STOCK PURCHASE AGREEMENT
BETWEEN
PIONEER-OCCIDENTAL HOLDINGS COMPANY
AND
AMERICAN-AMICABLE HOLDINGS CORPORATION
Dated January 8, 2000
TABLE OF CONTENTS
Article I
DEFINITIONS ..................................................................
.........................1
SECTION 1.1.
Definitions.....................................................................
1
SECTION 1.2. Other
Definitions...............................................................6
Article II THE
ACQUISITION.....................................................................
.....................7
SECTION 2.1. Purchase and Sale of
Shares.....................................................7
SECTION 2.2. Consideration for the
Shares....................................................7
Article III REPRESENTATIONS AND WARRANTIES OF
SELLER..................................................8
SECTION 3.1. Organization and
Qualification..................................................9
SECTION 3.2.
Authorization...................................................................
9
SECTION 3.3. No
Violation....................................................................9
SECTION 3.4. Capitalization of
Pioneer......................................................10
SECTION 3.5.
Subsidiaries...................................................................1
0
SECTION 3.6. Consents and
Approvals.........................................................11
SECTION 3.7. Financial
Statements...........................................................11
SECTION 3.8. Absence of Undisclosed
Liabilities.............................................12
SECTION 3.9. Absence of Certain
Changes.....................................................12
SECTION 3.10.
Litigation......................................................................
....13
SECTION 3.11. Property; Liens and
Encumbrances....................................................13
SECTION 3.12. Certain
Agreements..................................................................14
SECTION 3.13. Employee
Benefits...................................................................14
SECTION 3.14. Taxes15
SECTION 3.15. Compliance with Applicable
Law......................................................17
SECTION 3.16. Brokers' Fees and
Commissions.......................................................17
SECTION 3.17. Proprietary
Rights..................................................................17
SECTION 3.18.
Insurance.......................................................................
....18
SECTION 3.19. Environmental
Matters...............................................................18
SECTION 3.20. Books and
Records...................................................................18
SECTION 3.21. Bank
Accounts.......................................................................1
8
SECTION 3.22. Labor
Matters.......................................................................19
SECTION 3.23. Year 2000
Compliance................................................................19
SECTION 3.24. Termination of Intercompany
Agreements..............................................20
i
Article IV REPRESENTATIONS AND WARRANTIES OF
BUYER.................................................................20
SECTION 4.1. Organization; Qualifications and
Operations....................................20
SECTION 4.2.
Authorization..................................................................2
0
SECTION 4.3. No
Violation...................................................................20
SECTION 4.4. Consents and
Approvals.........................................................21
SECTION 4.5. Brokers' Fees and
Commissions..................................................21
SECTION 4.6. Purchase for
Investment........................................................21
SECTION 4.7.
Financing......................................................................2
1
Article V
COVENANTS .................................................................
........................21
SECTION 5.1. Conduct of Business Prior to the
Closing.......................................21
SECTION 5.2. Access to
Information..........................................................23
SECTION 5.3. HSR Act
Filings................................................................23
SECTION 5.4. Regulatory
Approvals...........................................................24
SECTION 5.5. All Reasonable
Efforts.........................................................24
SECTION 5.6. Public
Announcements...........................................................24
SECTION 5.7. Disclosure
Supplements.........................................................24
SECTION 5.8. No Implied Representations or
Warranties.......................................25
SECTION 5.9. Employment and Employee
Benefits...............................................25
SECTION 5.10. Acquisition
Proposal................................................................26
SECTION 5.11. Bankruptcy Court
Approval...........................................................26
SECTION 5.12.
Consulting......................................................................
....28
SECTION 5.13. Allocation of Purchase
Price........................................................28
Article VI CLOSING
CONDITIONS ...............................................................
................28
SECTION 6.1. Conditions to the Obligations of Buyer under
this Agreement....................28
SECTION 6.2. Conditions to the Obligations of Seller
under this Agreement...................30
Article VII
CLOSING.........................................................................
.........30
SECTION 7.1.
Closing........................................................................3
0
Article VIII
SURVIVAL........................................................................
.........31
SECTION 8.1. Survival of Representations, Warranties and
Covenants..........................31
Article IX TERMINATION AND
ABANDONMENT.....................................................................
........31
SECTION 9.1. Termination
Payment............................................................31
SECTION 9.2.
Termination....................................................................3
2
SECTION 9.3. Procedure and Effect of
Termination............................................34
ii
SECTION 9.4. No
Default.....................................................................35
Article X MISCELLANEOUS
PROVISIONS......................................................................
..........35
SECTION 10.1. Amendment and
Modification..........................................................35
SECTION 10.2. Waiver of Compliance;
Consents......................................................35
SECTION 10.3.
Severability....................................................................
