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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
United Companies Financial Corporation
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[UNITED LOGO]
UNITED COMPANIES FINANCIAL CORPORATION
P.O. BOX 1591 -- 4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70821
To the Shareholders of
UNITED COMPANIES FINANCIAL CORPORATION
At the June 28, 1996 Annual Meeting, you will be asked to consider and vote
upon the proposed sale by the Company of all the outstanding capital stock of
its wholly-owned subsidiary, United Companies Life Insurance Company ("UCLIC").
You will also be asked to elect three persons to the Company's Board of
Directors. Enclosed are a Notice, Proxy and Proxy Statement relating to the
Annual Meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED SALE OF UCLIC
BY THE COMPANY BECAUSE THE BOARD HAS DETERMINED THAT THE PROPOSED SALE IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS. The Board's
approval and determination were based on a number of factors described in the
enclosed Proxy Statement, including (i) the opinion of Goldman, Sachs & Co., the
financial advisor engaged by the Board, and (ii) the actuarial appraisal of
UCLIC prepared by Milliman & Robertson, Inc., the consulting actuarial firm
engaged by the Board. The opinion of Goldman, Sachs & Co. states that, as of the
date of the Proxy Statement, the Aggregate Consideration (as defined in the
Proxy Statement) to be received by the Company pursuant to the Stock Purchase
Agreement is fair to the Company. The written opinion of Goldman, Sachs & Co. is
included in the accompanying Proxy Statement and should be read carefully by
shareholders of the Company. The appraisal of Milliman & Robertson, Inc.
confirmed that such consideration is within its estimated range of value.
Before casting your vote, please carefully read the enclosed Proxy
Statement, which provides you with a description of the terms of the proposed
sale, and a copy of the Stock Purchase Agreement relating to the proposed sale,
which is attached to the Proxy Statement.
It is very important that your shares be represented at the Annual Meeting,
regardless of whether you plan to attend in person. The affirmative vote of
two-thirds of the total voting power of the Company's voting securities present
in person or represented by proxy at the Annual Meeting is required for approval
of the proposed sale. Therefore, I urge you to execute, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible to
ensure that your shares will be voted at the Annual Meeting.
ON BEHALF OF YOUR BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF
THE PROPOSED SALE AND FOR THE PROPOSED SLATE OF DIRECTORS.
SINCERELY,
J. TERRELL BROWN
Chairman and Chief Executive Officer
Baton Rouge, Louisiana
May 21, 1996
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NOTICE OF 1996 ANNUAL MEETING OF
SHAREHOLDERS OF
UNITED COMPANIES FINANCIAL CORPORATION
PLEASE TAKE NOTICE that the 1996 Annual Meeting of Shareholders of United
Companies Financial Corporation, a Louisiana corporation (the "Company"), will
be held at One United Plaza, Fifth Floor, 4041 Essen Lane, Baton Rouge,
Louisiana, on Friday, June 28, 1996, at 9:00 a.m. to consider and act upon:
(1) a proposal to approve and adopt an Amended and Restated Stock
Purchase Agreement dated as of January 30, 1996 (the "Agreement"),
by and between the Company, as seller, and UC Life Holding Corp., a
newly-formed Delaware corporation (the "Purchaser"), as purchaser
and the transactions contemplated thereby. The Agreement
contemplates, among other things, the sale by the Company of all of
the outstanding capital stock of its wholly-owned subsidiary,
United Companies Life Insurance Company ("UCLIC"), to the Purchaser
for an aggregate price of $164 million, subject to adjustment,
comprised of cash (currently estimated to be $99 million) and a $10
million cash dividend, UCLIC real estate and other assets to be
distributed by UCLIC to the Company prior to the closing.
DISSENTING SHAREHOLDERS WHO COMPLY WITH THE PROCEDURAL REQUIREMENTS
OF THE BUSINESS CORPORATION LAW OF LOUISIANA WILL BE ENTITLED TO
RECEIVE PAYMENT OF THE FAIR CASH VALUE OF THEIR SHARES IF THIS
PROPOSAL IS EFFECTED UPON APPROVAL OF LESS THAN EIGHTY PERCENT
(80%) OF THE COMPANY'S TOTAL VOTING POWER;
(2) the election of three persons to the Board of Directors to serve
until the 1999 Annual Meeting of Shareholders or until their
successors are duly elected and qualified; and
(3) such other business as may properly come before the Annual Meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on May 17, 1996, as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
SHERRY E. ANDERSON,
Secretary
Baton Rouge, Louisiana
May 21, 1996
IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE, SIGN AND MAIL
PROMPTLY THE ENCLOSED PROXY FOR WHICH A RETURN ENVELOPE IS PROVIDED.
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UNITED COMPANIES FINANCIAL CORPORATION
P.O. BOX 1591 -- 4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70821
PROXY STATEMENT
INTRODUCTION
The accompanying Proxy is solicited on behalf of the Board of Directors of
United Companies Financial Corporation, a Louisiana corporation ("UCFC" or the
"Company"), for use at the 1996 Annual Meeting of Shareholders of the Company
(the "Annual Meeting") to be held on Friday June 28, 1996, at 9:00 a.m., at One
United Plaza, Fifth Floor, 4041 Essen Lane, Baton Rouge, Louisiana, and any
postponements or adjournments thereof. This Proxy Statement is being furnished
in connection with the Annual Meeting. The Company anticipates that this Proxy
Statement and the accompanying Proxy will be first sent or given to shareholders
on approximately May 22, 1996.
At the Annual Meeting, shareholders will be asked to consider and act upon
a proposed sale (the "Proposed Sale") by the Company of all the outstanding
capital stock of its wholly-owned subsidiary, United Companies Life Insurance
Company ("UCLIC"), to UC Life Holding Corp., a newly-formed Delaware corporation
(the "Purchaser"). The Purchaser is an acquisition company formed by
Knightsbridge Capital Fund I, L.P. ("Knightsbridge"), a private investment
partnership with institutional partners that was formed in 1995 to make equity
investments in companies engaged primarily in the life insurance industry. The
terms of the Proposed Sale are set forth in an Amended and Restated Stock
Purchase Agreement (the "Stock Purchase Agreement") dated as of January 30,
1996, between the Company and the Purchaser, a copy of which is attached to this
Proxy Statement as Exhibit A and is made a part hereof. For a summary of the
terms of the Proposed Sale, see "The Proposed Sale" and "The Stock Purchase
Agreement" below.
Shareholders are also being asked at the Annual Meeting to elect three
persons to the Company's Board of Directors to serve until the 1999 Annual
Meeting of Shareholders or until their successors are duly elected and
qualified.
The Board of Directors has fixed the close of business on May 17, 1996, as
the record date (the "Record Date") for the determination of the shareholders
entitled to notice of, and to vote at, the Annual Meeting. On the Record Date,
the Company had issued and outstanding and entitled to vote approximately
28,183,698 shares of its $2.00 par value common stock (the "Common Stock") and
1,955,000 shares of its 6 3/4% PRIDES(SM), Convertible Preferred Stock, $2.00
par value (the "PRIDES"). The Common Stock and the PRIDES are the only
outstanding classes of voting securities of the Company. Each outstanding share
of Common Stock will be entitled to one vote, and each outstanding share of
PRIDES will be entitled to 4/5 of a vote, on each matter considered at the
Annual Meeting. There is no cumulative voting. Any shareholder giving a Proxy
has the power to revoke it at any time before it is exercised by providing
written notice of revocation to the Secretary of the Company or by filing a
Proxy of a later date with the Secretary of the Company. The holders of a
majority of the total voting power of the outstanding shares of Common Stock and
PRIDES as of the Record Date, whether present in person or represented by proxy,
will constitute a quorum for the transaction of business at the Annual Meeting.
The shares held by each shareholder who signs and returns the enclosed form of
Proxy will be counted for purposes of determining the presence of a quorum at
the Annual Meeting, whether or not the shareholder abstains on all or any matter
to be acted on at the Annual Meeting. Abstentions are counted toward the
calculation of a quorum. Broker non-votes (which result when a broker holding
shares for a beneficial owner has not yet received voting instructions on
certain matters from such beneficial owner) will also be counted toward
fulfillment of quorum requirements.
The enclosed form of Proxy provides a means for a shareholder to vote for
all the nominees for director listed thereon or to withhold authority to vote
for one or more of such nominees. The form of Proxy also provides a means for a
shareholder to vote for, against or abstain from voting on each of the other
matters to be acted upon at the Annual Meeting. Each Proxy will be voted in
accordance with the shareholder's directions.
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(SM) Servicemark of Merrill Lynch & Co., Inc.
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The affirmative vote of two-thirds of the total voting power of the Common
Stock and the PRIDES (voting together as a single class) present in person or
represented by proxy is required for approval of the Proposed Sale. For more
information regarding voting by shareholders on the Proposed Sale, see "Voting
with Regard to the Proposed Sale" below. The Company's by-laws provide that
directors are elected by a plurality of the votes cast. Accordingly, the
withholding of authority by a shareholder (including broker non-votes) will not
be counted in computing a plurality and thus will have no effect on the results
of the election of such nominees. Approval of any other matters as may properly
come before the Annual Meeting will require the affirmative vote of a majority
of the total voting power of the Common Stock and the PRIDES (voting together as
a single class) present in person or represented by proxy and entitled to vote
at the Annual Meeting, unless otherwise provided by law or the articles of
incorporation or by-laws of the Company.
The cost of preparing, assembling, printing and mailing this Proxy
Statement, the form of Proxy, and the Notice of 1996 Annual Meeting of
Shareholders will be paid by the Company. In addition to solicitation by use of
the mails, solicitation of Proxies may also be made personally by certain
directors, officers and employees of the Company, and no additional compensation
will be paid to such individuals. In addition, the Company has retained Morrow &
Co., New York, N.Y., to aid in the solicitation of Proxies for a fee of $30,000
plus disbursements and incremental charges. The Company will also supply brokers
or persons holding stock in their names or in the names of their nominees with
such number of Proxies, proxy material and annual reports as they may require
for mailing to beneficial owners, and will reimburse them for their reasonable
expenses incurred in connection therewith.
UCFC's principal executive offices are located at 4041 Essen Lane, Baton
Rouge, Louisiana, 70809, telephone: (504) 924-6007. UCLIC's principal executive
offices are located at 8545 United Plaza Boulevard, Baton Rouge, Louisiana,
70809, telephone: (504) 924-6007.
