STOCK PURCHASE AGREEMENT
BETWEEN
REASSURE AMERICA LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL GROUP, INC.
Dated as of January 7, 2000
C:\WINDOWS\TEMP\SPAFinal1700.doc
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS.....................................................................
....................1
SECTION 1.1
Definitions.....................................................................
.........1
SECTION 1.2 Other
Definitions.....................................................................
...5
SECTION 1.3 Certain Interpretive
Matters.............................................................7
ARTICLE II THE
ACQUISITION.....................................................................
................7
SECTION 2.1 Consideration for the
Shares.............................................................7
SECTION 2.2 Closing
Transactions....................................................................
.7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
SELLER............................................................8
SECTION 3.1 Organization and
Qualification...........................................................8
SECTION 3.2
Authorization...................................................................
.........8
SECTION 3.3 No
Violation.......................................................................
......9
SECTION 3.4 Capitalization of the
Companies..........................................................9
SECTION 3.5 Company
Subsidiaries....................................................................
10
SECTION 3.6 Consents and
Approvals..................................................................11
SECTION 3.7 Financial Statements;
Reserves..........................................................11
SECTION 3.8 Absence of Undisclosed
Liabilities......................................................12
SECTION 3.9 Absence of Certain
Changes..............................................................13
SECTION 3.10
Litigation......................................................................
........13
SECTION 3.11 Property; Liens and
Encumbrances........................................................14
SECTION 3.12 Certain
Agreements......................................................................
14
SECTION 3.13 Employee Benefit
Plans..................................................................15
SECTION 3.14
Taxes...........................................................................
........18
SECTION 3.15 Compliance with Applicable Law; Permits;
Policies.......................................22
SECTION 3.16 Fairness
Opinion........................................................................2
4
SECTION 3.17 Proprietary Rights; Year 2000
Compliance................................................24
SECTION 3.18
Insurance.......................................................................
........25
SECTION 3.19 Environmental
Matters...................................................................25
SECTION 3.20 Books and
Records.......................................................................26
SECTION 3.21 Bank
Accounts........................................................................
...26
SECTION 3.22 Insurance and
Reinsurance...............................................................26
SECTION 3.23 Labor
Matters.........................................................................
..27
SECTION 3.24 Affiliate
Transactions..................................................................28
SECTION 3.25
Bonuses.........................................................................
........28
SECTION 3.26 All Related
Assets......................................................................28
i
TABLE OF CONTENTS
(CONTINUED)
SECTION 3.27 Brokers' Fees and
Commissions...........................................................28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
BUYER............................................................29
SECTION 4.1 Organization; Qualifications and
Operations.............................................29
SECTION 4.2
Authorization...................................................................
........29
SECTION 4.3 No
Violation.......................................................................
.....29
SECTION 4.4 Consents and
Approvals..................................................................30
SECTION 4.5 Brokers' Fees and
Commissions...........................................................30
SECTION 4.6 Purchase for
Investment.................................................................30
SECTION 4.7 Sufficient
Funds........................................................................30
ARTICLE V
COVENANTS.......................................................................
...................30
SECTION 5.1 Conduct of Business Prior to the
Closing................................................30
SECTION 5.2 Management of
Companies.................................................................32
SECTION 5.3 Access to
Information...................................................................33
SECTION 5.4 HSR Act
Filings.........................................................................
34
SECTION 5.5 State Regulatory
Approvals..............................................................34
SECTION 5.6 Transaction
Bonuses.....................................................................34
SECTION 5.7 All Reasonable
Efforts..................................................................35
SECTION 5.8 Public
Announcements...................................................................
.36
SECTION 5.9 Disclosure
Supplements..................................................................36
SECTION 5.10 Employment and Employee
Benefits........................................................36
SECTION 5.11
Nonsolicitation.................................................................
........37
SECTION 5.12 Acquisition Proposals; Recapitalization
Transaction.....................................38
SECTION 5.13 Pre-Closing Restructuring
Transactions..................................................38
SECTION 5.14 Tax
Matters.........................................................................
....39
SECTION 5.15 Financial
Matters.......................................................................43
SECTION 5.16 Bankruptcy Court
Approval...............................................................41
SECTION 5.17 Specific Enforcement of
Covenants.......................................................45
SECTION 5.18 Intercompany Indebtedness and Transactions;
Brokers and Finders Fees....................46
SECTION 5.19
Portsmouth......................................................................
........46
ARTICLE VI CLOSING
CONDITIONS......................................................................
...........47
SECTION 6.1 Conditions to the Obligations of Buyer under
this Agreement.............................44
SECTION 6.2 Conditions to the Obligations of Seller under
this Agreement............................49
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TABLE OF CONTENTS
(CONTINUED)
ARTICLE VII
CLOSING.........................................................................
...................49
SECTION 7.1
Closing.........................................................................
........49
ARTICLE VIII
SURVIVAL........................................................................
...................51
SECTION 8.1
Survival........................................................................
........51
ARTICLE IX FURTHER AGREEMENTS AND
TERMINATION.................................................................51
SECTION 9.1 Certain
Payments........................................................................
51
SECTION 9.2
Termination.....................................................................
........52
SECTION 9.3 Procedure and Effect of
Termination.....................................................54
SECTION 9.4
Confidentiality.................................................................
........54
ARTICLE X MISCELLANEOUS
PROVISIONS......................................................................
.....55
SECTION 10.1 Amendment and
Modification..............................................................55
SECTION 10.2 Waiver of Compliance;
Consents..........................................................55
SECTION 10.3
Validity........................................................................