....35
SECTION 10.4. Expenses and
Obligations............................................................35
SECTION 10.5. Parties in
Interest.................................................................35
SECTION 10.6.
Notices.........................................................................
....36
SECTION 10.7. Governing
Law.......................................................................36
SECTION 10.8.
Counterparts....................................................................
....37
SECTION 10.9.
Headings........................................................................
....37
SECTION 10.10. Entire
Agreement....................................................................37
SECTION 10.11.
Assignment......................................................................
....37
SECTION 10.12. Third Party
Beneficiaries...........................................................37
SECTION 10.13.
Construction....................................................................
....37
Article XI TAX
MATTERS.........................................................................
....................37
SECTION 11.1. Tax Sharing
Agreements..............................................................37
SECTION 11.2. Preparation of Tax Returns; Payment of
Taxes........................................37
SECTION 11.3. Special Provisions Affecting Security
Life..........................................38
SECTION 11.4. Post-Closing
Elections..............................................................38
Annex A Disclosure Schedule
Annex B Bank of America Commitment Letter
Annex C Bank of America "Highly Confident" Letter
Annex D Thoma Cressey Equity Partners Commitment Letter
Annex E NOL Formula
Annex F Certain Assets
Annex G Restructuring Transactions
iii
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated January 8, 2000
(the "Execution Date"), by and between Pioneer-Occidental Holdings Company, a
Delaware corporation, ("Buyer"), and American-Amicable Holdings Corporation, a
Delaware corporation ("Seller").
RECITALS:
WHEREAS, Seller is the record and beneficial owner of all of the
outstanding shares of common stock (the "Shares") of each of Pioneer Security
Life Insurance Company, a Texas insurance corporation ("Pioneer") and Occidental
Life Insurance Company of North Carolina, a Texas insurance corporation
("Occidental");
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 in the event it files a voluntary
petition for reorganization relief pursuant to chapter 11 of Title 11 United
States Code, 11 U.S.C. Sections 101 et seq. (the "Bankruptcy Code") it will 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, all
subject to higher and better offers in the Chapter 11 Case (as hereinafter
defined);
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) "AA Life" means American-Amicable Life Insurance Company of
Texas, a Texas insurance corporation.
(b) "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 PennCorp (other than the Target Companies), for (a) any
merger, consolidation, share exchange, business combination or other similar
transaction (including reinsurance) with PennCorp 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 PennCorp or any of the Insurance Companies, 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
PennCorp's common stock or any class of PennCorp'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 PennCorp's common stock or
any class of PennCorp'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, the term "Acquisition
Proposal" shall not include (i) a proposal only for the sale of Security Life
and Trust Insurance Company, a Texas corporation, or Southwestern Life Insurance
Company, a Texas corporation or (ii) any transfer by any Target Company of
capital stock of any Target Company.
(c) "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.
(d) "ALICO" means ALICO Management Company, a Texas corporation.
(e) "AVR" means, with respect to a referenced Person, the Asset
Valuation Reserve set forth in the balance sheet of such Person in accordance
with SAP.
(f) "Bankruptcy Resolution Date" means the date on which a Final
Order of the Bankruptcy Court has been entered dismissing, closing or otherwise
terminating a Chapter 11 Case.
(g) "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.
(h) "Chapter 11 Case" means a voluntary case commenced by Seller
under chapter 11 of the Bankruptcy Code.
(i) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(j) "Closing Statement" means with respect to any Person a statement
prepared by Seller calculating the Statutory Capital of such Person, prepared in
accordance with SAP and consistent with past practices and methodologies, as of
the Closing Date (immediately prior to the Closing Date but after giving effect
to the transactions contemplated by this Agreement); provided that for purposes
of any Closing Statement, Seller will calculate such Statutory Capital as the
sum of (i) the Statutory Capital for the month immediately preceding the Closing
and (ii) the estimated monthly earnings (such estimated monthly earnings to be
calculated as the average of the monthly earnings for the three months preceding
the Closing).
(k) "Disclosure Schedule" means the Disclosure Schedule attached
hereto as Annex A.
(l) "Environmental Law" means any existing or past United States
local, county, state or federal Law (including common law), policy, judicial or
administrative interpretation of Law, or any legally binding requirement that
governs or purports to govern the existence of, relates to or provides a remedy
2
for an actual or threatened Release of Hazardous Substances, pollution or the
protection of persons, natural resources or the environment (including, without
limitation, the protection of ambient air, surface water, groundwater, land
surface or subsurface strata, endangered species or wetlands), occupational
health and safety, the manufacture, processing, distribution, use, generation,
handling, treatment, storage, disposal, transportation, Release or management of
solid waste or Hazardous Substances, or other activities involving Hazardous
Substances including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.9601 et seq.,
as amended by the Superfund Amendments and Reauthorization Act, the Hazardous
Materials Transportation Act, 49 U.S.C. ss.1801 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq., the Clean
Water Act, 33 U.S.C. ss.1251 et seq., the Clean Air Act, 33 U.S.C. ss.2601 et
seq., the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.136 et seq., the Oil
Pollution Act of 1990, 33 U.S.C. ss.2701 et seq., the Nuclear Waste Policy Act
of 1982, 42 U.S.C. ss.10101 et seq. and the Occupational Safety and Health Act,
29 U.S.C. ss.651 et seq., as such laws have been amended or supplemented, and/or
any other similar foreign, federal, state, local and/or county laws or
regulations, in each case as in effect on or prior to the Closing Date or, with
respect to representations and warranties made on the date hereof, on or prior
to the date hereof.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "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.