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TABLE OF CONTENTS
PAGE
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INTRODUCTION.......................................................................... 2
TABLE OF CONTENTS..................................................................... 4
SUMMARY............................................................................... 5
THE PROPOSED SALE..................................................................... 10
General............................................................................. 10
Background of and Reasons for the Proposed Sale..................................... 10
Opinion of Financial Advisor........................................................ 15
Actuarial Appraisal................................................................. 19
Recommendation of the Board of Directors............................................ 22
Use of Proceeds..................................................................... 23
Conduct of Business Following the Proposed Sale..................................... 23
Certain Post-Closing Relationships Between UCFC and UCLIC........................... 23
Accounting Treatment................................................................ 24
Certain Tax Consequences............................................................ 24
Regulatory Matters.................................................................. 25
UC Life Holding Corp................................................................ 25
THE STOCK PURCHASE AGREEMENT.......................................................... 26
Business to be Sold; Purchase Price................................................. 26
Representations and Warranties...................................................... 27
Certain Covenants................................................................... 27
Employee Benefit Arrangements....................................................... 30
Tax Matters......................................................................... 31
Conditions to Closing............................................................... 31
Termination......................................................................... 32
Indemnification..................................................................... 35
Survival of Certain Representations, Warranties and Covenants....................... 36
VOTING WITH REGARD TO THE PROPOSED SALE............................................... 38
General............................................................................. 38
Dissenters' Rights.................................................................. 39
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS................................. 42
SECURITY HOLDINGS OF MANAGEMENT AND OTHERS............................................ 50
ELECTION OF DIRECTORS................................................................. 52
BOARD MEETINGS, COMMITTEES AND COMPENSATION........................................... 54
EXECUTIVE OFFICERS.................................................................... 55
EXECUTIVE COMPENSATION................................................................ 56
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION............................... 58
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS.............................. 62
STOCK PERFORMANCE GRAPH............................................................... 63
TRANSACTIONS WITH MANAGEMENT AND OTHERS............................................... 63
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT........................................ 64
AUDITOR SERVICES...................................................................... 64
SHAREHOLDER PROPOSALS................................................................. 64
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 65
OTHER MATTERS......................................................................... 65
EXHIBITS
A. Stock Purchase Agreement......................................................... A-1
B. Opinion of Goldman, Sachs & Co................................................... B-1
C. Section 131 of the Louisiana Business Corporation Law............................ C-1
D. Independent Auditors' Report..................................................... D-1
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information appearing, or incorporated by
reference, in this Proxy Statement and the Exhibits hereto. Unless otherwise
defined herein, capitalized terms used in this summary have the respective
meanings set forth elsewhere in this Proxy Statement. Shareholders are urged to
read this Proxy Statement and the Exhibits hereto in their entirety.
THE 1996 ANNUAL MEETING
Date, Place and Time.......... The 1996 Annual Meeting of Shareholders of the
Company is to be held at 9:00 a.m. on Friday,
June 28, 1996 at One United Plaza, Fifth Floor,
4041 Essen Lane, Baton Rouge, Louisiana.
Record Date; Voting at the
Meeting....................... Holders of record of Common Stock and PRIDES at
the close of business on May 17, 1996 (the
"Record Date") are entitled to notice of and to
vote at the Annual Meeting. On the Record Date,
approximately 28,183,698 shares of Common Stock
and 1,955,000 shares of PRIDES were
outstanding.
Purposes of the Annual
Meeting....................... The purposes of the Annual Meeting are to (i)
consider and vote upon the Proposed Sale; (ii)
to elect three persons to the Board of
Directors; and (iii) transact any other
business as may properly come before the Annual
Meeting.
THE PROPOSED SALE
Business to be Sold........... The Stock Purchase Agreement provides for the
sale by the Company to the Purchaser of all the
outstanding capital stock of UCLIC.
Purchase Price................ The Stock Purchase Agreement provides that the
purchase price for UCLIC will be $164 million,
comprised of cash (currently estimated to be
$99 million) and a $10 million cash dividend,
UCLIC real estate and other UCLIC assets to be
distributed by UCLIC to the Company prior to
the Closing. As more fully described in this
Proxy Statement, the purchase price will be
increased by the amount of the Earnings (as
defined herein) of UCLIC during the period from
January 1, 1996 through the Closing of the
Proposed Sale (which amount will be determined
following the Closing). See "The Stock Purchase
Agreement -- Business to be Sold; Purchase
Price." Also, as a condition to the Closing
UCFC will purchase for $15 million in cash a
convertible promissory note from an affiliate
of the Purchaser. See "The Proposed
Sale -- General."
Use of Proceeds............... The Company intends to use the proceeds from
the Proposed Sale for general corporate
purposes, which may include the expansion and
diversification of its lending operations and
the payment of revolving short-term debt. See
"The Proposed Sale -- Use of Proceeds."
Recommendation of the
Company's
Board of Directors.......... The Board of Directors of the Company believes
that the Proposed Sale is fair to, and in the
best interests of, the Company and its
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shareholders. Accordingly, the Board of
Directors has unanimously approved the Stock
Purchase Agreement and recommends to the
Company's shareholders that they approve the
Proposed Sale. The Board of Directors'
recommendation is based upon a number of
factors described in this Proxy Statement. See
"The Proposed Sale -- Background of and Reasons
for the Proposed Sale" and "-- Recommendation
of the Board of Directors."
Opinion of Financial
Advisor....................... On February 1, 1996, and February 26, 1996,
Goldman, Sachs & Co. ("Goldman Sachs")
delivered its written opinion to the Board of
Directors of UCFC to the effect that, as of the
dates thereof, the Aggregate Consideration (as
defined herein) to be received by UCFC pursuant
to the Stock Purchase Agreement was fair to
UCFC. Goldman Sachs subsequently confirmed such
opinion by delivery of its written opinion,
dated the date hereof, that, as of the date
hereof, the Aggregate Consideration to be
received by UCFC pursuant to the Stock Purchase
Agreement is fair to UCFC. See "The Proposed
Sale -- Opinion of Financial Advisor." The full
text of the written opinion of Goldman Sachs,
dated the date hereof, which sets forth
assumptions made, matters considered and
limitations on the review undertaken, in
connection with the opinion is attached to this
Proxy Statement as Exhibit B. SHAREHOLDERS OF
THE COMPANY ARE URGED TO AND SHOULD READ SUCH
OPINION IN ITS ENTIRETY. See "The Proposed
Sale -- Opinion of Financial Advisor."
Actuarial Appraisal........... UCFC's Board of Directors engaged Milliman &
Robertson, Inc., a consulting actuarial firm
("M&R") to perform an actuarial appraisal of
UCLIC. Pursuant to such engagement, M&R
delivered an appraisal to the Board dated
November 29, 1995. For a summary of the M&R
appraisal, see "The Proposed Sale -- Actuarial
Appraisal."
Closing Date of the Proposed
Sale.......................... If the Stock Purchase Agreement is approved by
the requisite vote of shareholders of the
Company and the other conditions to the
Proposed Sale are satisfied, it is expected
that the Proposed Sale will be consummated as
soon as practicable after the Annual Meeting.
Conditions to Closing of the
Proposed
Sale........................ The respective obligations of UCFC and the
Purchaser to consummate the Proposed Sale are
conditioned upon the fulfillment (or waiver) of
certain conditions set forth in the Stock
Purchase Agreement including (i) the expiration
or termination of the waiting period applicable
under the Hart-Scott-Rodino Antitrust
Improvements of 1976, as amended (the "HSR
Act"); (ii) the absence as of Closing of any
injunction or order of any court or
administrative agency, or any statute, rule or
regulation of any governmental authority of
competent jurisdiction, which restrains or is
otherwise likely to render it impossible or
unlawful to consummate the Proposed Sale; (iii)
all necessary regulatory approvals; and (iv)
the approval of the Proposed Sale at the Annual
Meeting by the affirmative vote of at least
two-thirds of the total voting power of the
Common Stock and the PRIDES (voting together as
a single class) present in person or
represented by proxy
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at the Annual Meeting. The obligation of the
Purchaser to consummate the Proposed Sale is
also subject to the satisfaction or waiver by
the Purchaser of certain conditions, including
the purchase by UCFC of a convertible
promissory note from an affiliate of the
Purchaser for $15 million in cash. The
obligation of UCFC to consummate the Proposed
Sale is also subject to the satisfaction or
waiver by UCFC of certain conditions, including
that the total number of shares of Common Stock
for which dissenters' rights are properly
exercised regarding the Proposed Sale not
exceed 2% of the total number of outstanding
shares of Common Stock. See "The Stock Purchase
Agreement -- Conditions to Closing."
Termination................... The Stock Purchase Agreement may be terminated
by the Purchaser at any time prior to the
Closing, subject to certain cure periods, under
the following circumstances: (i) an event or
condition occurs that has resulted in a
Material Adverse Effect (as defined herein)
with respect to UCLIC, its wholly-owned
subsidiary, United Variable Services, Inc., a
Louisiana corporation ("United Variable") and
their assets and businesses, taken as a whole;
(ii) any representation or warranty of UCFC was
not true and correct when made; (iii) UCFC's
failure to comply with any covenant or
agreement to be complied with by it; (iv) UCFC,
UCLIC or United Variable makes a general
assignment for the benefit of creditors, or any
proceeding is instituted by or against UCFC,
UCLIC or United Variable seeking to adjudicate
any of them bankrupt or insolvent, or seeking
liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or
consolidation of its debts under any law
relating to bankruptcy, insolvency or
reorganization; or (v) the shareholders of UCFC
entitled to vote on and approve the
consummation of the transactions contemplated
by the Stock Purchase Agreement at the Annual
Meeting do not approve such transactions by the
requisite vote pursuant to applicable law and
UCFC's articles of incorporation and by-laws.
In addition, UCFC has certain rights to
terminate the Stock Purchase Agreement under
certain corresponding circumstances in respect
of the Purchaser. Also, either the Company or
the Purchaser may terminate the Stock Purchase
Agreement under certain circumstances,
including if the Closing has not occurred by
May 31, 1996 (subject to extension to July 31,
1996 under certain circumstances).
If the Stock Purchase Agreement is terminated
due to the Company's failure to satisfy
specified conditions to the Purchaser's
obligations to effect the Closing, the Company
will be obligated to reimburse certain expenses
of the Purchaser, up to $1 million. A converse
obligation of the Purchaser to reimburse
certain expenses of the Company, up to $1
million, arises if the Stock Purchase Agreement
is terminated due to the Purchaser's failure to
satisfy specified conditions to the Company's
obligations to effect the Closing. In addition,
the Company will be obligated to pay the
Purchaser a $2 million termination fee in
connection with a
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termination under specified circumstances
relating to the shareholders not approving the
Stock Purchase Agreement if the Board of
Directors withdraws its recommendation to
approve the Proposed Sale or the Company's
acceptance of a third party's Acquisition
Proposal. (as defined herein) See "The Stock
Purchase Agreement -- Termination."
Certain Tax Consequences...... Consummation of the Proposed Sale will not be a
taxable event for federal income tax purposes
for the shareholders of the Company. For a
discussion of the federal income tax
consequences to the Company of the Proposed
Sale, see "The Proposed Sale -- Certain Tax
Consequences."
Accounting Treatment.......... The Proposed Sale will be treated by the
Company as a disposal of a segment of a
business within the meaning of Accounting
Principles Board Opinion No. 30. Accordingly,
upon approval of the Proposed Sale by the
requisite vote of UCFC's shareholders, the
operating results of UCLIC and United Variable
will be accounted for by the Company as
discontinued operations. See "The Proposed
Sale -- Accounting Treatment."