........55
SECTION 10.4 Expenses and
Obligations................................................................55
SECTION 10.5 Parties in
Interest.....................................................................55
SECTION 10.6
Notices.........................................................................
........56
SECTION 10.7 Governing
Law...........................................................................57
SECTION 10.8
Counterparts....................................................................
........57
SECTION 10.9
Headings........................................................................
........57
SECTION 10.10 Entire
Agreement.......................................................................
.57
SECTION 10.11
Assignment......................................................................
........57
SECTION 10.12 Obligation of
Parent....................................................................57
iii
ANNEX A Disclosure Schedule
iv
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of January 7, 2000, between Reassure America Life Insurance Company, an Illinois
insurance company ("BUYER") and PennCorp Financial Group, Inc., a Delaware
corporation ("SELLER").
RECITALS:
WHEREAS, Seller is (or, immediately following the
Pre-Closing Restructuring Transactions (as hereinafter defined) will be) the
record and beneficial owner of (i) all of the issued and outstanding shares of
common stock, par value $2.50 per share (the "SLT SHARES") of Security Life and
Trust Insurance Company, a Texas corporation ("SLT") and (ii) all of the issued
and outstanding shares of common stock, par value $1.00 per share (the "SWLIC
SHARES" and together with the SLT Shares, the "Shares") of Southwestern Life
Insurance Company, a Texas corporation ("SWLIC" and together with SLT, the
"COMPANIES");
WHEREAS, subject to the terms and conditions set forth
herein, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Shares on the Closing Date; and
WHEREAS, Seller has agreed that, subject to approval
thereof by its Board of Directors and the other terms of this Agreement, Seller
intends to file a voluntary petition for reorganization relief pursuant to
chapter 11 of title 11 of the United States Code, 11 U.S.C. Sections 101 et seq.
(the "BANKRUPTCY CODE") and in concert with such filing to seek the entry of an
order of the United States Bankruptcy Court having jurisdiction over such
chapter 11 case (the "BANKRUPTCY COURT") approving this Agreement and
authorizing Seller to consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For purposes of this Agreement, the term:
"ACQUISITION PROPOSAL" means any proposal or offer, other
than a proposal or offer (i) by Buyer or any of its Affiliates or (ii) with
respect to any Affiliates of Seller (other than the Companies), for (a) any
merger, consolidation, share exchange, business combination or other similar
transaction (including reinsurance) with Seller or any of its Subsidiaries, (b)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
10% or more of the assets, liabilities or policies (including through
reinsurance) of Seller or either Company, in a single transaction or series of
transactions (whether related or unrelated), (c) any tender offer or exchange
offer for 20% or more of the outstanding shares of Seller's common stock or any
class of Seller's debt securities or the filing of a registration statement
under the Securities Act of 1933, as amended in connection therewith, (d) the
acquisition by an third party of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d)(3) of the Exchange Act) which beneficially owns or has the right
to acquire beneficial ownership of 20% or more of the then outstanding shares of
any class of Seller's common stock or any class of Seller's debt securities or
(e) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing; provided, however,
that "Acquisition Proposal" shall not include (i) any such proposal relating
solely to the sale of the Waco Companies or (ii) any transfer by either Company
of capital stock of any Company Subsidiary.
"AFFILIATE" means, as to a specified Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
Person.
"AMERICAN-AMICABLE NOTES" means the 10% promissory note due
2021 issued by American-Amicable Holdings Corporation, a Texas corporation, to
SLT in the amount of $7,665,499, dated February 24, 1998 and the 10% promissory
note due 2021 issued by American-Amicable Holdings Corporation to SWLIC in the
amount of $15,330,998, dated February 24, 1998.
"ANNUAL STATEMENT" means, with respect to a referenced
Person, the annual statement of such Person filed with or submitted to the
insurance regulatory authority in the jurisdiction in which such Person is
domiciled on forms prescribed or permitted by such authority.
"BANKRUPTCY RESOLUTION DATE" means the date on which a
Final Order of the Bankruptcy Court has been entered dismissing, closing or
otherwise terminating the Chapter 11 Case.
"BUSINESS DAY" means any day that is not a Saturday, Sunday
or other day on which banking institutions in the city of New York, New York are
authorized or required by law or executive order to be closed.
"CHAPTER 11 CASE" means a voluntary case commenced by
Seller under chapter 11 of the Bankruptcy Code.
"CLOSING TRANSACTIONS" means the transactions contemplated
by Section 2.2.
2
"CODE" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
"COMPANIES" means SWLIC and SLT.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule
attached hereto as ANNEX A.
"EMPLOYEES" means (i) those current and former employees of
the Companies or the Company Subsidiaries and (ii) those current and former
employees of Seller or any of its Affiliates who primarily render services to or
on behalf of any or all of the Companies or the Company Subsidiaries, in each
case as listed on Section 1.1 of the Disclosure Schedule, and any other
employees of Seller, the Companies or the Company Subsidiaries performing
services primarily for the Companies or the Company Subsidiaries who are hired
between the date hereof and the Closing Date.
"ENVIRONMENTAL LAWS" means all applicable federal, state,
provincial or local laws (including but not limited to federal and state common
law), statutes, codes, rules or regulations relating to the environment, natural
resources, and pollution including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as amended from
time to time (HMTA), the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., as amended from time to time (RCRA), the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq., as amended from time to
time (FWPCA), the Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended from
time to time (CAA), and/or the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq., as amended from time to time (TSCA).