(o) "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.
(p) "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.
(q) "Insurance Companies" means, collectively, American-Amicable Life
Insurance Company of Texas, a Texas insurance corporation; Pioneer American
Insurance Company, a Texas insurance corporation; Pioneer Security Life
Insurance Company, a Texas insurance corporation; and Occidental Life Insurance
Company of North Carolina, a Texas insurance corporation.
(r) "Lien" means any charge, claim, community property interest,
condition, encumbrance, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including without
3
limitation any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
(s) "Losses" means any and all demands, claims, complaints, actions
or causes of action, suits, proceedings, investigations, arbitrations,
assessments, losses, damages, liabilities, obligations (including those arising
out of any action, such as any settlement or compromise thereof or judgment or
award therein) and any reasonable costs and expenses, including attorneys' and
other advisors' fees and disbursements.
(t) "Material Adverse Change," as used in the context of Section
9.2(c)(iii), means the occurrence or discovery following the date this Agreement
is executed by Buyer and Seller and prior to the Closing Date of (i) a ratings
downgrade from A.M. Best affecting the Target Companies or any of them; (ii) an
adverse event, change or effect occurs that is not within the control of Seller
or the Target Companies with respect to the business, results of operations or
financial condition of the Target Companies, taken as a whole, that results or
reasonably could result in a reduction in the valuation of the Target Companies
in an amount equal to or greater than 10% of the Purchase Price; or (iii)
consistent with the terms of the preamble to Article III, Seller delivers to
Buyer one or more updated Disclosure Schedules which indicate(s) an adverse
change or changes from information previously provided to Buyer that
individually or in the aggregate results or reasonably could result in a
reduction in the valuation of the Target Companies in an amount equal to or
greater than 10% of the Purchase Price.
(u) "Non-Investment Grade Assets" means any security or investment
other than (i) BBB- or higher rating issued by Standard & Poor's, (ii) Baa-3 or
higher rating issued by Moody's or (iii) a Class 2 or higher rating issued by
NAIC; provided, however, that policy loans made by the Insurance Companies to
their policyholders do not constitute "Non-Investment Grade Assets".
(v) "PennCorp" means PennCorp Financial Group, Inc., a Delaware
corporation.
(w) "Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or, as applicable, any other entity.
(x) "Recapitalization Transaction" means a recapitalization
transaction involving Penncorp and its existing security holders that does not
involve the sale of any of the Target Companies.
(y) "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.
(z) "Remedial Action" means any action to investigate, clean up,
monitor, abate, transport, remove, treat or in any other way address any
Hazardous Materials that is (i) required by any Environmental Law or (ii)
reasonably required to avoid or reduce actual or potential liability under any
Environmental Law.
4
(aa) "Restructuring Transaction" means the transfer of Occidental and
Security Life to Seller and those certain other transactions as set forth and
described in Annex G hereto.
(bb) "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, consistently applied throughout the specified period.
(cc) "Security Life" means Security Life and Trust Insurance Company,
a Texas insurance corporation.
(dd) "Statutory Annual Statements" 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.
(ee) "Statutory Capital" means with respect to any Person, the sum of
such Person's capital and surplus plus the amount of AVR as of the Closing Date
for such Person.
(ff) "Statutory Quarterly Statement" means, with respect to a
referenced Person, the quarterly statement of such person filed with or
submitted to the insurance regulatory authority in the state in which such
person is domiciled on forms prescribed or permitted by such authority.
(gg) "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.
(hh) "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, in the aggregate, to the creditors and shareholders of Seller from a
financial point of view than the transaction proposed by this Agreement.
(ii) "Target Companies" means ALICO and the Insurance Companies.
(jj) "Target Employees" shall mean those persons who render services
to or on behalf of the Target Companies.
(kk) "Taxes" means any and all federal, state, local, foreign and
other taxes, levies, fees, imposts, duties and similar governmental charges
(including any interest, penalties or additions to tax imposed in connection
therewith or with respect thereto), including, without limitation, taxes imposed
on or with respect to, or measured by, income, franchise, profits or gross
receipts, Phase III, ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
5
social security, unemployment, compensation, utility, severance, production,
excise, stamp, occupation, premium, windfall profits, transfer and gains taxes,
and customs duties.
