been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. (i) The Indemnifying Party may
elect to compromise or defend, at its own expense and by its own counsel, any
Asserted Liability (excluding those related to Taxes relating to any period
ending after the Closing Date). If the Indemnifying Party elects to compromise
or defend such Asserted Liability, it shall within 30 days (or sooner, if the
nature of the Asserted Liability so requires) notify the Indemnitee of its
intent to do so, and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
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may settle or compromise any Asserted Liability over the objection of the other;
provided, however, that consent to settlement or compromise shall not be
unreasonably withheld. In any event, the Indemnitee and the Indemnifying Party
may participate, at their own expense, in the defense of such Asserted
Liability. If the Indemnifying Party chooses to defend any Asserted Liability,
the Indemnitee shall make available to the Indemnifying Party any books, records
or other documents within its control as well as reasonable access to its
employee and consultants, in each case to the extent necessary or appropriate
for such defense. In the event it is determined by a court of competent
jurisdiction that an Indemnitee is not entitled to indemnification pursuant to
this Article VIII for any Asserted Liability, then the Indemnitee shall promptly
reimburse the Indemnifying Party for all fees, costs and expenses (including
reasonable fees, expenses and disbursements of outside attorneys, experts and
consultants) incurred by the Indemnitee in connection with the defense of such
Asserted Liability.
SECTION 8.4 Limitations on Indemnification. The indemnification
provided for in Sections 8.1 and 8.2 shall be subject to the following
limitations:
(a) The Indemnifying Parties shall not be obligated to
indemnify the Buyer Indemnitees for Losses arising under Section 8.1(b)(i) with
respect to breaches of representations and warranties until the aggregate
amounts for indemnification under Section 8.1(b)(i) equals $2.5 million (the
"Basket Amount"), whereupon the Indemnifying Parties shall be obligated to pay
only the amount of such Losses in excess of the Basket Amount; provided,
however, that the foregoing limitation shall not apply to, and the Indemnifying
Parties shall be obligated to indemnify the Buyer Indemnitees for the full
amount of, Losses arising under Section 8.1(b)(i) based upon, arising out of or
otherwise in respect of the Fundamental Representations and Sections 3.13 and
3.14 (collectively, the "Basket Exclusions") without regard to the Basket
Amount; provided further, that any Losses based upon, arising out of or
otherwise in respect of the Basket Exclusions shall not be counted against the
Basket Amount.
(b) The Sellers, collectively, shall not be obligated to make
any payment for indemnification under Section 8.1(b) with respect to breaches of
representations and warranties (except those based upon, arising out of or
otherwise in respect of the Fundamental Representations and Sections 3.13(e) and
3.14(n)) and under Sections 8.1(b)(iv), (v), (vi), (ix) and (x) in excess of the
Purchase Price; provided, that (i) SFC shall not be obligated to make any
payment for indemnification under Section 8.1(b) in excess of the sum of the
Union Bankers Purchase Price and the ConLife Purchase Price, (ii) PLAC shall not
be obligated to make any payment for indemnification under Section 8.1(b) in
excess of the sum of the Peninsular Purchase Price, the PC-Canada Purchase Price
and the PennLife Purchase Price and (iii) PCFS shall not be obligated to make
any payment for indemnification under this Section 8.1(b) in excess of $1.0
million.
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(c) Buyer shall not be obligated to make any payment for
indemnification under Section 8.2 in excess of $50 million.
(d) The Indemnifying Parties shall not be obligated to
indemnify the Buyer Indemnitees for any Losses arising out of or otherwise in
respect of any breach of representation or warranty relating to or arising from,
in part or otherwise, the inadequacy of the reserves of any of the Companies;
provided, however, that nothing in this Section 8.4(d) shall relieve the
Indemnifying Parties from any obligation to indemnify the Buyer Indemnitees for
any Losses arising out of or otherwise in respect of any breach of Sections
3.7(b) and (c) of this Agreement to the extent such breach does not relate to
adequacy of reserves.
SECTION 8.5 Adjustment to Purchase Price; Offsetting Tax Benefits.