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"FINAL ORDER" means an order or judgment the operation or
effect of which is not stayed, and as to which order or judgment (or any
revision, modification or amendment thereof), the time to appeal or seek review
or rehearing has expired and as to which no appeal or petition for review or
rehearing has been taken and is pending.
"GOVERNMENTAL AUTHORITY" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HAZARDOUS MATERIALS" means (i) any wastes, substances, or
materials which are defined as "hazardous material," "hazardous waste,"
"hazardous substance," "toxic material" or other similar designations in, or
otherwise subject to regulation under, any applicable Environmental Laws; (ii)
petroleum or petroleum byproducts; (iii) friable asbestos and/or any material
which contains friable asbestos; and (iv) electrical equipment containing
polychlorinated biphenyls (PCBs) in excess of 50 parts per million.
3
"MATERIAL ADVERSE EFFECT" means a materially adverse effect
on the business, results of operations or financial condition of the Companies,
taken as a whole, other than any change, circumstance or effect relating (i) to
the economy or financial markets in general, (ii) to changes in general
political or regulatory conditions in the United States, (iii) generally to the
industries in which such entity operates and not specifically relating to such
entity, (iv) to or resulting from the announcement or pendency of the
transactions contemplated by this Agreement or (v) to or resulting from the
Chapter 11 Case.
"NASDAQ" means The NASDAQ Stock Market, Inc.
"PERSON" means an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or, as applicable, any other entity.
"PHASE III TAXES" means Taxes imposed under Section 815 of
the Code.
"PRE-CLOSING RESTRUCTURING TRANSACTIONS" means the
transactions to be effected prior to the Closing pursuant to which (i) all of
the SLT Shares will be distributed or otherwise transferred (pursuant to a
series of such distributions or transfers) from a wholly-owned Subsidiary of
Seller that is not a Company or a Company Subsidiary to Seller, (ii) all of the
SWLIC Shares will be distributed or otherwise transferred to Seller, such that,
immediately prior to the Closing, Seller will be the record and beneficial owner
of all of the SLT Shares and the SWLIC Shares, (iii) SLT will declare and pay a
dividend consisting of the shares of preferred stock of Southwestern Financial
Corporation currently held by SLT and (iv) the American-Amicable Notes will be
transferred to and owned by Seller or any of its Affiliates other than the
Companies or any of the Company Subsidiaries.
"QUARTERLY STATEMENT" means, with respect to a referenced
Person, the quarterly statement of such Person submitted to the insurance
regulatory authority in the state in which such Person is domiciled on forms
prescribed or permitted by such authority.
"RECAPITALIZATION TRANSACTION" means a recapitalization
transaction involving Seller and its existing security holders that does not
involve the sale of any of the Companies or the Company Subsidiaries.
"RELEASE" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
release, or threatened release of Hazardous Materials into the environment.
4
"SAP" means the statutory accounting practices required or
permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person.
"SFSC" means Southwestern Financial Services Corporation, a
Delaware corporation.
"SUBSIDIARY" means, as to any Person, any other Person of
which at least a majority of the outstanding shares or other equity interests
having ordinary voting power for the election of directors or comparable
managers of such Person is owned, directly or indirectly, by the referenced
Person. For purposes of this Agreement, Buyer's Subsidiaries shall not include
any of the Companies or the Company Subsidiaries, notwithstanding the
consummation of any of the Closing Transactions.
"SUPERIOR PROPOSAL" means an Acquisition Proposal that the
Board of Directors of Seller has determined in good faith, if accepted, is
reasonably likely to be consummated taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the proposal,
and that the Board of Directors of Seller believes in good faith, after
consultation with an outside financial advisor would, if consummated, result in
a transaction more favorable from a financial point of view than the transaction
proposed by this Agreement.
"TAXES" means any and all federal, state, provincial,
local, foreign and other taxes, levies, fees, imposts, duties, and similar
governmental charges (including any interest, fines, assessments, penalties or
additions to tax imposed in connection therewith or with respect thereto)
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits or gross receipts, ad valorem, value added, capital gains,
sales, goods and services, use, real or personal property, capital stock,
license, branch, payroll, Phase III Taxes, estimated withholding, employment,
social security (or similar), unemployment, compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes, and customs duties.
"TAX RETURNS" means any report, return, declaration, claim
for refund, information report or return or statement required to be supplied to
a taxing authority in connection with Taxes, including any schedule or
attachment thereto or amendment thereof.
"WACO COMPANIES" means Pioneer Security Life Insurance
Company, Occidental Life Insurance Company, American-Amicable Life Insurance
Company, and Pioneer Life Insurance Company, and any of their Subsidiaries
(other than SLT).
"WARN" means the Worker Adjustment and Retraining
Notification Act of 1988 and any similar state, local or layoff statute.