Regulatory Matters............ The acquisition of control of UCLIC by the
Purchaser is subject to the prior approval of
the Louisiana Commissioner of Insurance (the
"Commissioner"), which approval is a condition
to the Closing of the Proposed Sale. The
Purchaser has submitted an application to the
Commissioner seeking approval of the Proposed
Sale. The application is pending and it is
anticipated that a hearing will be held prior
to the Annual Meeting. In addition, both UCFC
and the Purchaser have filed notification and
report forms with the Federal Trade Commission
and the Antitrust Division of the Department of
Justice under the HSR Act and the rules
promulgated thereunder. See "The Proposed
Sale -- Regulatory Matters."
Vote Required................. The affirmative vote of two-thirds of the total
voting power of the Common Stock and the PRIDES
(voting together as a single class) present in
person or represented by proxy at the Annual
Meeting is required for approval of the
Proposed Sale. See "Voting with Regard to the
Proposed Sale -- General."
Dissenters' Rights............ Under the Louisiana Business Corporation Law
(the "LBCL"), holders of shares of the Common
Stock and the PRIDES are entitled to the right
to dissent from the Proposed Sale. If the
Proposed Sale is approved by less than 80% of
the total voting power of the shares
outstanding and the sale is then consummated,
any shareholder of the Company who dissents
from the Proposed Sale and who complies with
the procedural requirements of Section 131 of
the LBCL may be entitled to receive payment of
the fair cash value of such shareholder's
shares. See "Voting with Regard to the Proposed
Sale -- Dissenters' Rights." The full text of
Section 131 of the LBCL is attached to this
Proxy Statement as Exhibit C. UCFC's obligation
to consummate the Proposed Sale is subject to
the condition (among others) that the holders
of not more than 2% of the total number of
outstanding shares of Common Stock properly
exercise their dissenters' rights regarding
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the Proposed Sale. See "The Stock Purchase
Agreement -- Conditions to Closing."
Financial Effect of the
Proposed Sale............... If the Proposed Sale is consummated, UCFC will
no longer have insurance or annuity operations.
See "The Stock Purchase Agreement -- Covenant
Not To Compete." For pro forma financial
information concerning the Proposed Sale see,
"Unaudited Pro Forma Consolidated Financial
Statements."
ELECTION OF DIRECTORS
Nominees...................... Three persons, General Robert H. Barrow, John
D. Dienes and O. Miles Pollard, Jr., who are
all at present members of the Board of
Directors, have been nominated by the Board to
serve as directors until the 1999 Annual
Meeting of Shareholders or until their
successors are duly elected and qualified. See
"Election of Directors."
Vote Required................. Directors are elected by a plurality of the
votes cast.
---------------------
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Statements contained in this Proxy Statement that are not historical facts
are forward looking statements. Actual results may differ materially from those
projected in the forward looking statements. UCFC's consolidated operating
results are subject to a variety of risks, many of which are characteristic of
the lending and insurance industries. For a discussion of such risks, as well as
further information regarding UCFC's consolidated operating results for the year
ended December 31, 1995, see UCFC's Annual Report on Form 10-K for 1995, as
amended by Amendment No. 1 on Form 10-K/A-1 and Amendment No. 2 on Form
10-K/A-2.
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THE PROPOSED SALE
GENERAL
The Proposed Sale involves the sale by UCFC of all of the outstanding
shares (the "Shares") of the $2.00 par value common stock of UCLIC, a
wholly-owned subsidiary of UCFC, to the Purchaser for an aggregate price of $164
million, subject to adjustment as described below, to be comprised of (i) a $10
million cash dividend (the "Dividend") to be paid by UCLIC to UCFC prior to the
Closing; (ii) cash; and (iii) certain assets of UCLIC (the "Excluded Assets") to
be distributed to UCFC prior to the Closing. The Excluded Assets are comprised
of the following assets owned by UCLIC: (a) certain of the buildings and
unimproved real estate located in UCFC's Baton Rouge home office complex; (b)
certain commercial real estate; and (c) a partnership interest in CIGNA
Mezzanine Partners, III, L.P. ("Cigna Partners"). It is currently estimated that
the cash portion of the purchase price to be paid by the Purchaser will be $99
million.
The $164 million purchase price will be increased by the income of UCLIC
for the period beginning January 1, 1996 and ending on the Closing Date,
computed in accordance with generally accepted accounting principles ("GAAP"),
net of all applicable income taxes and excluding any capital gains or losses,
except capital gains or losses attributable to Cigna Partners (the "Earnings").
If an Excluded Asset is sold or transferred by UCLIC prior to distribution of
all remaining Excluded Assets to UCFC, (i) UCFC will receive the value set forth
in the Stock Purchase Agreement for such Excluded Asset and (ii) the Earnings
will increase or decrease depending upon whether the sale results in a gain or
loss to UCLIC. As a condition to the Closing of the Proposed Sale, UCFC will
purchase for $15 million in cash a convertible promissory note from the top tier
parent of the Purchaser in the principal amount of $15 million, to be repaid
within 11 years together with interest accruing at the rate of 8% per year, but
being payable only at maturity (or earlier mandatory redemption). The agreement
by UCFC to purchase said promissory note resulted from extensive negotiations
with the Purchaser. See "-- Background of and Reasons for the Proposed Sale."
The date of the Annual Meeting was set by the Board of Directors based on
the time required for soliciting Proxies by this Proxy Statement and by the time
necessary for UCFC's auditors to complete their audit of the financial
statements included in the accompanying 1996 Annual Report to Shareholders. If
the Proposed Sale is approved by the shareholders of the Company, the Closing is
scheduled to occur promptly following the Annual Meeting and the receipt of all
regulatory approvals.
There was no relationship or affiliation between the Purchaser and UCFC
prior to execution of the Stock Purchase Agreement.
BACKGROUND OF AND REASONS FOR THE PROPOSED SALE
UCFC's management and Board of Directors have concluded that selling its
life insurance subsidiary, UCLIC, is consistent with the Board's goal of
maximizing shareholder value. Such conclusion was based on the following
principal reasons:
First, from time to time during the past few years UCFC management and its
Board of Directors have, as part of their on-going strategic planning process,
considered the historical and projected future contribution of each of UCFC's
business segments. This process included an analysis of the evolution of UCFC
from an insurance company with a credit loan business into a nationally
recognized lender in the non-conventional financial services industry, as
evidenced by the growth in UCFC's income from continuing operations before
income taxes in its mortgage lending business segment from $4.4 million in 1991
to $107.6 million in 1995, as compared with income from continuing operations
before income taxes in its life insurance segment of $2.1 million in 1991 to
$12.1 million in 1995. The continuing growth and profits of UCFC's mortgage
lending business caused UCFC's management and Board of Directors to consider
whether it would be in UCFC's and its shareholders' best interests to focus on
its core mortgage lending business and dispose of UCLIC.
In April 1995, UCFC's management engaged Salomon Brothers Inc ("Salomon")
to evaluate strategic alternatives regarding UCLIC. After a limited review of
both UCFC's mortgage lending business and UCLIC, on June 14, 1995, Salomon
preliminarily recommended to UCFC's management and Board of
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Directors that they consider various alternative strategies to separate the two
businesses, including a possible sale of UCLIC. Salomon also advised UCFC's
Board of Directors regarding Salomon's preliminary analysis as to valuation
ranges with respect to UCLIC based on the following valuation methodologies: a
discounted cash flow analysis ($110-130 million), a comparable company trading
analysis ($90-110 million), a comparable company acquisition analysis ($120-150
million) and a preliminary actuarial appraisal obtained by UCFC in March 1995
prepared in connection with UCFC's then revolving credit facility by an
actuarial firm with which UCLIC generally does business ($175 million). From the
above methodologies Salomon established a preliminary reference range for UCLIC
of $120-150 million. Salomon noted that this preliminary reference range did not
purport to represent the actual range of prices that could or might be obtained
in a sale of UCLIC. The foregoing does not purport to be a complete description
of Salomon's analysis.
In connection with Salomon's preliminary analysis and the June 14, 1995
presentation of its preliminary views to the UCFC Board, Salomon was not
authorized to, and did not, solicit offers or indications of interest for UCLIC.
Salomon relied without independent verification upon the accuracy and
completeness of all financial and other information furnished it or publicly
available. Salomon did not make any independent evaluation or appraisal of any
of the assets or liabilities of UCLIC or its subsidiaries. In its analysis,
Salomon relied on financial projections for UCLIC furnished to it by UCFC.
Salomon assumed that such projections were reasonably prepared on a basis
reflecting, as of that time, the best estimates and judgments of UCFC and UCLIC
management, and Salomon expressed no opinion with respect to such projections or
the assumptions on which they were based.
It should be noted that Salomon presented its preliminary views on June 14,
1995, and has not been requested to, and has not, updated its analysis. UCFC
selected Salomon to evaluate strategic alternatives because it is a nationally
recognized investment banking firm with substantial experience in evaluating
strategic alternatives for financial institutions and because of its familiarity
with UCFC as a result of prior investment banking services provided to UCFC.
Salomon has not been requested to, and has not, rendered any opinion as to the
fairness of the Proposed Sale in view of the decision of the UCFC Board to seek
such an opinion from an investment banking firm without prior investment banking
relationships with UCFC. Salomon expresses no view as to the actual net value of
the consideration proposed to be realized in connection with the Proposed Sale.
Salomon was not requested to, and did not, make any recommendation to the UCFC
Board of Directors with respect to the Proposed Sale, and Salomon makes no
recommendation to any shareholder as to how such shareholder should vote at the
Annual Meeting.
Second, the historic role of UCLIC as a funding source for UCFC's lending
operations has diminished. In the past, mortgages originated and owned by UCFC
were sold to UCLIC to provide funding for UCFC's lending business. However, the
importance of such sales has diminished as UCFC has increasingly relied on
underwritten public mortgage-backed securitizations as a source of funding for
its lending operations, with UCFC securitizations increasing from $148 million
in 1990 to $1.05 billion in 1995. In addition, UCFC has established warehouse
lines of approximately $150 million with a consortium of financial institutions
to provide it with an additional source of funding.
Third, it has become increasingly apparent that UCFC's potential for
returns on its investment in UCLIC was limited without further investments in
UCLIC or obtaining significant additional capital for UCLIC. This is because
UCLIC increasingly competes with much larger companies that are able to realize
economies of scale by generating a higher amount of business on a similar level
of expense. In addition, life insurance and annuity companies with strong
capital positions have a competitive advantage in attracting agents, obtaining
regulatory approval for acquisitions, achieving higher rates, and offering
competitive products, as well as attracting investor attention. However, UCFC's
management and Board of Directors have concluded that it is in the best
interests of UCFC's shareholders to invest UCFC's available capital in its
lending business, which during recent years has produced consistently higher
returns than its life insurance and annuity business.