(ll) "Tax Returns" means any report, return or statement required to
be supplied to a taxing authority in connection with Taxes.
(mm) "WARN" means the Worker Adjustment and Retraining Notification
Act of 1988 and any similar state or local "plant closing" statute.
SECTION 1.2. Other Definitions. When used in this Agreement, the
following terms shall have the meanings ascribed to them in the Sections noted
below:
Term Defined in
---- ----------
Acquisition Section 6.1
Agreement Agreement Preamble
Alico Unaudited Financial Statements Section 3.7(b)
Approval Order Section 5.11(d)
Bankruptcy Code Recitals
Bankruptcy Court Recitals
Bankruptcy Termination Amount Section 9.1(b)
Benefit Plans Section 3.13(b)
Buyer Preamble
Buyer Material Adverse Effect Section 4.1
Buyer Plans Section 5.9(b)
CERCLIS Section 3.19(c)
Closing Section 7.1
Closing Date Section 7.1
DOJ Section 3.6
ERISA Section 3.13(b)
ERISA Affiliate Section 3.13(e)
Estate Property Section 5.11(d)
Execution Date Preamble
Financial Statements Section 3.7(c)
GAAP Section 3.7(c)
HSR Act Section 3.6
Intellectual Property Section 3.17
Leased Properties Section 3.11(b)
Liens Section 3.11(b)
Litigation Section 3.10
Material Article III Preamble
Material Contract Section 3.12
Multiemployer Plan Section 3.13(b)
Occidental Recitals
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
6
Permitted Liens Section 3.11(b)
Pioneer Recitals
Purchase Price Section 2.2
Request Section 5.10(a)
Required Closing Capital Section 6.1(i)
Sale Procedures Order Section 5.11(a)
SAP Financial Statements Section 3.7(a)
Seller Preamble
Shares Recitals
Termination Amount Section 9.1(a)
Unaudited Financial Statements Section 3.7(c)
ARTICLE II
THE ACQUISITION
SECTION 2.1. Purchase and Sale of Shares. On the terms and subject to
the conditions hereof, and in reliance upon the respective representations,
warranties, covenants and agreements of each of the respective parties to this
Agreement, at the Closing, Seller will sell, assign, transfer and convey to
Buyer, and Buyer will purchase and acquire from Seller, the Shares, free and
clear of all Liens, except Liens created by Buyer.
SECTION 2.2. Consideration for the Shares. The aggregate purchase
price payable by Buyer for the Shares shall be the sum (i) One Hundred Two
Million ($102,000,000) in cash plus (ii) the simple interest accrued on the
total purchase price after adjusting for Section 2.2, subsections (iii) through
(vii) beginning on the date of the Agreement through and including the Closing
Date at a rate of 7% per annum less (iii) an amount equal to the amount of any
dividends paid by Occidental or AA Life in respect of their capital stock, after
September 30, 1999 less (iv) an amount equal to the amount of any management
fees paid to Seller or any affiliate of Seller other than a Target Company after
September 30, 1999 (other than reasonable fees paid to Knightsbridge for
investment advisory services not to exceed $60,000 per month) or other
management fees to the extent accrued through September 30, 1999 plus (v) the
value of the net operating losses of Pioneer delivered at Closing, which values
will be calculated in accordance with the formula set forth in Annex E, plus
(vi) an amount equal to Four Million Dollars ($4,000,000) in the event that all
of the assets listed on Annex F shall have been sold as of the Closing Date and
replaced with liquid, investment grade assets or securities equal to the
aggregate September 30, 1999 book value of such disposed assets, plus (vii) an
amount equal to the value of any liquid, investment grade assets or securities
which the Seller has acquired on or prior to the Closing Date for the benefit of
Buyer in replacement of the Southwestern Financial Corporation Preferred Stock
(the "Purchase Price"). On the Closing Date, Buyer will pay the Purchase Price
by wire transfer of immediately available funds to such accounts as Seller shall
have designated in writing at least two days prior to the Closing Date.