5
SECTION 1.2 OTHER DEFINITIONS. When used in this Agreement, the following terms
shall have the meanings ascribed to them in Sections noted below:
Term Defined in
Accounts Section 3.21
Agent Compensation Section 3.15(e)
Agreement Preamble
Allocation Agreement Section 5.14(1)
Alternative Termination Amount. Section 9.1(b)
Approval Order Section 5.16(d)
Assignment and Assumption of Lease Section 7.1(a)
Assignment and Assumption of Other Contracts Section 7.1(a)
Assignment of License Agreement Section 7.1(a)
Bankruptcy Code Recitals
Bankruptcy Court Recitals
Bankruptcy Termination Amount.. Section 9.1(b)
Banks Section 3.21
Benefit Plans Section 3.13(a)
Buyer Preamble
Buyer Approvals Section 4.4
Buyer Benefit Plans Section 5.10(b)
Buyer Employee Section 5.10(a)
Buyer Material Adverse Effect.. Section 4.1
Buyer Plans Section 5.10(b)
Buyer's TPA Section 5.10(a)
Claims Section 6.1(n)
Closing Section 7.1
Closing Date Section 7.1
Computation Section 5.14(l)
Deposit Section 3.15(i)
Company Subsidiaries Section 3.5(a)
DOJ Section 3.6
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(e)
Estate Property Section 5.16(d)
HSR Act Section 3.6
Insurance Approvals Section 3.6
Intellectual Property Section 3.17
IRS Section 1.1(k)
Liens Section 3.11(b)
Litigation Section 3.10
MADSP Section 5.14(l)
Material Contract Section 3.12(a)
MEC Section 3.14(z)
6
Multiemployer Plan Section 3.13(a)
Neutral Auditors Section 5.14(1)
OID Section 3.9
Opinion Section 3.16
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
PLAIC Section 6.1(m)
PLAIC Reinsurance Agreement Section 6.1(m)
Portsmouth Section 5.19
Portsmouth Preferred Amount Section 5.19
Post-Signing Financial Statements Section 5.15
Pre-Closing Quarterly Statements Section 3.14(b)
Purchase Price Section 2.1
Reinsurance Agreements Section 3.22(a)
Releasees Section 6.1(n)
Releasing Party Section 6.1(n)
Request Section 5.14(l)
Required Permits Section 3.15(b)
Sale Procedures Order Section 5.16(a)
SAP Financial Statements Section 3.7(a)
Section 338(h)(10) Election Section 5.14(l)
Section 9.2(b)(ii) Amount Section 9.1(b)
Seller Preamble
Shares Recitals
SLT Recitals
SLT Shares Recitals
Substituted Buyer Section 10.12
SWLIC Recitals
SWLIC Purchase Price Section 2.1(a)
SWLIC Shares Recitals
Target Company Section 5.14(l)
Target Employees Section 5.10(a)
Tax Attributes Section 3.14(af)
Technology Systems Section 3.17(b)
Termination Amount Section 9.1(a)
Transaction Bonus Section 3.25
Workpapers Section 5.14(l)
SECTION 1.3 CERTAIN INTERPRETIVE MATTERS. Unless otherwise noted, all references
herein to "$" or dollar amounts are to lawful currency of the United States of
America. Unless the context otherwise requires, all references to Sections,
Articles, Annexes or Exhibits are to Sections, Articles, Annexes or Exhibits to
this Agreement.
7
ARTICLE II
THE ACQUISITION
SECTION 2.1 CONSIDERATION FOR THE SHARES. At the Closing, upon the terms and
subject to the conditions of this Agreement and in reliance upon the
representations, warranties and agreements contained herein, Seller shall sell
to Buyer, and Buyer shall purchase from Seller, in the manner described in
Section 2.2, all of the Shares for an amount in cash equal to Two Hundred Sixty
Million and No/100 Dollars ($260,000,000.00) (subject to adjustment pursuant to
Section 5.18(a), Section 5.19 and the immediately following sentence, the
"PURCHASE PRICE"). The Purchase Price shall be reduced by (i) $1 million, if the
Closing does not occur on or prior to the date that is 180 days after the date
hereof and (ii) an additional $1 million for each complete, successive 30-day
period between such 180th day and the Closing Date.
SECTION 2.2 CLOSING TRANSACTIONS. At the Closing:
(a) Seller shall deliver to Buyer certificates representing
the Shares, free and clear of any Liens, other than those which may be created
by Buyer, duly endorsed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer, for transfer to Buyer; and
(b) Buyer shall deliver to Seller the Purchase Price by
wire transfer to an account specified by Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Seller and the Companies is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, which as to each such company is set forth
opposite its name in Section 3.1(a) of the Disclosure Schedule, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted. Seller has delivered
or made available to Buyer a true and complete copy of the Certificate or
Articles of Incorporation and Bylaws (or similar organizational documents) of
each of Seller and the Companies.
(b) Each of the Companies is qualified or licensed to do
business as a foreign corporation or extra-provincial corporation and is in good
standing in every jurisdiction where the nature of the business conducted by it
or the properties owned or leased by it requires qualification, except where the
failure to be so qualified, licensed or in good standing would not reasonably be
expected to have a Material Adverse Effect. Schedule T of each of the Companies'
Annual Statements for the year ended December 31, 1998 sets forth a true and
8
complete list of each jurisdiction in which each of the Companies is qualified
or licensed to do business and is in good standing to transact the business of
life and/or accident and health insurance.
(c) Each Company is domiciled in its jurisdiction of
incorporation, is not deemed to be domiciled in any other jurisdiction, and is
licensed to write the types of insurance shown in Section 3.1(c) of the
Disclosure Schedule in the jurisdictions shown in such Section, which are all
the types of insurance issued by such Companies and all the jurisdictions in
which each such Company writes such insurance. Except as set forth in Section
3.1(c) of the Disclosure Schedule, no such license is the subject of a
proceeding for suspension or revocation or any similar proceedings and, to the
knowledge of Seller, there is no pending threat of such suspension or revocation
by any licensing authority.
SECTION 3.2 AUTHORIZATION. Seller has full corporate power and authority (a) to
execute and deliver this Agreement and (b) in the event Seller commences the
Chapter 11 Case and the Sale Procedures Order and the Approval Order are entered
by the Bankruptcy Court, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Seller, and subject to clause (b)
above, the performance by Seller of its obligations hereunder and the
consummation by Seller of the transactions contemplated hereby, have been duly
authorized by its Board of Directors and no other corporate action on the part
of Seller is necessary to authorize the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby (other than Board of
Directors' approval in connection with the commencement of the Chapter 11 Case).