(a) It is the intention of the parties hereto that any payment
under Section 2.3 or under this Article VIII shall be treated as an adjustment
to the Purchase Price for all Tax purposes and the parties agree to file their
Tax returns accordingly. In the event that any such payment to Buyer or its
Subsidiaries (including the Companies) is not so treated, the amount of such
payment shall be increased so that, after payments of all Taxes due thereon, the
amount retained by Buyer is equal to the amount that Buyer would have retained
if no such Taxes had been due.
(b) The amount of an indemnified Loss shall be reduced by (or
the Indemnitee shall pay to the Indemnifying Party) any Tax benefits actually
realized by the Indemnitee or its affiliates which are directly attributable to
the Indemnifiable Loss (including, without limitation, any Tax benefits arising
from the payment or accrual of the indemnified Loss or any correlative
offsetting Tax benefit realized in a taxable period) (an "Offsetting Tax
Benefit"), promptly after realizing such Offsetting Tax Benefit in cash.
SECTION 8.6 Exclusive Remedy. Each party hereto agree that, to the
fullest extent permitted by law, such party's sole and exclusive remedy with
respect to any claim or cause of action asserted by it relating to or arising
from breaches of the representations and warranties or covenants and agreements
of any other party contained in this Agreement shall be limited to its rights
under, and subject to the terms and conditions of, this Article VIII.
Notwithstanding the foregoing, (i) the parties shall have the right to obtain
equitable relief in the form of a temporary or permanent injunction or order for
specific performance and (ii) each party shall have the right to assert any
claim for fraud against any other party for any breach of this Agreement.
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ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of each of the Sellers and Buyer;
(b) by any of the Sellers or Buyer:
(i) if a Governmental Authority shall have issued an
order, decree or ruling or taken any other action (which order, decree
or ruling the parties hereto shall use their best efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
any of the Closing Transactions and such order, decree, ruling or other
action shall have become final and nonappealable; or
(ii) if the Closing shall not have occurred on or
before March 31, 1999; provided, however, that this Agreement shall
automatically extend for up to four consecutive 30-day periods
commencing on March 31, 1999 if (A) Sellers prior to such time shall
not have secured the PennLife Insurance Approvals, ConLife Insurance
Approvals and the Buyer Approvals have not yet been obtained or (B) the
Proxy Statement prior to such time shall not have cleared review by the
Commission or the Proxy Statement has cleared review by the Commission
but additional time is required to hold the meeting of shareholders of
Buyer contemplated by Section 4.5(e) of this Agreement or to close the
transactions contemplated by this Agreement after such meeting;
provided further, however, that the right to terminate this Agreement
shall not be available to any party whose breach of this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur
on or before March 31, 1999 (or the end of the fourth 30-day period, if
applicable);
(c) by Buyer if a material default or breach shall be made by
Sellers with respect to the due and timely performance of any of their covenants
or agreements contained herein, or in any of their representations or warranties
contained in the Agreement, if such default or breach has not been cured or
waived within 30 days after written notice to such breaching party specifying,
in reasonable detail, such claimed material default or breach and demanding its
cure or satisfaction;
(d) by Sellers if a material default or breach shall be made
by Buyer or American Exchange with respect to the due and timely performance of
any of its covenants or agreements contained herein, or in any of its or
American Exchange's representations or warranties contained in the Agreement, if
such default or breach has not been cured or waived within 30 days after written
notice to Buyer specifying,
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in reasonable detail, such claimed material default or breach and demanding its
cure or satisfaction; or
SECTION 9.2 Expenses in the Event of Termination. If this Agreement is
terminated by Buyer or Sellers for any reason other than pursuant to Section
9.1(a), (b)(i), (b)(ii)(A) (with respect to approvals to be obtained in Florida
and New York by Buyer (only if such approvals are not obtained because of the
unsuitability of Buyer, Buyer Sub or Capital Z)), (b)(ii)(B) (except if the
Proxy Statement has not cleared review by the Commission solely because of the
Financial Statements required to be included in the Proxy Statement) or (d) or
the failure of Buyer to obtain the shareholder approval contemplated by Section
4.5, Sellers shall pay to Buyer and Capital Z an amount necessary to reimburse
Buyer and Capital Z for 75% of all actual out-of-pocket costs and expenses of
Buyer and Capital Z incurred through the date of termination by Capital Z and
Buyer in connection with the transactions contemplated by this Agreement
(exclusive of any bank commitment fees) and the UAFC Share Purchase Agreement
(including the negotiation of the Chase Bank Facility), which payment shall be
made by Sellers by wire transfer of immediately available funds within three
business days after receipt by Sellers from Buyer and/or Capital Z of an invoice
or invoices identifying such costs and expenses in reasonable detail, together
with all supporting invoices, and specifying the account or accounts into which
funds should be deposited.