7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to Buyer that, subject to the specific
qualifications and limitations set forth herein and in Section 9.4, the
statements contained in this Article III are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III), except as set forth in the
Disclosure Schedule delivered by the Seller to Buyer on the date hereof (the
"Disclosure Schedule"). The Disclosure Schedule may be updated one or more times
prior to the Closing Date. Any updated Disclosure Schedule shall be delivered no
later than three (3) business days prior to the Closing Date. In the event any
such updated Disclosure Schedule indicates a Material (as defined herein)
adverse change from information previously provided to Buyer, Buyer shall,
subject to Section 9.2(c)(i)(C), be entitled to terminate this Agreement
(without any liability whatsoever to Seller) by written notice delivered to
Seller within ten (10) business days following receipt of such updated
Disclosure Schedule if after good faith negotiations conducted during such
period Buyer and Seller are unable to mutually agree on an appropriate
adjustment to the Purchase Price. Matters representing breaches of
representations or warranties totaling less than $2,000,000 in the aggregate
shall result in a dollar for dollar reduction to the Purchase Price, provided,
however, that individual matters constituting breaches that represent a loss of
value of less than $20,000 per item shall be excluded from such reduction to the
Purchase Price. An event or matter that causes any representation or warranty
contained in this Section to be inaccurate, incorrect or false will not be
deemed to be "Material," to have a "Material" change in or in respect of, to
have a "Material" adverse effect or to be "Materially" affected unless the loss
that may reasonably be expected to occur to Seller with respect to such event or
matter, when taken together with all other related losses that may reasonably be
expected to occur to such Target Company or Companies as a result of any such
events or matters, would exceed Two Million Dollars ($2,000,000) in the
aggregate or unless such event or matter constitutes a felony violation in the
relevant jurisdiction as determined by Final Order of a court of competent
jurisdiction. For purposes of this paragraph, the word "loss" shall mean any and
all direct or indirect payments, obligations, assessments, losses, losses of
income, liabilities, costs and expenses paid or incurred, or reasonably likely
to be paid or incurred, or diminutions in value or reduction in benefits or
rights of any kind or character (whether or not known or asserted before the
date of this Agreement, fixed or unfixed, conditional or unconditional, choate
or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise) that are reasonably likely to occur,
including without limitation, penalties, interest on any amount payable to a
third party as a result of the foregoing, and any reasonable legal or other
expenses reasonably expected to be incurred in connection with defending any
demands, claims, actions or causes of action that, if adversely determined,
could reasonably be expected to result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds or any increases in insurance premiums as a direct
result thereof). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception in a manner sufficient
to give reasonable notice of the facts or circumstances which cause the
8
disclosure in the Disclosure Schedule to constitute an exception to a
representation or warranty. The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article III.
SECTION 3.1. Organization and Qualification.
(a) Each of the Seller and the Target Companies is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, 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 of each
of the Target Companies.
(b) Each of the Insurance Companies is licensed to write the types of
insurance and other products (including fixed annuities and variable annuities)
shown in Section 3.1(b) of the Disclosure Schedule in the jurisdictions
specified in such Section. Except as set forth in Section 3.1(b) 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. None of the Insurance Companies is currently the subject of
any supervision, conservation, rehabilitation, liquidation, receivership,
insolvency or other similar proceeding nor, other than as described in Section
3.1(b) of the Disclosure Schedule, is operating under any formal or informal
agreement or understanding with the licensing authority of any state or other
jurisdiction which restricts its authority to do business or requires it to
take, or refrain from taking, any action.
SECTION 3.2. Authorization. Seller has full corporate power and
authority to (i) execute and deliver this Agreement and (ii) in the event Seller
commences a 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 (ii) 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 Boards 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 its Board of Directors' approval in connection with the commencement of a
Chapter 11 Case). This Agreement has been duly and validly executed and
delivered by Seller and (in the event of a Chapter 11 Case, subject to competing
offers as described in Section 5.11(a) and entry of the Approval Order),
constitutes a valid and binding obligation of Seller, enforceable against 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, none of the execution and delivery of this Agreement by
Seller, and in the event Seller commences a Chapter 11 Case and the Approval
Order is entered by the Bankruptcy Court, the performance by Seller of its
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obligations hereunder or the consummation by Seller of the transactions
contemplated hereby will (i) violate, conflict with or result in any breach of
any provision of the Certificate or Articles of Incorporation or Bylaws of
Seller or any of the Target Companies, (ii) 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 Seller or any of the Target Companies is a party or
by which any of their assets is bound, (iii) violate any order, writ, judgment,
injunction, decree, statute, rule or regulation of any Governmental Authority
applicable to Seller or any of the Target Companies or any of their assets or
(iv) result in the creation of any Lien upon any of the assets of the Target
Companies, except for those violations, conflicts, breaches, defaults and Liens
that would not reasonably be expected to have a Material adverse effect or
Materially impair the ability of Seller to consummate the transactions
contemplated hereby.
SECTION 3.4. Capitalization of Pioneer.
(a) The authorized capital stock of Pioneer consists of 50,000 shares
of common stock, par value $80.00 per share. Pioneer has 31,250 shares of common
stock 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. Except as set forth in Section 3.4(a) of the Disclosure Schedule, there
are no (i) options, warrants, calls, subscriptions, conversion or other rights,
agreements or commitment obligating Pioneer 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 Pioneer,
(ii) agreements or commitments obligating Pioneer to repurchase, redeem or
otherwise acquire any shares of its capital stock, (iii) restrictions on
transfer of any shares of capital stock of Pioneer (other than pursuant to this
Agreement) or (iv) voting or similar shareholder agreements relating to any
shares of capital stock of Pioneer.