This Agreement has been duly and validly executed and delivered by Seller and
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, subject (a) to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, including, without limitation, for
purposes of the representation and warranty being made as of the Closing Date,
the discretion of the Bankruptcy Court for so long as the Bankruptcy Court
retains jurisdiction over the Chapter 11 Case, (b) as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity), and (c) for purposes of the representation and
warranty being made as of the date hereof (but not for purposes of the
representation and warranty being made as of the Closing Date), to the
commencement of the Chapter 11 Case, competing offers as described in Section
5.16(a), and entry of the Approval Order.
SECTION 3.3 NO VIOLATION. Except as set forth in Section 3.3 of the Disclosure
Schedule, neither the execution and delivery of this Agreement by Seller, nor in
the event Seller commences the Chapter 11 Case and the Approval Order is entered
by the Bankruptcy Court, the performance by Seller of its obligations hereunder
nor the consummation by Seller of the transactions contemplated hereby will (a)
violate, conflict with or result in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws (or similar organizational
documents) of Seller or any of the Companies, (b) violate or conflict with or
9
result in a violation or breach of, or constitute a default or give rise to any
right of termination or acceleration (with or without due notice or lapse of
time or both) or result in the acceleration of any payments under the terms,
conditions or provisions of any Material Contract (as defined in Section
3.12(a)), (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any Governmental Authority applicable to Seller or any of
the Companies or any of their respective assets or (d) result in the creation of
any Lien upon any of the assets of Seller, any of the Companies (other than any
Liens created by Buyer), except in the case of clause (c) above, for those
violations, conflicts, breaches and defaults which would not be expected to have
a Material Adverse Effect.
SECTION 3.4 CAPITALIZATION OF THE COMPANIES.
(a) The authorized capital stock of SWLIC consists of
5,000,000 SWLIC Shares. As of the date hereof, there are 3,000,000 SWLIC Shares
issued and outstanding, all of which have been validly issued, are fully paid
and non-assessable and were not issued in violation of any preemptive rights.
The authorized capital stock of SLT consists of 5,000,000 SLT Shares. As of the
date hereof, there are 2,542,500 SLT Shares issued and outstanding, all of which
have been validly issued, are fully paid and non-assessable and were not issued
in violation of any preemptive rights.
(b) Except as set forth in Section 3.4(b) of the Disclosure
Schedule, there are no (i) options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating either Company to issue
any additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of such Company, (ii) agreements or commitments obligating such Company to
repurchase, redeem or otherwise acquire any shares of its capital stock, (iii)
restrictions on transfer of any shares of capital stock of such Company (other
than pursuant to this Agreement) or (iv) voting or similar shareholder
agreements relating to any shares of capital stock of such Company.
(c) Except as set forth in Section 3.4(c) of the Disclosure
Schedule, after giving effect to the Pre-Closing Restructuring Transactions and
at all times thereafter prior to the Closing, the Shares will be owned
beneficially and of record by Seller, free and clear of all Liens. At the
Closing, good and valid title to the Shares shall be conveyed to Buyer as
provided for in Section 2.2, in the manner contemplated by Section 2.2, free and
clear of all Liens other than those which may be created by Buyer.
(d) Except as set forth in Section 3.4(d) of the Disclosure
Schedule, neither of the Companies owns, directly or indirectly, 5% or more of
the outstanding voting securities of or otherwise possesses, directly or
indirectly, the power to direct or cause the direction of the management or
policies of any Person.
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SECTION 3.5 COMPANY SUBSIDIARIES.
(a) Section 3.5(a) of the Disclosure Schedule sets forth
(i) the names of all Subsidiaries of each of the Companies (the "COMPANY
SUBSIDIARIES") and their respective jurisdictions of incorporation and (ii) the
name and number of all authorized, issued and outstanding shares of capital
stock of each Company Subsidiary. Except for the Company Subsidiaries, no
Company directly or indirectly owns or has the power to vote the shares of any
capital stock or other ownership interest (other than capital stock or ownership
interests held in the investment portfolio of either Company) or has ordinary
voting power to elect the majority of directors of any corporation or other
entity or other Person or body performing a similar function of any such entity,
as the case may be.
(b) Each of the Company Subsidiaries is a corporation or a
company duly organized or formed, validly existing and in good standing under
the laws of its jurisdiction of incorporation or formation, which as to each
such company is set forth opposite its name in Section 3.5(a) of the Disclosure
Schedule, with all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted.
Seller has delivered or made available to Buyer a true and complete copy of the
Certificate of Incorporation and Bylaws (or similar organizational documents) of
each of the Company Subsidiaries. All of the outstanding shares of capital stock
of each Company Subsidiary have been duly authorized and validly issued, are
fully paid and non-assessable, have not been issued in violation of any
preemptive rights, and are owned of record and beneficially by the entities
named in Section 3.5(a) of the Disclosure Schedule, free and clear of any Liens
except as set forth in Section 3.5(a) of the Disclosure Schedule.
(c) Except as set forth in Section 3.5(c) of the Disclosure
Schedule, there are no (i) options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating any of the Company
Subsidiaries to issue any additional shares of capital stock of such Subsidiary
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, (ii) agreements or
commitments obligating any such Subsidiary to repurchase, redeem or otherwise
acquire any shares of its capital stock, (iii) restrictions on the transfer of
any shares of capital stock of any such Subsidiary (other than pursuant to this
Agreement or applicable laws or regulations of any Governmental Authority) or
(iv) voting or similar shareholder agreements relating to any shares of capital
stock of any such Subsidiary.