Fourth, the life insurance industry merger environment has become
increasingly active during recent years, and offered the possibility of
obtaining an attractive price as a return on UCFC's investment in UCLIC. As
evidence of this trend, the number of life insurance company mergers over $100
million increased from
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three for a total of $914 million in 1992, to five for a total of $1.95 billion
in 1993, to seven for a total of $5.6 billion in 1994 and to sixteen for a total
of $6.64 billion in 1995.
Upon consideration of the four factors set forth above, during June 1995,
the Board directed UCFC's management to consider strategic alternatives
regarding UCLIC. While UCFC's management was considering alternatives during
July and August 1995, management of UCFC received, in August 1995, an
unsolicited verbal proposal from representatives of Knightsbridge to acquire
UCLIC for an aggregate purchase price of approximately $155 million. After
preliminary discussions and execution of a confidentiality agreement,
confidential negotiations and initial due diligence by Knightsbridge were
initiated. Thereafter, UCFC's management received an unsolicited verbal proposal
from another company regarding the possible acquisition of UCLIC. Management
engaged in preliminary discussions with such company, and also contacted two
other companies that had previously approached UCFC about the possible
acquisition of UCLIC, although neither expressed any active interest at that
time.
In September 1995, Knightsbridge conducted an extensive due diligence
investigation, and Knightsbridge and UCFC management began discussions and
negotiations regarding the terms of the proposed Knightsbridge acquisition of
UCLIC, including preparation and review of a preliminary draft of a stock
purchase agreement. During this time, the other company also began its initial
due diligence investigation of UCLIC. In addition, UCFC's Board of Directors, at
a meeting in September 1995, directed UCFC's management to retain an independent
actuarial firm and an independent investment banking firm to provide the Board
of Directors with advice regarding the value of UCLIC.
Due diligence and negotiations continued with both Knightsbridge and the
other company during October 1995. On October 20, 1995, UCFC issued a news
release announcing that "as part of its continuing efforts to maximize
shareholder value, it is evaluating strategic alternatives regarding its life
insurance subsidiary, United Companies Life Insurance Company, including the
possible sale of such subsidiary." The release also stated, among other things,
that "UCFC has received unsolicited indications of interest from, and is engaged
in discussions with, third parties regarding a possible sale of such
subsidiary." Subsequent to the issuance of such news release, UCFC received
numerous unsolicited telephone inquiries from potential buyers, each of whom was
asked to submit a written inquiry setting forth its interest in acquiring UCLIC.
A total of 17 such written requests was received. Of these, 13 requested and
received packages of publicly available information regarding UCLIC and were
asked to submit written preliminary expressions of interest to UCFC by November
3, 1995, including an estimate of the range of values it would be prepared to
pay; a description of sources of financing; any material conditions (each was
advised that final proposals conditioned on financing would not be considered);
contemplated structure; and additional due diligence information required. Each
was also advised that UCFC had a preference for an all-cash sale; maintaining
UCLIC's operations and personnel in Baton Rouge after the sale; having UCLIC
continue after the sale as one of UCFC's funding sources through the purchase of
residential home equity mortgage loans originated by UCFC's lending operations;
and having UCFC acquire from UCLIC, as part of the sale transaction, the office
buildings and unimproved real estate in UCFC's home office complex in Baton
Rouge. In addition, each prospective purchaser was advised that UCFC would
select prospective purchasers with whom UCFC desired to conduct more detailed
discussions based on, among other things, their preliminary indications of
value, perceived likelihood of promptly completing the sale and availability of
committed financing. During this time UCFC also engaged Milliman & Robertson,
Inc., a consulting actuarial firm ("M&R"), to prepare an actuarial appraisal of
UCLIC for UCFC's Board of Directors, as well as to make such appraisal available
to potential interested acquirors. The selection of M&R to perform the actuarial
appraisal was based primarily upon the reputation of M&R's life actuarial
consulting practice and M&R's independence from UCFC and UCLIC.
In November 1995, due diligence, negotiations and preparation of documents
continued with Knightsbridge. By November 3, 1995, UCFC had received written
proposals to purchase UCLIC from eight of the 13 companies that had requested
UCLIC information. The estimated ranges of potential purchase prices set forth
in such proposals were as follows, although none were completely comparable
since, among other things, the assets to be acquired and excluded varied in each
proposal and each contained different purchase price adjustments and other
provisions that could have materially affected the final purchase price:
$160-190 mil-
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lion, $170-210 million, $150-200 million, $150-190 million, $125-175 million,
$150 million, $125-150 million and $30-45 million (which was for only a small
portion of UCLIC's business and assets). Thereafter, UCFC narrowed the potential
purchasers to four, based primarily on their level of interest, indicated price
range and perceived financial ability to close, and, after execution of
confidentiality agreements, allowed each of the four to commence a detailed due
diligence investigation regarding UCLIC. UCFC also engaged Goldman, Sachs & Co.
("Goldman Sachs") to provide a fairness opinion to UCFC's Board of Directors in
connection with the proposed UCLIC sale. Salomon continued as financial advisor
to the Company with respect to certain limited matters. UCFC also received the
actuarial appraisal on UCLIC prepared by M&R, which it made available upon
request to the interested acquirors. UCFC's management participated in the
engagement by a lender (which lender was considering an unrelated, potential
financing arrangement with UCFC) of an independent real estate appraiser to
appraise the market value of the office buildings and unimproved real estate
owned by UCLIC and located in UCFC's Baton Rouge home office complex that would
be distributed to UCFC by UCLIC as a part of the sale, and engaged an
independent environmental engineering firm to do Phase I environmental surveys
of such real estate and certain other commercial real estate owned by UCLIC.
UCFC's management also began gathering evidence regarding the value of other
assets potentially to be distributed by UCLIC to UCFC.
In December 1995, UCFC continued negotiations and the drafting of documents
with Knightsbridge. Further, UCFC's management was informed by the other company
with which it had conducted negotiations in September and October 1995 that such
company was unable for other reasons to proceed at such time with a transaction
to purchase UCLIC. During this time the other four interested purchasers
undertook due diligence investigations and three of such companies submitted
detailed written proposals to acquire UCLIC. On December 20, 1995, UCFC's Board
of Directors met to consider the Knightsbridge proposal and the other three
proposals. The following sets forth a brief summary of the Knightsbridge
proposal and the other three proposals presented to UCFC's Board of Directors by
UCFC's management at that meeting, with purchase prices adjusted to make them
relatively comparable.
The proposal submitted by Knightsbridge contained an adjusted purchase
price of $157 million, which included projected earnings of UCLIC for a portion
of the period prior to closing of $2 million. The advantages of the
Knightsbridge proposal were deemed to include an attractive price as well as
Knightsbridge's agreement to offer to UCFC warehouse financing for its mortgage
operations. Additional advantages included Knightsbridge's name recognition in
the industry and the fact that negotiations and documentation with respect to
the proposal were almost complete, as well as Knightsbridge's willingness to
maintain UCLIC's operations in Baton Rouge. The disadvantages considered with
respect to the Knightsbridge proposal included a large amount of excluded
assets, low net cash to UCFC and the fact that, at the time of the proposal,
Knightsbridge's purchase financing was in process and not complete.
Knightsbridge was also proposing at the time that $20 million of the proposed
purchase price be represented by a promissory note.
A proposal submitted by Company A had an adjusted purchase price of $161
million (of which approximately $9.7 million was dependent on UCLIC's statutory
earnings for the second half of 1995 and the period in 1996 prior to closing).
The advantages of Company A's proposal included the attractive price as well as
the fact that Company A was known in the industry and was willing to offer to
UCFC warehouse financing for its mortgage operations. Disadvantages of Company
A's proposal included a large amount of excluded assets and low net cash to
UCFC, as well as the fact that Company A indicated it would close UCLIC's Baton
Rouge offices. Further, Company A's purchase financing was incomplete and
management had not yet engaged in extensive negotiations with Company A nor had
documentation been prepared.
Company B's proposal for the purchase of UCLIC included an adjusted
purchase price of $147 million. Advantages considered with respect to such
proposal were that Company B was well known in the industry, was not dependent
on outside financing for funding of the purchase price, agreed to offer
warehouse financing for UCFC's mortgage operations, and management believed that
a purchase by Company B could improve UCLIC's ratings. Disadvantages of the
proposal by Company B included the low price, low net cash to UCFC, and the fact
that excluded assets had not been identified, as well as the planned closure by
Company B of UCLIC's Baton Rouge operations. Further, management had engaged in
only preliminary negotiations with Company B and documentation for the proposal
had not been prepared.
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Finally, Company C submitted a proposal to UCFC that included a $180
million adjusted purchase price. The advantages of Company C's proposal included
the attractiveness of the price, the lower amount of excluded assets, and the
high net cash to UCFC. In addition, Company C agreed to offer warehouse
financing to UCFC's mortgage operations and to maintain UCLIC's Baton Rouge
offices. Disadvantages considered with respect to the proposal by Company C
included the fact that Company C's purchase financing was very incomplete,
Company C and its management were relatively unknown in the industry, the
likelihood that Company C would encounter regulatory approval difficulties and
that UCLIC's rating may decrease if Company C purchased UCLIC. Finally, only
limited negotiations and no documentation with respect to Company C's proposal
had been initiated.
At its December 20, 1995 meeting, UCFC's Board of Directors received and
discussed written and oral presentations from UCFC's management regarding its
analysis of the four proposals and proposing companies, from M&R regarding its
actuarial appraisal of UCLIC, from Salomon regarding the proposing companies and
from Goldman Sachs regarding fairness of the proposals. After extensive
discussion, UCFC's Board of Directors directed UCFC's management to continue
negotiations with the interested potential purchasers in an effort to resolve
all open issues and agree on forms of definitive agreements, and to determine
which presented a more financially attractive offer. UCFC's Board also requested
management to conduct more due diligence regarding each of the interested
companies and its likelihood of obtaining financing and regulatory approval.
Subsequent to the Board of Directors' December 1995 meeting, UCFC's
management concluded that Company C, which had what appeared to be a higher
purchase price of approximately $180 million, did not have sufficient net worth
or sufficiently likely financing in order to present a realistic and probable
alternative, and so management discontinued discussions with such bidder. In
addition, UCFC conducted negotiations with Company A, which had a proposed price
($161 million) that also appeared to be higher than the Knightsbridge proposal.
However, after detailed negotiations with such bidder it became apparent to
UCFC's management that such offer was, for a variety of reasons (which included,
without limitation, contingency of purchase price; conditions to closing;
uncertainty and timing of closing; indemnification requirements; purchase price
hold-back and other security requirements; and unfavorable warehouse facility
terms), in fact significantly less attractive than the Knightsbridge offer.