(b) Except as set forth in Section 3.4(b) of the Disclosure Schedule,
the Shares are owned of record and beneficially by Seller, free and clear of all
Liens. At Closing, good title to the Shares shall be conveyed to Buyer free and
clear of all Liens, other than those which may be created by Buyer.
SECTION 3.5 Subsidiaries.
(a) Section 3.5(a) of the Disclosure Schedule sets forth the name and
number of authorized, issued and outstanding shares of capital stock of each
Subsidiary of Pioneer. Other than such Subsidiaries, neither Pioneer nor any of
its Subsidiaries 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 securities held for investment purposes only.
(b) All of the outstanding shares of capital stock of each Subsidiary
of Pioneer have been duly authorized and validly issued, are fully paid and
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non-assessable, have not been issued in violation of any preemptive rights, and
are owned of record and beneficially, directly or indirectly, by Pioneer.
(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 such 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.
SECTION 3.6. Consents and Approvals. Except 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 is necessary for the
consummation by Seller 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 Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (b) the Insurance Department of the State of Texas and (c) in
the event Seller commences a Chapter 11 Case, the Bankruptcy Court.
SECTION 3.7. Financial Statements.
(a) Seller has previously delivered or made available to Buyer true
and complete copies of the following (the "SAP Financial Statements"):
(i) the Statutory Annual Statements for each of the Insurance
Companies for each of the years ended December 31, 1996, 1997 and 1998, together
with any exhibits, schedules or notes thereto;
(ii) the Statutory Quarterly Statements of each of the Insurance
Companies for each of the three-month periods ended as of March 31, June 30, and
September 30, 1999, together with all related notes, exhibits and schedules
thereto; and
(iii) the Statutory Annual Statements and Statutory Quarterly
Statements of each of the Insurance Companies that were filed for 1997, 1998 or
1999 with any other state insurance department or similar regulatory authority
in any jurisdiction (other than such company's jurisdiction of domicile) and
which differ from the corresponding Statutory Annual Statements and Statutory
Quarterly Statements for such periods.
The SAP Financial Statements were prepared in all material respects in
accordance with SAP and, except as set forth in Section 3.7(a) of the Disclosure
Schedule, present fairly in all material respects, the statutory financial
position of each applicable Insurance Company as of the dates thereof or for the
periods covered thereby in accordance with SAP.
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(b) Seller has previously delivered or made available to Buyer true
and correct copies of the unaudited consolidated financial statements of ALICO
for each of the years ended December 31, 1996, 1997 and 1998 (the "ALICO
Unaudited Financial Statements").
(c) Seller has previously delivered or made available to Buyer true
and correct copies of the unaudited consolidated financial statements of the
Target Companies for the nine months ended September 30, 1999 (collectively, the
"Unaudited Financial Statements," and together with the SAP Financial Statements
and the ALICO Unaudited Financial Statements, the "Financial Statements"). The
Unaudited Financial Statements fairly present, in all material respects, the
consolidated financial condition and results of operations of the Target
Companies (subject to normal estimation of accruals and reserves and normal
year-end audit adjustments) as of the date and for the period indicated therein
and, except as otherwise disclosed in Section 3.7(c) of the Disclosure Schedule,
have been prepared in all material respects in accordance with generally
accepted accounting principles consistently applied ("GAAP").
(d) Except as disclosed in Section 3.7(d) of the Disclosure Schedule,
no state has objected, as of the date of this Agreement, in any material respect
to the Financial Statements as filed, and the amounts shown in the Financial
Statements as reserves and liabilities for past and future insurance policy
benefits, losses, claims and expenses under insurance policies as of the end of
each year and on the Closing Statement were computed in accordance with accepted
actuarial standards consistently applied, were fairly stated in accordance with
sound actuarial principles, were based on actuarial assumptions which were in
accordance in all Material respects with those called for in policy provisions
and met in all Material respects the requirement of the insurance laws of Texas.
SECTION 3.8 Absence of Undisclosed Liabilities. As of the date
hereof, except for matters relating to the transactions contemplated by this
Agreement, there are no Material liabilities or Material financial obligations
of the Target Companies that are required to be reflected on a balance sheet
prepared in accordance with SAP, or GAAP, as applicable, other than (i)
liabilities and obligations reserved against in the Financial Statements, (ii)
benefits payable or other liabilities or obligations arising under insurance
policies or annuity contracts issued by the Target Companies, (iii) liabilities
and obligations disclosed in Section 3.8(a) of the Disclosure Schedule, (iv)
liabilities and obligations arising in the ordinary course of business under any
contract or agreement disclosed in Section 3.12 of the Disclosure Schedule or
not required to be disclosed thereon because of the amount or the term thereof
and (v) liabilities and obligations arising in the ordinary course of business
after September 30, 1999 consistent with past practice.