(d) Except as set forth in Section 3.5(d) of the Disclosure
Schedule, none of the Company Subsidiaries is regulated or required to be
regulated as an insurance company.
SECTION 3.6 CONSENTS AND APPROVALS. Other than in connection with the
commencement of a Chapter 11 Case, entry of the Sale Procedures Order, entry of
the Approval Order and as set forth in Section 3.6 of the Disclosure Schedule,
no filing or registration with, no notice to and no permit, authorization,
consent or approval of any Governmental Authority or any other Person is
necessary for the consummation by Seller or the Companies of the transactions
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contemplated by this Agreement other than (a) consents and approvals of or
filings or registrations with (i) the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and (ii) the insurance
department of the State of Texas and those state insurance departments listed in
Section 3.6 of the Disclosure Schedule (the "INSURANCE APPROVALS") and (b)
consent of any counterparty to any agreement or contract that is not a Material
Contract.
SECTION 3.7 FINANCIAL STATEMENTS; RESERVES.
(a) Seller has previously delivered or made available to
Buyer true and complete copies of the following (the "SAP FINANCIAL
STATEMENTS"):
(i) the Annual Statements for each Company for each of
the years ended December 31, 1997 and 1998, in each
case as filed with the departments of insurance in
the respective states of domicile of each Company
including all exhibits, interrogatories, notes and
schedules thereto and any actuarial opinion,
affirmation or certification filed in connection
therewith;
(ii) the Quarterly Statements for each Company for the
quarters ended March 31, June 30 and September 30,
1999 including all exhibits, interrogatories, notes
and schedules thereto; and
(iii) the statutory annual statements for each of the years
ended December 31, 1997 and 1998 and unaudited
quarterly statements for the quarters ended March 31,
June 30, and September 30, 1999 of each Company which
were filed in any jurisdiction other than such
Company's jurisdiction of domicile and that differ
from the corresponding Annual Statements and
Quarterly Statements for such periods.
Except as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP
Financial Statements were, and when delivered in accordance with the provisions
of Section 5.15, the Post-Signing Financial Statements will be, prepared in all
material respects in accordance with SAP, applied on a consistent basis. Except
as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP Financial
Statements present fairly in all material respects and, when delivered in
accordance with the provisions of Section 5.15, the Post-Signing Financial
Statements will present fairly in all material respects, the statutory financial
position of the applicable Company as of the respective dates thereof and the
related summary of operations and changes in capital and surplus and in cash
flows of such Company for and during the respective periods covered thereby in
conformity with SAP, applied on a consistent basis.
(b) Except as set forth in Section 3.7(b) of the Disclosure
Schedule, all statutory reserves and other similar amounts with respect to
insurance as established or reflected in the SAP Financial Statements of each
Company were determined (and, when delivered in accordance with the provisions
of Section 5.15, all statutory reserves and other similar amounts with respect
12
to insurance as reflected or established in the Post-Signing Financial
Statements will be determined) in all material respects in accordance with SAP,
applied on a consistent basis, and sound actuarial practice, based on actuarial
assumptions and methodologies that were (or will be), as of the date of
preparation, in compliance in all material respects with, and met (or will meet)
in all material respects the requirements of the insurance laws of the
respective states of domicile of the Companies. Except as set forth in Section
3.7(b) of the Disclosure Schedule, each Company owns assets that qualify as
legal reserve assets under insurance laws applicable to such Company in an
amount at least equal to all such reserves and other similar amounts required by
such laws to be owned by such Company.
SECTION 3.8 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of the Companies or the Company Subsidiaries (including without
limitation any Liens) that are required to be reflected or reserved against on a
balance sheet prepared in accordance with SAP other than (a) liabilities and
obligations reflected or reserved against in the September 30, 1999 Quarterly
Statement of each Company and not heretofore discharged, (b) policyholder
benefits payable or other liabilities or obligations arising after September 30,
1999 in the ordinary course of business consistent with past practice and in
amounts consistent with past practice, or (c) liabilities and obligations
disclosed in Section 3.8 of the Disclosure Schedule. Neither Company nor any
Company Subsidiary has any liability or obligation on account of any of the
operations, businesses, obligations or liabilities of Seller or any of its
Affiliates (other than the Companies and the Company Subsidiaries) other than
liabilities to be settled in accordance with Section 5.18 hereof.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 3.9 of
the Disclosure Schedule or as permitted or contemplated by this Agreement
(including in connection with the commencement and prosecution of a Chapter 11
Case), since September 30, 1999, neither of the Companies nor any Company
Subsidiary has (a) experienced any change, event or condition which,
individually or in the aggregate, has had or reasonably would be expected to
have a Material Adverse Effect, (b) conducted its business in any material
respect other than in the ordinary course, (c) incurred any indebtedness for
borrowed money or issued any debt securities or assumed, guaranteed or endorsed
the obligations of any other Person, (d) other than immaterial sales or
dispositions of assets in the ordinary course of business (i) sold, transferred
or otherwise disposed of any of its property or assets or (ii) mortgaged or
encumbered any of its property or assets, (e) suffered any material casualty
losses not covered by insurance, (f) repurchased any of its capital stock or any
capital stock of any of its Subsidiaries, (g) declared, set aside or paid any
dividend or other distribution in respect of its capital stock, other than
ordinary dividends and payments pursuant to certain notes permitted under
applicable insurance laws, (h) amended its Certificate or Articles of
Incorporation or Bylaws (or similar organizational documents) or merged with or
into or consolidated with any other Person, (i) split, combined or reclassified
its capital stock, (j) issued or sold (or agreed to issue or sell) any of its
equity securities or any options, warrants, conversion or other rights to
purchase any such securities or any securities convertible into or exchangeable
13
for such securities, or granted, or agreed to grant any such rights, (k)
increased the rates of compensation (including bonuses) payable or to become
payable to any of its officers, employees, agents, independent contractors or
consultants other than increases made in the ordinary course of business, (l)
entered into any new or amended any existing employment contracts, severance
agreements or consulting contracts or instituted or agreed to institute any
increase in benefits or altered its employment practices or the terms and
conditions of employment, (m) except as otherwise required by law, changed, in
any material respect its underwriting, actuarial or Tax accounting methods,
principles or practices, (n) ceased its lead generation activities other than in
the ordinary course of business, (o) terminated any material reinsurance or
coinsurance contract (including without limitation, any surplus relief or
financial reinsurance contract), whether as reinsurer or reinsured, (p) entered
into any joint ventures or partnerships of any kind, or (q) entered into any
contract or other agreements to do any of the foregoing.