Accordingly, UCFC's management concentrated its efforts on finalizing a
definitive agreement with Knightsbridge that could be recommended to UCFC's
Board of Directors prior to the end of January 1996. As part of its negotiations
with Knightsbridge, Knightsbridge requested that UCFC agree to receive a portion
of the purchase price in the form of subordinated debt of an affiliate of
Knightsbridge, while UCFC's management requested that Knightsbridge increase its
purchase price. Further, Knightsbridge requested that UCFC provide broader
indemnification for certain matters, as to which UCFC and Knightsbridge
eventually reached agreement. After extensive negotiations, Knightsbridge agreed
to an increase of the purchase price to $164 million plus after-tax income of
UCLIC from January 1, 1996, to closing (exclusive of capital gains or losses) in
exchange for UCFC's agreement to be responsible for the tax liabilities
resulting from certain tax elections to be made in connection with the sale
transaction (estimated to be $4 million) and to purchase, simultaneously with
the closing of the UCLIC sale, for $15 million in cash a convertible
subordinated promissory note from the Knightsbridge top tier entity that would
control UCLIC after its acquisition.
Management also sought informal advice from insurance regulatory
authorities concerning the proposed transaction and the interested prospective
purchasers, and engaged in confidential discussions with an insurance rating
agency to ascertain the impact, if any, of the proposed transaction with
Knightsbridge on UCLIC's rating by such agency.
On January 31, 1996, UCFC's Board of Directors met to consider the
recommendation by UCFC's management that the Board authorize and approve the
execution of the Stock Purchase Agreement between UCFC and the Purchaser. At
such meeting, representatives of Goldman Sachs advised the Board that, subject
to the review of the final documentation, Goldman Sachs believed it would be in
a position to deliver an opinion at the February 1, 1996 Board meeting to the
effect that the Aggregate Consideration (as defined herein) to be received by
UCFC pursuant to the Stock Purchase Agreement was fair to UCFC (see "-- Opinion
of Financial Advisor"). After a review of the terms of the Stock Purchase
Agreement that had
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been negotiated between Knightsbridge and UCFC management, the various
alternative offers that had been pursued by management of UCFC and the factors
referred to above and in "-- Recommendation of the Board of Directors," UCFC's
Board of Directors authorized and approved the execution of the Knightsbridge
Stock Purchase Agreement subject to receipt by UCFC's management of satisfactory
evidence regarding Knightsbridge's ability to finance the acquisition of UCLIC.
On February 1, 1996, Knightsbridge delivered to UCFC copies of the following
documents evidencing the sources of Knightsbridge's proposed financing for the
UCLIC acquisition: financial statements and other financial information
regarding Knightsbridge's net worth and uncommitted funds available for the
proposed UCLIC acquisition; an executed financing commitment letter that it had
received from a U.S. affiliate of an international bank, in which such bank
agreed to provide senior financing to the Purchaser, subject to a variety of
conditions, including additional due diligence, review of documents and
finalization of documents satisfactory to it; and "highly confident" letters
from two nationally recognized financial institutions regarding the ability of
each to underwrite the sale of preferred stock, subject to similar conditions.
On February 1, 1996, UCFC's Board of Directors met again to consider the
Knightsbridge Stock Purchase Agreement, as well as additional evidence regarding
the valuation of the assets to be distributed by UCLIC to the Company prior to
the closing of the Proposed Sale (the "Excluded Assets") and additional advice
from Goldman Sachs regarding the fairness of the transaction. After
consideration of the factors referred to above, UCFC's Board of Directors
authorized UCFC's management to execute the Knightsbridge Stock Purchase
Agreement in the form presented at the meeting, which included an amendment that
added a condition to closing that UCFC's Board of Directors receive evidence
satisfactory to it prior to March 1, 1996, confirming the fair market value of
the Excluded Assets. Subsequent to the Board meeting, the definitive Stock
Purchase Agreement (which included such condition) was executed by UCFC and
Knightsbridge on February 1, 1996, and a news release was publicly distributed
prior to the opening of business on February 2, 1996, to announce the execution
of the Stock Purchase Agreement and the principal terms of the proposed sale to
Knightsbridge. On February 28, 1996, UCFC's Board of Directors received
additional independent evidence that caused it to conclude that the fair market
value of the Excluded Assets was not materially different from $55 million,
which included appraisals dated December 8, 1995 from members of recognized
national appraisal organizations regarding the $27.7 million estimated market
value of the United Plaza property owned by UCLIC and included in the Excluded
Assets; twelve appraisals dated various dates in February 1996 (except for two
dated January and April 1994 and one dated March 1995) from nine different
independent appraisal firms whose members belong to recognized national
appraisal organizations regarding the aggregate $9,228,500 estimated market
value of the sixteen commercial real estate assets owned by UCLIC and included
in the Excluded Assets; and the opinion of management as to the estimated market
value of a building owned by UCLIC and included in the Excluded Assets at the
$261,000 value at which such asset is included in UCLIC's financial statements.
Subsequently, the Purchaser approached UCFC management to request that the
structure of the Proposed Sale be altered in respect of the delivery by the
Purchaser of the cash portion of the purchase price. UCFC agreed to an amendment
to the Stock Purchase Agreement whereby UCFC shall, provided it receives the
necessary regulatory approvals, cause UCLIC to declare and pay to UCFC a $10
million cash dividend (the "Dividend") immediately prior to the Closing. The
cash portion of the purchase price for UCLIC to be paid by the Purchaser will
thus be reduced by $10 million. Management of UCFC agreed to a modification of
the structure of the Proposed Sale as an accommodation to the Purchaser and
because the economics of the transaction to UCFC are not changed as a result
thereof.
OPINION OF FINANCIAL ADVISOR
As described under "-- Background of and Reasons for the Proposed Sale,"
UCFC engaged Goldman Sachs to provide a fairness opinion to the Board of
Directors of UCFC in connection with the proposed sale of UCLIC. In this
connection, on February 1, 1996 and February 26, 1996, Goldman Sachs delivered
its written opinion to the Board of Directors of UCFC that, as of the dates
thereof, the Aggregate Consideration (as defined below) to be received by UCFC
pursuant to the Stock Purchase Agreement was fair to UCFC. Goldman Sachs
subsequently confirmed such opinion by delivery of its written opinion, dated
the date hereof, that, as of the date hereof, the Aggregate Consideration to be
received by UCFC pursuant to the Stock Purchase Agreement is fair to UCFC. For
purposes hereof, the term "Aggregate Consideration" shall mean
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$164 million subject to adjustment as described herein, to be comprised of cash
and the Excluded Assets to be distributed to UCFC prior to the Closing.
The full text of the written opinion of Goldman Sachs dated the date
hereof, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is attached
hereto as Exhibit B and is incorporated herein by reference. UCFC's shareholders
are urged to, and should, read this opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Stock Purchase Agreement; (ii) this Proxy Statement; (iii) the Term
Sheet for the Promissory Note attached as Exhibit 8.02(v) to the Stock Purchase
Agreement; (iv) the Master Loan Sale Agreement and the Servicing Agreement; (v)
audited financial statements for UCLIC prepared using generally accepted
accounting principles ("GAAP") for the three years ended December 31, 1995; (vi)
certain GAAP financial statements for UCLIC for the years ended December 31,
1991 and 1992 derived from UCFC's GAAP audited financial statements; (vii)
audited statutory financial statements for UCLIC prepared using statutory
accounting principles ("SAP") for the five years ended December 31, 1995; (viii)
an actuarial appraisal as of June 30, 1995 dated November 29, 1995 prepared by
M&R (the "Actuarial Appraisal"); (ix) real estate appraisals of One United
Plaza, Two United Plaza, and Tract UC-11 as of November 30, 1995 dated December
8, 1995 prepared by members of recognized national appraisal organizations (the
"Real Estate Appraisals"); (x) the unaudited financial statements and related
notes thereto for the year ended December 31, 1995 for the CIGNA Mezzanine
Partners III, L.P. ("Cigna Partners") and certain unaudited financial statements
relating to each entity in which Cigna Partners is an investor; (xi) an
unaudited schedule of the commercial real estate owned by UCLIC (the "Commercial
Real Estate") with the carrying values as of December 31, 1995, prepared by the
Company (the "Real Estate Owned Schedule"); (xii) a schedule prepared by the
Company of the Commercial Real Estate with the appraised values as determined by
various independent appraisers; (xiii) certain other communications from UCFC to
its shareholders; and (xiv) certain internal financial analyses and forecasts
for UCLIC and the Purchaser prepared by their respective managements. Goldman
Sachs also held discussions with members of the senior management of UCLIC and
Knightsbridge regarding the past and current business operations, financial
condition and future prospects of their respective companies. Goldman Sachs also
spoke to members of the management of CIGNA Mezzanine Partners III, Inc., the
General Partner of Cigna Partners, regarding the current business operations,
financial condition and future prospects of Cigna Partners. In addition, Goldman
Sachs compared certain financial information for UCLIC with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the life
insurance industry specifically and in other industries generally and performed
such other studies and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of UCLIC or the Purchaser
or any of their respective subsidiaries, including the Excluded Assets, and,
except for the Actuarial Appraisal and the Real Estate Appraisals referred to
above, Goldman Sachs has not been furnished with any such evaluation or
appraisal. Goldman Sachs was not authorized by UCFC to solicit potential
third-party buyers for UCLIC and accordingly, did not engage in any such
solicitation. Goldman Sachs assumed with the consent of the Board of Directors
of UCFC that the fair market value of the following Excluded Assets is not
materially different from (i) the market value amounts of fee simple as set
forth in the Real Estate Appraisals for One United Plaza, Two United Plaza and
Tract UC-11; (ii) the carrying value amounts in the Real Estate Owned Schedule
for the Commercial Real Estate; and (iii) the GAAP book value, at December 31,
1995, of a building owned by UCLIC in Orlando, Florida. Goldman Sachs did not
express any opinion with regard to the Master Loan Sale Agreement or the
Servicing Agreement.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to the Board of Directors
of UCFC on February 1, 1996. Goldman Sachs utilized
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substantially the same types of financial analyses in preparing its written
opinion dated February 26, 1996, and its written opinion attached hereto as
Exhibit B.
(a) Analysis at Various Prices. Goldman Sachs prepared a financial
analysis of the Proposed Sale and calculated various financial multiples
based upon the aggregate consideration of $164 million. The ratios for such
analysis were based on information provided by the management of UCFC. For
purposes of the following analysis, realized gains and losses were excluded
from net income. The multiples of aggregate consideration to statutory net
income were 11.6x, 15.5x and 18.4x, for the latest twelve months ("LTM")
(ended September 30, 1995), estimated 1995 and estimated 1996,
respectively. The multiples of aggregate consideration to GAAP net income
were 19.5x, 17.1x, 15.3x, 12.7x and 9.4x, for LTM (ended September 30,
1995), estimated 1995, estimated 1996, estimated 1997 and estimated 1998,
respectively. The multiples of aggregate consideration to GAAP net income
on a stand-alone basis (excluding $4 million of allocated costs associated
with UCFC and a tax rate of 40%) were 15.2x, 13.7x, 12.5x, 10.7x and 8.2x,
for LTM (ended September 30, 1995), estimated 1995, estimated 1996,
estimated 1997 and estimated 1998, respectively.
Goldman Sachs also calculated various multiples for book value based
upon the aggregate consideration of $164 million. For purposes of the
following analysis, book value amounts were as of September 30, 1995.