SECTION 3.9. Absence of Certain Changes. Except as disclosed in
Section 3.9(a) of the Disclosure Schedule or as contemplated or otherwise
permitted by this Agreement, since September 30, 1999, none of the Target
Companies has (i) conducted its business in any Material respect other than in
the ordinary course, (ii) 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, (iii) except in the
ordinary course of business, (1) sold, transferred or otherwise disposed of any
of its properties or assets or (2) mortgaged or encumbered any of its properties
or assets, (iv) suffered any material casualty losses not covered by insurance,
(v) repurchased any of its capital stock, (vi) declared, set aside or paid any
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dividend or other distribution in respect of its capital stock, other than
ordinary dividends permitted under applicable insurance laws, (vii) amended its
Certificate or Articles of Incorporation or Bylaws or merged with or into or
consolidated with any other Person, (viii) split, combined or reclassified its
capital stock, (ix) 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 equity securities or any securities convertible into or
exchangeable for such equity securities, (x) 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, (xi) 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, (xii) changed in any material
respect its underwriting, actuarial or accounting methods (tax or book),
principles or practices (except as disclosed on Section 3.14 of the Disclosure
Schedule), (xiii) entered into or amended or terminated any transaction or
contract that has or could reasonably be expected to have a Material adverse
effect, (xiv) in the case of the Insurance Companies, ceased their lead
generation activities or terminated any material reinsurance or coinsurance
contract, whether as reinsurer or reinsured in each case other than in the
ordinary course of business, (xv) entered into any joint ventures or
partnerships or any kind, (xvi) unless otherwise permitted by the terms of this
Agreement, transferred any assets to, or received any assets from, any affiliate
other than a Target Company, except for assets transferred or received pursuant
to a written agreement effective as of September 30, 1999, which such
agreements, and a summary of the relevant provisions thereof, are set forth in
Section 3.9(b) of the Disclosure Schedule, (xvii) entered into an agreement with
an affiliate, other than with a Target Company, that obligates the Target
Company to render payments of any kind to that affiliate, (xviii) purchased or
otherwise acquired any illiquid or Non-Investment Grade Assets or (xix) 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, as of the date hereof, there is no action, suit,
arbitration, investigation or proceeding ("Litigation") pending or, to the
knowledge of Seller, threatened against any of the Target Companies before any
court, at law, or in equity, any other Governmental Authority or arbitrator,
that if resolved adversely, would reasonably be expected to have a Material
adverse effect. Except as set forth in Section 3.10 of the Disclosure Schedule,
none of the Target Companies are subject to any judgment, decree, injunction or
order of any court, at law or in equity, any other Governmental Authority or
arbitrator (other than orders of a Governmental Authority relating to the
ordinary operation of the Target Companies), except for those that would not
reasonably be expected to have a Material adverse effect.
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 Target Companies
as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the Disclosure
Schedule, all properties and assets owned by the Target Companies (the "Owned
Properties") or leased by the Target Companies (the "Leased Properties") are
free and clear of all liens, pledges, claims, security interests, mortgages,
13
assessments, easements, rights of way, restrictions, defects in title or other
encumbrances ("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 that in the aggregate do not materially detract
from the value or, in the case of personal property, materially impair the use
by the Target 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 Target Companies (items (i)
through (v) above being referred to herein collectively as "Permitted Liens").
The Target Companies share good and indefeasible title to the Owned Properties
and good and valid leasehold interests in the Leased Properties.
SECTION 3.12. Certain Agreements. Except as disclosed in Section 3.12
of the Disclosure Schedule, as of the date hereof, none of the Target Companies
is a party to any (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 providing for
compensation in excess of $200,000 per year, (iii) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business, (iv) lease pursuant to which it leases any real property set forth in
Section 3.12 of the Disclosure Schedule, (v) distribution, dealer,
representation or agency agreement, other than agency, marketing or selling
agreements with insurance agents, marketing organizations or broker-dealers in
the ordinary course of business, (vi) contract or agreement with any of its
affiliates, or (vii) any other contract that is required to be filed pursuant to
Item 601(b)(10) of Regulation S-K under the Exchange Act (each of the foregoing
a "Material Contract"). Each of the Material Contracts is in full force and
effect and has been complied with by the Target Companies and, to the knowledge
of Seller, has been complied with by all other parties thereto, except for such
noncompliance as would not reasonably be expected to have, individually or in
the aggregate, a Material adverse effect.
SECTION 3.13. Employee Benefits.