SECTION 9.3 Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other
parties to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all
documents, work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing the same; and
(b) no party hereto shall have any liability or further
obligation to any other party to this Agreement resulting from such termination
except (i) that the provisions of this Section 9.3 and Sections 9.2, 9.4 and 9.5
shall remain in full force and effect and (ii) no party waives any claim or
right against a breaching party to the extent that such termination results from
the breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 9.4 Mutual Agreement of Parties. (a) In the event of
termination of this Agreement, neither Buyer nor any Seller shall, for a period
commencing on the date of such termination and ending 18 months thereafter,
without the consent of the other, directly or indirectly solicit for employment
or hire any employee or agent of Buyer or any Seller, as the case may be, of
whom Buyer or any Seller, as the case
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may be, became aware as a result of the transactions contemplated by this
Agreement; provided, however, that no party shall be prohibited from publishing
a general solicitation of employment in any newspaper or magazine or from hiring
an employee or agent of another party who seeks employment without solicitation.
This Section 9.4 will supersede the agreement between the parties with respect
to the subject matter hereof contained in the Confidentiality Agreement, dated
May 29, 1998, between PFG and Capital Z (the "Confidentiality Agreement").
(b) Notwithstanding the foregoing, nothing contained in
Section 9.4(a) shall mean or shall be interpreted to mean that, upon termination
of this Agreement, Buyer or Sellers in any way would be restricted or prohibited
from working with or engaging in business in any form whatsoever with ▇▇▇▇
▇▇▇▇▇▇ or any affiliated entity.
SECTION 9.5 Confidentiality. Each party hereto acknowledges that the
other parties have legitimate and continuing proprietary interests in the
protection of their confidential information and that the parties have invested
substantial sums and will continue to invest substantial sums to develop,
maintain and protect such confidential information. Prior to and after the
Closing, each party agrees not to disclose, furnish or make accessible to anyone
or use for its own benefit (other than as contemplated hereby) any trade secrets
or other confidential or proprietary information of another party relating to
the Companies and/or their respective businesses, the PCFS Assets or the other
parties including, but not limited to, information obtained by or revealed to
such party during any investigations, negotiations or review relating to this
Agreement, the UAFC Share Purchase Agreement and any other document contemplated
hereby or thereby or any past or future actions taken in connection with,
pursuant to, in accordance with, or under this Agreement, including without
limitation any business plans, marketing plans, financial information,
strategies, systems, programs, methods, employee lists, computer programs,
insurance profiles and customer lists; provided, however, that such protected
information shall not include (i) information required to be disclosed by law,
legal or judicial process (including a court order, subpoena or order of a
Governmental Authority) or the rules of any stock exchange (including Nasdaq),
(ii) information that is or becomes available to the disclosing party on a non-
confidential basis from a source other than the other parties and not obtained
in violation of this Agreement and (iii) information known to the public or
otherwise in the public domain without violation of this Section 9.5.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
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SECTION 10.2 Waiver of Compliance; Consents. Any failure of Buyer to
comply with any obligation, covenant, agreement or condition contained herein
may be waived in writing by PFG, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any other failure. Any
failure of Sellers to comply with any obligation, covenant, agreement or
condition contained herein may be waived in writing by Buyer, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
SECTION 10.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 10.4 Expenses and Obligations. PFG, PLAC, SFC and PCFS shall be
responsible for paying all third-party costs and expenses incurred by them and
all third-party costs and expenses in excess of $1.5 million incurred by the
Companies in connection with the Pre-Closing Restructuring Transactions (not
including those costs associated with the termination by Sellers prior to the
Closing of the Lincoln National Agreement) and in preparing the Companies for
sale to Buyer.