Aggregate consideration as a multiple of (i) statutory surplus was 1.6x;
(ii) tangible GAAP book value (including the effect of Statement of
Financial Accounting Standards ("FAS") No. 115) was 1.0x; and (iii)
tangible GAAP book value (excluding the effect of FAS 115) was 1.1x.
(b) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the life insurance
industry since June 1990 and calculated various financial ratios based on
such transactions since 1994 (the "Selected Transactions"). Such analysis
indicated that for the Selected Transactions (i) the price/tangible GAAP
Book ratio ranged from a low of 0.87x to a high of 2.85x, with a mean of
1.49x and a median of 1.33x; (ii) the price/statutory surplus ratio ranged
from a low of 1.76x to a high of 3.12x, with a mean of 2.20x and a median
of 2.10x; and (iii) the price/LTM earnings ratios ranged from a low of 9.1x
to a high of 25.9x, with a mean of 13.2x and a median of 12.2x.
(c) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to UCLIC to corresponding financial
information, ratios and public market multiples for publicly traded
corporations that for purposes of analysis were divided into the following
three categories: (i) large-cap life insurance companies, (ii) mid-cap life
insurance companies and (iii) annuity companies. The large-cap life
insurance companies consisted of the following publicly traded
corporations: American General Corporation, Aon Corporation, Lincoln
National Corporation, UNUM Corporation, Providian Corporation,
Jefferson-Pilot Corporation and Torchmark Corporation (the "Large-Cap Life
Insurance Companies"). The mid-cap life insurance companies consisted of
the following publicly traded corporations: ReliaStar Financial Corp.,
Provident Life & Accident Insurance Co. of America, USLIFE Corporation,
Protective Life Corporation, American Bankers Insurance Group, Inc. and
Life Partners Group, Inc. (the "Mid-Cap Life Insurance Companies"). The
annuity companies consisted of the following publicly traded corporations:
The Equitable Companies Incorporated, SunAmerica Inc., First Colony
Corporation, Equitable of Iowa Companies and Western National Corporation
(the "Annuity Companies", and together with the Large-Cap Life Insurance
Companies and the Mid-Cap Life Insurance Companies, the "Selected Insurance
Companies"). The Selected Insurance Companies were chosen because they are
publicly-traded companies with operations that for purposes of analysis may
be considered similar to UCLIC. Goldman Sachs calculated and compared
various financial multiples and ratios. For purposes of the following
analysis, financial data is as of September 30, 1995, unless otherwise
indicated, and market data is as of January 29, 1996. The multiples and
ratios for each of the Selected Insurance Companies were based on the most
recent publicly available information.
With respect to the Selected Insurance Companies, Goldman Sachs
considered price/earnings ratios. Earnings estimates were based on
estimates from Institutional Broker Estimate System ("IBES") and the median
earnings estimates were as of January 26, 1996. To the extent that
estimated earnings
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were not available for 1997, Goldman Sachs calculated estimates for such
year by increasing estimates for 1996 by the IBES median long-term growth
rate. IBES is a data service which monitors and publishes a compilation of
earnings estimates produced by selected research analysts on companies of
interest to investors. With respect to the Large-Cap Life Insurance
Companies: (i) estimated 1995 price/earnings ratios ranged from a low of
10.4x to a high of 16.3x, with a median of 12.9x; (ii) estimated 1996
price/earnings ratios ranged from a low of 9.4x to a high of 13.7x, with a
median of 10.8x; and (iii) estimated 1997 price/earnings ratios ranged from
a low of 8.5x to a high of 14.3x, with a median of 9.9x. With respect to
the Mid-Cap Life Insurance Companies: (i) estimated 1995 price/earnings
ratios ranged from a low of 9.3x to a high of 12.5x, with a median of
11.1x; (ii) estimated 1996 price/earnings ratios ranged from a low of 5.5x
to a high of 11.1x, with a median of 9.8x; and (iii) estimated 1997
price/earnings ratios, ranged from a low of 4.8x to a high of 9.9x, with a
median of 8.9x. With respect to the Annuity Companies: (i) estimated 1995
price/earnings ratios, ranged from a low of 10.7x to a high of 13.8x, with
a median of 11.5x; (ii) estimated 1996 price/earnings ratios ranged from a
low of 9.5x to a high of 11.6x, with a median of 10.1x; and (iii) estimated
1997 price/earnings ratios ranged from a low of 8.5x to a high of 10.3x,
with a median of 9.0x.
Goldman Sachs also considered for the Selected Insurance Companies the
price to book value ratios (including and excluding the effect of FAS 115).
The price to book value ratios including the effect of FAS 115: (i) with
respect to the Large-Cap Life Insurance Companies, ranged from a low of
1.2x to a high of 2.2x, with a median of 1.7x; (ii) with respect to the
Mid-Cap Life Insurance Companies, ranged from a low of 0.9x to a high of
2.0x, with a median of 1.1x; and (iii) with respect to the Annuity
Companies, ranged from a low of 1.0x to a high of 3.0x, with a median of
1.4x. The price to book value ratios excluding the effect of FAS 115: (i)
with respect to the Large-Cap Life Insurance Companies, ranged from a low
of 1.4x to a high of 2.3x, with a median of 2.1x; (ii) with respect to the
Mid-Cap Life Insurance Companies, ranged from a low of 0.9x to a high of
2.1x, with a median of 1.3x; and (iii) with respect to the Annuity
Companies, ranged from a low of 1.1x to a high of 3.0x, with a median of
1.5x.
In addition, Goldman Sachs considered for the Selected Insurance
Companies the LTM return on average common equity ("ROACE") (excluding
realized gains and losses, extraordinary items, accounting changes and
special charges). The LTM ROACE percentages: (i) with respect to the
Large-Cap Life Insurance Companies ranged from a low of 5.1% to a high of
19.4%, with a median of 14.3%; (ii) with respect to the Mid-Cap Life
Insurance Companies ranged from a low of 7.5% to a high of 19.6%, with a
median of 12.3%; and (iii) with respect to the Annuity Companies ranged
from a low of 10.5% to a high of 25.5%, with a median of 15.2%, as compared
to 7.2% for UCLIC.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is identical to UCLIC or
the contemplated transaction. The analyses were prepared solely for purposes of
Goldman Sachs' providing its opinion to the Board of Directors of UCFC as to the
fairness of the Aggregate Consideration to be received by UCFC pursuant to the
Stock Purchase Agreement and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of UCFC, UCLIC, Knightsbridge,
the Purchaser, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
As described below, the Goldman Sachs opinion to the Board of Directors of
UCFC was one of many factors taken into consideration by the Board of Directors
of UCFC in making its determination to approve the Stock Purchase Agreement. The
foregoing summary does not purport to be a complete description of the
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analysis performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth in Exhibit B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. UCFC selected Goldman
Sachs to render a fairness opinion because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Proposed Sale and had no prior investment banking relationships with UCFC
or its affiliated companies.
Pursuant to a letter agreement dated November 13, 1995 (the "Engagement
Letter"), UCFC engaged Goldman Sachs to undertake a study to enable it to render
its opinion with respect to the fairness of the consideration to be received by
UCFC in a possible sale of all of the stock of UCLIC. Pursuant to the terms of
the Engagement Letter, UCFC agreed to pay Goldman Sachs $375,000 for rendering
its opinion, to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
ACTUARIAL APPRAISAL
During preliminary discussions with, and evaluations of written acquisition
proposals submitted by, several potential interested acquirors of UCLIC, UCFC
engaged M&R to prepare an actuarial appraisal of the value of UCLIC to assist
UCFC's Board of Directors in evaluating the various proposals under
consideration, as well as to make such appraisal available to potential
interested acquirors. M&R was engaged to prepare such appraisal so that UCFC's
Board of Directors would receive an actuarial appraisal that, in contrast to the
preliminary actuarial appraisal obtained by UCFC in March 1995, would, among
other things, be prepared by an actuarial firm with no prior relationship to
UCFC or its affiliates, value UCLIC in connection with a contemplated sale, and
be based upon detailed analyses and due diligence appropriate to a transaction
of the magnitude of the Proposed Sale using the then most current business and
financial information available. See "-- Background of and Reasons for the
Proposed Sale." M&R, as part of its actuarial consulting practice, is
continually engaged in the valuation of insurance and annuity businesses. The
selection of M&R to perform the actuarial appraisal was based primarily on the
reputation of M&R's life actuarial consulting practice and M&R's independence
from UCFC and UCLIC. In connection with the appraisal by M&R of UCLIC, UCFC has
paid M&R, through February 29, 1996, fees of approximately $200,000. In
addition, UCFC has agreed to reimburse M&R for its expenses and to indemnify and
hold M&R harmless for all losses, actions, suits or governmental investigations
or proceedings relating to or arising out of M&R's engagement by UCFC, except
UCFC owes no indemnity to M&R for damages resulting from M&R's gross negligence
or deliberate misconduct.
M&R performed its actuarial appraisal of UCLIC consistent with the
methodologies detailed in Actuarial Standard of Practice 19. Specifically, M&R
developed twenty-year projections of after-tax distributable earnings and
calculated the present values as of June 30, 1995 of the projected after-tax
distributable earnings at various discount rates. Additionally, M&R determined
the amount of UCLIC's unallocated surplus as of June 30, 1995. Projections of
future statutory earnings were computed according to statutory reporting
criteria because earnings available to service and repay debt, as well as to pay
dividends to life company shareholders, are constrained by statutory accounting,
and statutory surplus constitutes the funds available for investments in new
business or other ventures requiring capital.
The projections were based upon numerous assumptions and forecasts of
future results and actual future experience may deviate significantly from such
assumptions and forecasts. In setting the assumptions underlying the projections
M&R reviewed the assumptions utilized by UCLIC in its asset adequacy analysis as
of December 31, 1993 and December 31, 1994, UCLIC's experience and general
industry experience with respect to the parameters of profitability, along with
consideration of probable future trends in such experience. The assumed annual
rates of return, referred to as discount rates, which M&R used in determining
the present value of projected statutory distributable earnings are critical
determinants of the appraised values.
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M&R used discount rates of 9%, 12% and 15% to calculate alternative present
values of projected future statutory distributable earnings.
M&R's projections of earnings and their related present values reflect the
payment of federal income taxes at an assumed 35 percent tax rate. M&R's
projections also reflected various assumptions regarding the effect of the
deferred acquisition cost ("DAC") tax on future premium income, and the run-off
of the existing DAC balance. The appraisal also reflects the effect of the
difference between determining UCLIC's reserves using statutory and tax
accounting principles. The appraisal does not reflect any estimate of the tax
benefit expected as a result of an election under Section 338 of the Internal
Revenue Code of 1986, as amended (the "Code"), or the payment of any "Phase III"
tax expected to be payable on the policyholders' surplus account.