(a) Section 3.13(a) of the Disclosure Schedule contains a true and
complete list of the Target Employees as of November 1, 1999.
(b) Neither Seller nor any of its affiliates (i) currently maintains,
administers or contributes to or (ii) during the period beginning September 1,
1994 maintained, administered or contributed to: (1) 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 (2) any bonus, deferred compensation,
retirement or excess benefit, performance compensation, stock purchase,
restricted stock, stock option, stock appreciation, severance, salary
continuation, vacation, sick leave, holiday pay, fringe benefit, personnel
policy, reimbursement program, incentive, insurance, welfare or similar plan,
program, policy or arrangement, written or unwritten, for the benefit of Target
Employees, or any director, agent, broker or independent contractor of the
Target Companies, except as described in Section 3.13(b) of the Disclosure
Schedule ("Benefit Plans").
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(c) Except as disclosed in Section 3.13(c) of the Disclosure
Schedule, all Benefit Plans comply in all material respects with and are, and
during the period beginning September 1, 1994 have been, operated in all
material respects in accordance with their terms, ERISA, the Code and other
applicable law.
(d) True and complete copies of each written Benefit Plan, a
description of each unwritten Benefit Plan, summary plan descriptions, and the
three most recent annual reports on Form 5500 (including all schedules and
attachments), if any, have been made available to Buyer.
(e) None of the Target Companies nor any entity required to be
aggregated with any of the Target Companies pursuant to Section 414 of the Code
or Section 4001(b) of ERISA ("ERISA Affiliate") have incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC"), and no Benefit Plan
established or maintained by the Target Companies nor any ERISA Affiliate or to
which the Target Companies or any ERISA Affiliate is obligated to make
contributions, has an "accumulated funding deficiency," as defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived. Neither the
Target Companies, any ERISA Affiliate nor any organization with respect to which
any Target Company is a successor or parent corporation (within the meaning of
Section 4069 of ERISA) has engaged in any transaction described in Section 4069
of ERISA. No ERISA Affiliate has contributed to or been obligated to contribute
to a Multiemployer Plan during the six year period preceding the Closing Date.
(f) Except as disclosed in Section 3.13(f) of the Disclosure
Schedule, there are no pending or, to the knowledge of Seller, threatened
actions, suits, investigations or other proceedings by 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.
(g) Except as disclosed in Section 3.13(g) of the Disclosure
Schedule, neither the Seller 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 Target
Employees (or their beneficiaries) upon and/or after their retirement or
termination of employment, except as may be required by federal, state or local
laws, rules or regulations.
(h) Except as disclosed in Section 3.13(h) 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 solely
as a result of the consummation of the transactions contemplated by this
Agreement.
SECTION 3.14. Taxes. Except as set forth in Section 3.14 of the
Disclosure Schedule:
(a) all material Tax Returns required to be filed by or with respect
to the Target Companies (including all Tax Returns that include the Target
Companies on an affiliated, consolidated, combined, or unitary basis) have been
15
timely filed and all Taxes that are shown to be due on such Tax Returns have
been timely paid;
(b) the Target Companies have given or otherwise made available to
Buyer all Tax Returns, or portions of Tax Returns which include the Target
Companies for periods ending, or transactions consummated, after December 31,
1996;
(c) 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 of, Taxes due for any taxable period with respect
to any Tax for which any Target Company may be subject or liable;
(d) no audit, assessment, collection or other proceeding by any
Governmental Authority is pending or, to the knowledge of Seller, threatened
with respect to any Taxes due from or with respect to any Target Company or with
respect to any Tax Return by or with respect to any Target Company;
(e) there are no Liens for Taxes upon the assets or properties of any
of the Target Companies, except for statutory Liens for current Taxes not yet
due;
(f) no Target Company is a party to any agreement relating to the
sharing or allocation of, or indemnification agreement with respect to Taxes, or
similar contract or arrangement;
(g) each of the Insurance Companies is a "life insurance company"
within the meaning of Section 816 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;
(h) neither the Target Companies nor any other Person (including
Seller) on behalf of the Target Companies has filed a consent pursuant to
Section 341(f) of the Code (or any predecessor provision) or agreed to permit
Section 341(f)(2) of the Code to apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by the
Target Companies;
(i) there is no contract, agreement, plan or other arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would be nondeductible by the Buyer by reason of
Section 280G of the Code or would constitute compensation in excess of the
limitation set forth in Section 162(m) of the Code;
(j) none of the Target Companies has agreed, or is required to make,
any adjustment under Sections 481(a) or 807(f) of the Code;
(k) none of the Target Companies has been a member of an affiliated
group filing a consolidated federal income Tax Return or has any liability for
Taxes of any Person under Treas. Reg. ss. 1.1502-6 or ss. 1.1502-78 (or similar
provision of state, local or foreign law), as a transferee or successor, by
con