SECTION 3.10 LITIGATION. Except as set forth in Section 3.10 of the Disclosure
Schedule, there are no actions, suits, arbitrations, investigations or
proceedings ("LITIGATION") pending or, to the knowledge of Seller or the
Companies, threatened against Seller or any of its Affiliates before any
Governmental Authority or arbitrator relating to this transaction or to any of
the Companies or to any of the Company Subsidiaries. Except as set forth in
Section 3.10 of the Disclosure Schedule, none of the Companies is in default
under any judgment, decree, injunction or order of any Governmental Authority or
arbitrator outstanding against it.
SECTION 3.11 PROPERTY; LIENS AND ENCUMBRANCES.
(a) Section 3.11(a) of the Disclosure Schedule contains a
complete and accurate list of all real property owned or leased by either
Company or any Company Subsidiary as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the
Disclosure Schedule or in the SAP Financial Statements, all properties and
assets owned by either Company or any Company Subsidiary (the "OWNED
PROPERTIES") or leased by either Company or any Company Subsidiary (the "LEASED
PROPERTIES") are free and clear of all liens, pledges, claims, security
interests, mortgages, assessments, easements, rights of way, covenants, rights
of first refusal, defects in title, encroachments (collectively, "LIENS") except
(i) statutory Liens not yet delinquent or the validity of which are being
contested in good faith by appropriate actions, (ii) purchase money Liens
arising in the ordinary course, (iii) Liens for Taxes not yet delinquent, (iv)
Liens reflected in the SAP Financial Statements (which have not been discharged)
and (v) Liens which in the aggregate do not materially detract from the value
or, in the case of personal property, materially impair the use by the relevant
Company or Company Subsidiary of the property subject thereto or, in the case of
real property, materially impair the present and continued use of such property
in the usual and normal conduct of the business of the relevant Company or
Company Subsidiary. The Companies and Company Subsidiaries have good and
indefeasible title to the Owned Properties and good and valid leasehold
14
interests in the Leased Properties and there are no pending or, to the knowledge
of Seller, threatened condemnation proceedings affecting any of the Owned
Properties or Leased Properties. To the knowledge of Seller, the use, occupancy
and condition of each parcel of real property that is an Owned Property or a
Leased Property is in compliance in all material respects with all applicable
laws.
SECTION 3.12 CERTAIN AGREEMENTS.
(a) Except as disclosed in Section 3.12(a) of the
Disclosure Schedule or in the SAP Financial Statements, neither of the Companies
nor any Company Subsidiary is a party to any written (i) agreement, contract,
indenture or other instrument relating to the borrowing of money or the
guarantee of any obligation for the borrowing of money; (ii) employment,
consulting, compensation or severance agreement with any of its directors,
employees or consultants; (iii) agreement, contract or commitment limiting or
restraining it from engaging or competing in any business; (iv) lease pursuant
to which it leases real property; (v) distribution, dealer, representation,
commission or agency agreement, other than agency agreements with insurance
agents in the ordinary course of business; (vi) contract or agreement with any
of its Affiliates that will continue after Closing (other than the other Company
or Company Subsidiaries); or (vii) any other contract that (A) is material to
the businesses of the Companies to the extent such contract would be required to
be filed pursuant to Item 601(b)(10) of Regulation S-K under the Exchange Act if
the Companies (as a whole) were subject to the reporting requirements
thereunder, or (B) requires annual expenditures or $100,000 or more and has a
remaining term of 24 months or more (each of the foregoing a "MATERIAL
CONTRACT"). Each Material Contract is in full force and effect and has been
complied with in all material respects by the Companies and the Company
Subsidiaries and, to the knowledge of Seller, has been complied with in all
material respects by all other parties thereto. Except as set forth in Section
3.12 of the Disclosure Schedule, no consent is required under any Material
Contract in connection with the consummation of the transactions contemplated by
this Agreement.
(b) Except as disclosed in Section 3.12(b) of the
Disclosure Schedule, all agency agreements with insurance agents to which either
Company or any Company Subsidiary is a party are substantially in the form of
one or more standard forms thereof previously delivered by Seller to Buyer.
Seller has delivered to Buyer copies of all agency agreements disclosed in
Section 3.12(b) of the Disclosure Schedule.