The appraisal values determined by M&R do not necessarily represent the
value of UCLIC in the open market and were not intended to define fair market
value. Rather, the appraisal values were derived from a projection of future
after-tax distributable earnings and, therefore, reflect the value determined
for UCLIC's profit potential under a set of assumptions. The value of any
enterprise is a matter of informed judgment. Its purchase or sale price is
determined by the parties involved, based on their respective evaluations of all
relevant factors. The appraisal results were projected assuming several
different interest rate environments, including a constant interest rate
environment consistent with the yield curve as of June 30, 1995, six non-level
interest rate scenarios defined in the NAIC Model Actuarial Opinion and
Memorandum Regulation as well as six similar, but less severe, interest rate
scenarios and four interest rate scenarios in which the yield curve becomes
inverted. Additionally, the deferred annuity lines of business were projected
using 250 randomly generated interest rate scenarios. The future external
interest rate environment may vary significantly from any of the projected
scenarios. The projection of earnings under the different scenarios is intended
solely to indicate how future earnings may be affected by different interest
rate environments. The minimum interest rate in all of the scenarios used in the
projections was limited to 50 percent of the initial 5-year rate.
The projections also reflect assumptions concerning changes in the invested
assets of UCLIC, which consist primarily of bonds and mortgage loans. In
particular, the projections assumed that certain warehoused mortgages were
immediately replaced with new assets according to UCLIC's reinvestment strategy.
As the historical return on these warehoused mortgages exceeds the return
available under UCLIC's current investment strategy, the assumed replacement of
these mortgages may understate the projected earnings if UCLIC in fact continues
to acquire warehoused mortgages from an affiliate of UCFC after the Proposed
Sale. As described below in "-- Certain Post-Closing Relationships Between UCFC
and UCLIC -- Master Loan Sale Agreement", UCLIC will continue, after the
Proposed Sale is consummated, to acquire mortgage loans from certain UCFC
affiliates. The projections also assumed that the real estate occupied by
UCLIC's home office was replaced immediately with new assets according to the
reinvestment strategy. UCLIC's invested assets held as of June 30, 1995 were
allocated to UCLIC's various lines of business on a pro rata basis. Cash and
short term investments were allocated to the assumed group life and credit life
and accident and health lines of business. Certain invested assets, including
real estate acquired due to foreclosed mortgages, investment real estate and
common stocks, were assigned to unallocated capital and surplus. No
determination was made as to whether any difference exists between the statutory
carrying value and the fair market value of these assets. M&R used various other
investment assumptions in its analysis and an allocation of all assets by class
of assets to each line of business.
In addition, UCLIC's reserves were allocated based on certain assumptions.
UCLIC's reinsurance ceded from the credit lines of business was reflected by
projecting the business on an aggregate basis, net of all reinsurance. Annuities
assumed from a producer-owned insurance company, which are the same plans as
those sold on a direct basis by UCLIC, were modeled with the direct business and
included in the projections. Projections for group life insurance business
assumed from the Federal Government Employee's Group Life Insurance and
Servicemen's Group Life Insurance were segregated from UCLIC's other life
insurance business. Future projected profits from UCLIC's existing interest
maintenance reserve ("IMR") were developed by amortizing the IMR based on
UCLIC's December 31, 1994 Annual Statement, and by projecting investment income
and capital gains generated by the assets allocated to this line. The
establishment and amortization of IMR due to capital gains and losses realized
after June 30, 1995 were included within each of the line of business
projections. The cost of capital was included by providing for target surplus
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within the line of business projections. The unit expense assumptions used in
the line of business projections did not reproduce UCLIC's recent historical
expense experience. The anticipated shortfall of expense coverage in the first
projection year, based on 1994 actual experience as well as 1995 annualized
results was approximately $6 million. M&R assumed that over the next three years
UCLIC would be able to reduce its total expense to a level consistent with the
expense assumptions used in the projections. M&R projected excess expense of $6
million in the first projection year, reducing linearly to zero excess expense
in the fourth projection year. To the extent that UCLIC is either unable to
reduce its expenses as projected, or is able to do so more quickly than assumed,
the appraisal results will be affected. The future values of UCLIC's business
also reflect five years of production at assumed levels of annualized premium
production.
In producing its actuarial appraisal, M&R relied upon data and information
communicated to M&R by management of UCLIC as well as upon published financial
information. M&R performed no audits or independent verification of the
information furnished. The principal materials relied upon by M&R included the
following: (i) the annual statement convention blanks as filed by UCLIC with
regulatory authorities for 1992, 1993 and 1994, as well as the March 31, 1995
and June 30, 1995 quarterly statements; (ii) information contained in the
Actuarial Memorandums for UCLIC in support of the Actuarial Opinions as of
December 31, 1994 and December 31, 1993; (iii) information describing GAAP
assumptions and pricing assumptions for significant life and annuity plans; (iv)
line of business analysis reports showing profit components for 1994,
year-to-date June 30, 1995, and year-to-date September 30, 1995; (v) risk-based
capital calculations as of December 31, 1994 and June 30, 1995; (vi) financial
statements prepared according to GAAP as of December 31, 1994 and June 30, 1995;
(vii) information and statistical data supplied by UCLIC on recent credited
interest rates, new business production, distribution of in force business and
persistency; (viii) UCFC's Annual Report on Form 10-K for fiscal 1994 and
Quarterly Report on Form 10-Q for June 30, 1995; (ix) information on UCLIC's
asset portfolio as of June 30, 1995; (x) the prospectus and pricing assumptions
for UCLIC's variable deferred annuity contracts; (xi) UCLIC's 1994 federal
income tax return; (xii) information on the historical relationship between
statutory and tax reserves by line of business; (xiii) various management
reports which summarize the reserves and business in force as of June 30, 1995;
(xiv) information on plan code modeling utilized by UCLIC for its asset adequacy
analysis; (xv) information on annuities in payout status; (xvi) worksheets
detailing existing DAC tax balances and amortization schedules by line of
business as of December 31, 1994; (xvii) information on commissions; (xviii)
policy forms and other product information for major plans; and (xix) an
inventory of policies in force as of June 30, 1995, including a modeled listing
of the deferred annuity contracts in force as of June 30, 1995.
Based on the various assumptions, allocations and projections used in
analyzing the information described above, the appraisal performed by M&R
projected the value of various components of the value of UCLIC under the
various interest rate scenarios described above. The components of value
appraised included: (i) unallocated surplus as of June 30, 1995; (ii) the
present value of future after-tax distributable earnings from business in force
as of June 30, 1995; (iii) the present value of future after-tax distributable
earnings from business issued after June 30, 1995; and (iv) the present value of
the after-tax effect of the expense excess. The summary of results presented in
the appraisal report produced by M&R sets forth the summary of each of these
components in an assumed level interest rate environment consistent with the
yield curve as of June 30, 1995 using discount rates of 9%, 12% and 15%. The
corresponding values presented in the report assuming a level interest rate
environment are $186.5 million (9% discount rate), $155.9 million (12% discount
rate) and $133.3 million (15% discount rate). In addition, the report summarizes
the present value of distributable earnings for existing in force business
assuming 16 specific interest rate scenarios in addition to the level interest
rate scenario using each of the three discount rates. Finally, the report
summarizes the results of 250 stochastically generated interest rate scenarios
for the deferred annuity lines of business using each of the three discount
rates. The results of these scenarios produce a range of values both
significantly higher and lower than the level interest rate environment. There
is no "right" value, nor a single scenario that represents the most likely
outcome. Rather, the report demonstrates that the values generated will vary
greatly depending upon future interest rate environments. The report should be
studied in its entirety to develop an understanding of this volatility. The
appraisal was limited solely to estimating the value of UCLIC. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to
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uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of UCFC, UCLIC, Knightsbridge,
the Purchaser, M&R or any other person assumes responsibility if future results
are materially different from those forecast in the appraisal.
As with any appraisal of a business, the actuarial appraisal of UCLIC
performed by M&R is subject to numerous assumptions and limitations. In order
for a reader of this Proxy Statement to understand or rely on any of M&R's work,
M&R's appraisal must be read in its entirety. A copy of M&R's appraisal may be
obtained from UCFC (see below). In addition, M&R has advised UCFC that M&R
believes that any reader of its appraisal must possess a certain level of
expertise in areas relevant to actuarial appraisals to appreciate the
significance of the assumptions used as well as the impact of these assumptions
on the results. Further, M&R has advised UCFC that M&R believes that the reader
should be advised by, among other experts, an actuary competent in the area of
actuarial appraisals of insurance companies in order to correctly interpret the
appraisal results. A copy of M&R's appraisal is available for inspection and
copying at the principal executive offices of UCFC during regular business hours
by interested shareholders or their representatives designated by such
shareholders in writing in advance. Any shareholder interested in so inspecting
and copying M&R's appraisal is urged to contact Dale E. Redman, Chief Financial
Officer at (504) 924-6007. In addition, a copy of M&R's appraisal will be sent
to any shareholder (or such shareholder's representative, designated as
aforesaid) upon written request to Dale E. Redman, Chief Financial Officer, at
4041 Essen Lane, Baton Rouge, Louisiana 70809, at no expense to the requesting
shareholder.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the Proposed Sale is fair to, and in
the best interests of, UCFC and its shareholders. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE STOCK PURCHASE AGREEMENT AND RECOMMENDS
TO UCFC'S SHAREHOLDERS THAT THEY VOTE FOR THE PROPOSED SALE. For more
information related to shareholder voting on the Proposed Sale, see "Voting with
Regard to the Proposed Sale".
At the meetings of the Board of Directors held on January 31 and February
1, 1996, the Board of Directors had discussions with, and carefully reviewed the
terms of the Stock Purchase Agreement with, UCFC's management and
representatives of Goldman Sachs, as well as UCFC's outside legal counsel. See
"-- Background of and Reasons for the Proposed Sale" and "-- Opinion of
Financial Advisor." The Board of Directors also met on February 28, 1996 to
review additional information regarding the Proposed Sale, including information
regarding the fair market value of the Excluded Assets pursuant to the Stock
Purchase Agreement.
In reaching its conclusions, the material factors considered by the Board
of Directors were as follows:
1. Information with respect to the historical financial condition,
results of operations, business and prospects of UCLIC and of UCFC as a
whole, together with current industry, economic and financial market
conditions, including the belief of the Board of Directors that (i)
increasing competitive forces exist in the life insurance and annuity
market serviced by UCLIC, and (ii) without access to significant additional
capital, UCLIC would have only modest long-term growth prospects.
2. The belief of the Board of Directors that the aggregate purchase
price of $164 million, subject to adjustment, which represented
approximately 100% of the GAAP book value of UCLIC at December 31, 1995 and
a price-to-earnings multiple of 20.5 times the after-tax earnings of UCLIC
for the year ended December 31, 1995, is attractive in view of UCLIC's
historical financial performance and business prospects.
3. The belief of the Board of Directors that the evolution of the
businesses of UCFC has reduced the strategic importance of UCLIC to the
overall operations of UCFC because the non-traditional financial services
market serviced by UCFC offers better opportunities for increased growth
and investment returns than does UCLIC's insurance and annuity business and
that, as a result, UCFC's core lending business offers more opportunities
to create additional value for UCFC's shareholders than does UCLIC's
insurance and annuity business.