SECTION 10.5 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their successors and
assigns. Except for Section 9.1(e), nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement, whether by a claim
of third party beneficiary or otherwise, and PFG agrees that it has no third
party beneficiary rights or any other enforceable rights under the UAFC Share
Purchase Agreement and the Chase Commitment Letter.
SECTION 10.6 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested) or on the second next Business Day
after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with electronic
acknowledgment of transmission confirmed) as follows:
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(a) If to Buyer, American Exchange or, after the Closing,
any of the Companies, to:
Universal American Financial Corp.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Capital Z Partners
One Chase ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
Harnett ▇▇▇▇▇▇▇ & ▇▇▇▇▇ P.A.
NationsBank Tower ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Judge ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
1285 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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(b) If to any Seller including, prior to the Closing, any
Seller which is a Company, to:
PennCorp Financial Group, Inc.
c/o Southwestern Financial Services Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be performed within that state.
SECTION 10.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.9 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.10 Entire Agreement. This Agreement, the Disclosure
Schedule, the Annexes hereto and the Confidentiality Agreement embody the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein or therein. There are no agreements, representations,
warranties or covenants other than those expressly set forth herein or therein.
This Agreement, the Disclosure Schedule and the Annexes hereto supersede all
prior agreements and understandings (other than the Confidentiality Agreement)
between the parties with respect to such subject matter.
SECTION 10.11 Assignment. Except as otherwise provided in this Section
10.11, this Agreement shall not be assigned by operation of law or otherwise;
provided, however, that each of Buyer and PFG may assign all of its rights and
delegate all of its obligations under this Agreement to any Person in connection
with the sale of Buyer or PFG, as the case may be, or all or substantially all
of the assets of Buyer or PFG, as the case may be, to such Person, whether by
stock sale, merger,
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share exchange, asset sale, consolidation or otherwise, so long as such Person
expressly assumes Buyer's or PFG's (as the case may be) obligations hereunder;
provided, further, however, that Buyer will not assign its rights or delegate
its obligations under this Agreement to any Person prior to the Closing.
Notwithstanding anything in this Agreement to the contrary, Buyer may give
notice to PFG that, pursuant to the terms of the UAFC Share Purchase Agreement,
Buyer is assigning all of its rights and obligations under this Agreement to an
affiliate of Capital Z (the "Substituted Buyer"); provided, that (a) such
Substituted Buyer is a newly-formed acquisition company or other entity, in each
case, reasonably acceptable to PFG and (b) Capital Z shall have committed to
provide equity financing to the Substituted Buyer, and Chase Bank (and/or other
financial institutions) shall have committed to provide debt financing to the
Substituted Buyer, in an aggregate amount at least equal to that necessary to
consummate the Closing Transactions. If Buyer so elects to assign its rights and
obligations under this Agreement, (i) the date specified in Section 9.1(ii)
shall be extended for 90 days (or such later date as shall be mutually agreed to
by the Substituted Buyer and Sellers) and (ii) the Substituted Buyer and Sellers
shall agree to such conforming modifications to this Agreement (such agreement
or modifications not to be unreasonably withheld) as may be necessary to reflect
the assignment by Buyer (without recourse) of all of its rights and obligations
to the Substituted Buyer.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
AMERICAN EXCHANGE
LIFE INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
PENNCORP FINANCIAL GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
PACIFIC LIFE AND ACCIDENT
INSURANCE COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
SOUTHWESTERN FINANCIAL
CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
PENNSYLVANIA LIFE INSURANCE
COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
CONSTITUTION LIFE INSURANCE
COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
PENNCORP FINANCIAL SERVICES,
INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President