(c) To the knowledge of Seller, Section 3.12(c) of the
Disclosure Schedule sets forth a complete and accurate list of all contracts of
SWFS to be assigned to and assumed by Buyer pursuant to Section 7.1(a)(vi).
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SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) Since September 30, 1999, no Person who was an employee
of Seller or any of its Affiliates (other than the Companies and the Company
Subsidiaries) as of such date has become an Employee of any Company or any
Company Subsidiary.
(b) None of Seller or any of its Affiliates (including any
of the Companies or any Company Subsidiary) (i) currently maintains, administers
or contributes to or has any liability under or with respect to, other than
benefits claims in the ordinary course of business, or (ii) during the six year
period preceding the Closing Date maintained, administered or contributed to:
(A) any employee benefit plan, as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); or (B) any
employment contract, bonus, deferred compensation, incentive compensation,
performance compensation, stock purchase, stock option, stock appreciation,
restricted stock, phantom stock, saving and profit sharing, severance or
termination pay other than statutory or the common law requirements for
reasonable notice, health or other medical, salary continuation, cafeteria,
dependent care, vacation, sick leave, holiday pay, fringe benefit, reimbursement
program, life insurance, disability or other (whether insured or self-insured)
insurance, a supplementary unemployment benefit, pension retirement,
supplementary retirement, welfare or other employee plan, program, policy or
arrangement, whether written or unwritten, formal or informal, for the benefit
of the Employees, brokers, agents, or directors of the Companies or the Company
Subsidiaries, or leased employees, independent contractors or other Persons
performing services for or on behalf of the Companies or the Company
Subsidiaries, except for any such plans, programs, policies or arrangements, the
liabilities in respect of which are the sole responsibility of Seller or any of
its Affiliates (other than the Company and the Company Subsidiaries) and except
as set forth in Section 3.13(b) of the Disclosure Schedule ("BENEFIT PLANS").
None of the Benefit Plans is a multiemployer plan as defined in Section 3(37) of
ERISA or is subject to Title IV of ERISA.
(c) Except as set forth in Section 3.13(c) of the
Disclosure Schedule, all Benefit Plans comply in all material respects with and
are operated in all material respects in accordance with their terms and
applicable laws and, all such Benefit Plans comply in all material respects with
and are, and during the six year period preceding the Closing Date have been,
operated in all material respects in accordance with their terms and in
accordance with ERISA and the Code, including, but not limited to the
requirements of ERISA sections 601 et seq. and 701 et seq. and sections 4980B,
9801 and 9802 of the Code. None of the Benefit Plans are subject to the law of
any jurisdiction outside the United States, and no Benefit Plan covers any
Person in any jurisdiction outside the United States.
(d) True and complete copies of each written Benefit Plan
and any related trust, insurance or other related funding contract or agreement
or administrative services contract or agreement, and a description of any
unwritten Benefit Plan, the most recent summary plan descriptions for each
Benefit Plan, the most recent annual reports on Form 5500 for each Benefit Plan,
including schedules, audited financial statements and actuarial valuation
reports, most recent employee manuals, handbooks or personnel policies, sample
16
copies of the current form of all notices or certifications to individuals under
ERISA sections 606, 609, 701 and 711 et seq. or sections 4980B or 9801 of the
Code, any other filings with respect to any Benefit Plan with any government
entity and any opinion or ruling from the IRS or any other government entity
with respect to any Benefit Plan, if any, have been delivered to Buyer.
(e) Except as set forth in Section 3.13(e) of the
Disclosure Schedule, each Benefit Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS as
to its qualification under the Code both as to the original plan and as to all
restatements or material amendments and the exempt status of each related trust
under Section 501(a) of the Code, all of which have been delivered or made
available to Buyer; and nothing has occurred since the date of the most recent
such determination letter that would negatively affect such qualification or
exemption.
(f) Neither of the Companies nor any Company Subsidiary or
any entity required to be aggregated with any of the Companies or any Company
Subsidiary pursuant to Code section 414 or ERISA section 4001(b) ("ERISA
AFFILIATE") have incurred or are reasonably expected to incur, either directly
or indirectly, any liability (other than for premiums) to the Pension Benefit
Guaranty Corporation ("PBGC").
(g) Except as disclosed in Section 3.13(g) of the
Disclosure Schedule, there are no pending or, to the knowledge of Seller,
threatened actions, suits, claims, trials, arbitrations, investigations or other
proceedings by any Person, including any present or former participant or
beneficiary under any Benefit Plan (or any beneficiary of any such participant
or beneficiary) involving any Benefit Plan or any rights or benefits under any
Benefit Plan other than ordinary and usual claims for benefits by participants
or beneficiaries thereunder. There has been no action or failure to act on the
part of Seller, its Affiliates, the Companies, the Company Subsidiaries, any
fiduciary, funding agent or administrator of any of the Benefit Plans that could
reasonably be expected to subject Seller, its Affiliates, the Companies, the
Company Subsidiaries or the fund of any such Benefit Plan to the imposition of
any Tax or penalty with respect to any Benefit Plans, whether by way of
indemnity or otherwise. Except as set forth in Section 3.13(g) of the Disclosure
Schedule, all contributions required to have been made or remitted and all
expenses required to have been paid by Seller, the Companies or the Company
Subsidiaries to or under any Benefit Plan under the terms of any such plan, any
agreement or any applicable law have been paid within the time prescribed by any
such plan, agreement or law. All contributions to or under any Benefit Plan have
been currently deductible under the Code when made. No amount, or any asset of
any Benefit Plan, is subject to Tax as unrelated business income. Except as set
forth in Section 3.13(g) of the Disclosure Schedule, no "r