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4. The ability of UCFC to utilize the net proceeds from the Proposed
Sale and capital previously invested in UCLIC for the continued expansion
and diversification of UCFC's lending operations, with the goal of
enhancing UCFC's share of its current market without incurring undesirable
levels of indebtedness.
5. The recommendations of UCFC's management to enter into the Proposed
Sale based upon, among other factors, management's assessments of the
prospects of UCLIC's insurance and annuity business relative to UCFC's
lending business, the results of the negotiating process and the terms and
conditions of the Stock Purchase Agreement as compared to terms and
conditions received from other potential purchasers and in agreements for
similar transactions.
6. The opinion of Goldman Sachs dated the date hereof, confirming its
opinion dated February 1, 1996, presented to the Board at the meeting at
which the Board authorized the execution of the Stock Purchase Agreement,
and its opinion dated February 26, 1996, to the effect that the Aggregate
Consideration to be received by UCFC pursuant to the Stock Purchase
Agreement is fair to UCFC.
7. The actuarial appraisal of M&R dated November 29, 1995,
establishing appraisal values for UCLIC derived from a projection of
future, after-tax distributable earnings under various sets of assumptions
and forecasts.
The Board of Directors believes that, based on the foregoing reasons, the
sale of UCLIC at this time is fair to, and in the best interests of, UCFC and
its shareholders. In view of the variety of factors considered in connection
with its evaluation of the Proposed Sale, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
USE OF PROCEEDS
The Company intends to use the proceeds from the Proposed Sale for general
corporate purposes, which may include the expansion and diversification of its
lending operations and the payment of revolving short-term debt.
CONDUCT OF BUSINESS FOLLOWING THE PROPOSED SALE
Following the Proposed Sale, UCFC intends to continue its long-term growth
strategy by continuing to expand and diversify its lending operations. See
"Background of and Reasons for the Proposed Sale."
CERTAIN POST-CLOSING RELATIONSHIPS BETWEEN UCFC AND UCLIC
Master Loan Sale Agreement
The Stock Purchase Agreement contemplates that at the Closing, UCLIC,
United Companies Lending Corporation ("UCLC"), another wholly-owned subsidiary
of UCFC, and certain affiliates of UCLC (collectively with UCLC, the "Seller
Companies") will enter into a Master Loan Sale Agreement (the "Loan Sale
Agreement"), pursuant to which UCLIC will be obligated to purchase from time to
time, for a period of three years, up to $300 million outstanding at any time of
fixed- and floating-rate, first-lien residential mortgage loans (the "Mortgage
Loans") originated or acquired by the Seller Companies. The Loan Sale Agreement
specifies that the amount of "non-securitizable" loans (as defined in the Loan
Sale Agreement) outstanding shall be no greater than $150 million at any one
time, subject to specified sub-ceilings. Pursuant to the related Servicing
Agreement (the "Servicing Agreement") to be entered into between UCLC and UCLIC,
UCLC will act as servicer of these Mortgage Loans on behalf of UCLIC. As
compensation for its services under the Servicing Agreement, UCLC will be
entitled to receive (i) a monthly base servicing fee equal to 1/12th of .375%
multiplied by the outstanding principal balance of each Mortgage Loan, (ii) a
monthly excess servicing fee equal to the excess interest, if any, received on
any Mortgage Loan after payment in full of the base servicing fee and the
applicable mortgage loan remittance rate (for the first three years, 10% and for
each year thereafter, adjusting on each July 1, the rate for Treasury securities
with a one year maturity plus 500 basis points) to UCLIC, and (iii) certain
miscellaneous fees collected on each Mortgage Loan.
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Commercial Real Estate Group
Pursuant to the Stock Purchase Agreement, UCFC's Commercial Real Estate
Group will be transferred to UCLIC. Following the Proposed Sale, the Commercial
Real Estate Group will continue to provide services related to UCFC's commercial
real estate and commercial loans. UCFC will reimburse UCLIC for all actual costs
incurred by UCLIC in providing the services of the Commercial Real Estate Group.
The Stock Purchase Agreement also provides that the Company will continue to
provide servicing support for certain of the Commercial Real Estate Group's
functions. As compensation for UCFC's services, UCLIC will reimburse UCFC for
all actual costs incurred by UCFC in providing such services.
Other Services
UCFC has agreed to provide, and the Purchaser has agreed to cause UCLIC to
provide, certain post-closing transition services (in addition to the services
related to the Commercial Real Estate Group) to the other, for an interim period
of time, commencing on the Closing Date and continuing until December 31, 1996,
or such other date as mutually agreed. UCLIC will provide to UCFC and certain of
its affiliates various programming and data base development services while UCFC
will provide UCLIC with (i) certain office space to rent in one of the United
Plaza buildings and (ii) telephone equipment and services. UCFC and the
Purchaser have agreed to reimburse each other for all actual costs in providing
the services described above.
Location of UCLIC
Following the Proposed Sale, the Purchaser will use commercially reasonable
efforts to cause UCLIC to maintain a presence in Baton Rouge substantially
comparable to that presently maintained by UCLIC, for not less than two years
from the Closing Date.
Subordinated Debentures of United Companies Lending Corporation
After the Closing, UCLIC will continue to own $10 million principal balance
of the subordinated debentures of UCFC's subsidiary, United Companies Lending
Corporation.
ACCOUNTING TREATMENT
The Proposed Sale will be treated by the Company as a disposal of a segment
of business within the meaning of Accounting Principles Board Opinion No. 30,
and accordingly, upon approval of the Proposed Sale by the requisite vote of
UCFC's shareholders (see "Voting with Regard to the Proposed Sale"), the
operating results of UCLIC, including United Variable, will be accounted for by
the Company as discontinued operations. See "Unaudited Pro Forma Consolidated
Financial Statements." UCFC expects to record a net loss of $6.0 million on the
transaction.
CERTAIN TAX CONSEQUENCES
The consummation of the Proposed Sale will not be a taxable event for
federal income tax purposes for the shareholders of UCFC. The following is a
summary of federal income tax consequences to UCFC of consummation of the
Proposed Sale.
Pursuant to the Stock Purchase Agreement, upon consummation of the Proposed
Sale, (i) UCFC will sell all of the stock of UCLIC to the Purchaser and (ii)
UCFC will join with the Purchaser in the filing of an election under Section
338(g) and Section 338(h)(10) of the Internal Revenue Code of 1986, as amended
(the "Code"), and any comparable election under state, local or foreign tax law,
to the extent requested by the Purchaser. As a result of these elections, the
Proposed Sale will be deemed to be a sale of UCLIC's assets for federal income
tax purposes with UCLIC being deemed to have sold its assets while still a
member of UCFC's "affiliated group" (as defined in the Code). Accordingly, the
economic burden of taxation resulting from the deemed asset sale by UCLIC will
be borne by UCFC. UCFC expects to report a gain for federal income tax purposes
of approximately $12.6 million as a result of consummation of the Proposed Sale.
The amount of federal, state and local tax for which UCFC will be liable as a
result of the elections under
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Sections 338(g) and 338(h)(10) of the Code (and any comparable elections under
state or local tax law) is not anticipated to be materially different than would
have resulted if UCFC had sold all of the stock of UCLIC without any such
elections being made.
REGULATORY MATTERS
As a Louisiana chartered life insurance company, UCLIC is subject to the
provisions of the Louisiana Insurance Code. Section 731 of the Louisiana
Insurance Code (La. R.S. 22:731) provides that a person may acquire control of a
Louisiana insurance company only if the acquisition of control is submitted to
or receives advance approval from the Louisiana Commissioner of Insurance (the
"Louisiana Commissioner") after a public hearing thereon. Section 731 provides
that the Louisiana Commissioner may disapprove any such acquisition of control
for any of the following reasons: (i) the effect thereof would be substantially
to lessen competition in insurance in Louisiana or tend to create a monopoly
therein; (ii) the financial condition of any acquiring party is such as might
jeopardize the financial stability of the insurer, or prejudice the interests of
its policyholders or the interests of any remaining security holders who are
unaffiliated with such acquiring party; (iii) the terms of the acquisition are
unfair and unreasonable to the security holders of the insurer; (iv) the plans
or proposals which the acquiring party has to make any change in the insurer's
business or corporate structure or management are unfair and unreasonable to
policyholders of the insurer and not in the public interest; or (v) the
competence, experience and integrity of those persons who would control the
operation of the insurer are such that it would not be in the interest of
policyholders of the insurer and of the public to permit the acquisition of
control.
The Purchaser has submitted an application to the Louisiana Commissioner
seeking approval of the Proposed Sale. The application is pending before the
Louisiana Commissioner and it is anticipated that a hearing will be held prior
to the Annual Meeting. While UCFC has no reason to believe that the Louisiana
Commissioner will not approve the Proposed Sale, no assurances can be made with
respect thereto. In addition, prior to the Closing, UCFC will submit an
application to the Louisiana Commissioner requesting approval of the Dividend.
The approval of the Dividend by the Louisiana Commissioner is not a condition to
the Closing of the Proposed Sale; and thus, if the Louisiana Commissioner does
not approve the Dividend, UCLIC will not pay the Dividend and the Purchaser will
pay UCFC $10 million additional cash at the Closing. See "-- Background of and
Reasons for the Proposed Sale."
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Proposed Sale may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. On
March 26, 1996, UCFC and the Purchaser filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division. Early termination of the
required waiting period under the HSR Act was granted effective April 5, 1996.
At any time before or after the closing of the Proposed Sale, the FTC, the
Antitrust Division or others could take action under the antitrust laws with
respect to the Proposed Sale, including seeking to enjoin the consummation of
the Proposed Sale or seeking the divestiture of stock or business acquired as a
result of the Proposed Sale.
UC LIFE HOLDING CORP.
The Purchaser's principal executive office is located at 745 Fifth Avenue,
Fifth Floor, New York, New York 10151. The Purchaser is an acquisition company
newly-formed by Knightsbridge, a private investment partnership with
institutional partners that was formed in 1995 to make equity investments in
companies engaged primarily in the life insurance industry. The Purchaser is
engaged in the acquisition of UCLIC because the Purchaser believes it will be
acquiring an attractive book of annuity business at an attractive price. The
transaction will be treated by the Purchaser as a purchase within the meaning of
Accounting Principles Board Opinion No. 16. The Purchaser has not received any
report, opinion or appraisal materially relating to the transaction from an
outside party.
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THE STOCK PURCHASE AGREEMENT
The following is a summary of the Stock Purchase Agreement, a copy of which
is attached as Exhibit A to this Proxy Statement and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Stock
Purchase Agreement. Terms which are not otherwise defined in this summary have
the meanings set forth in the Stock Purchase Agreement.
BUSINESS TO BE SOLD; PURCHASE PRICE
The Stock Purchase Agreement provides for the sale by UCFC to the Purchaser
of all the outstanding capital stock of UCLIC for $164 million subject to
adjustment as described below (the "Purchase Price"), to be comprised of (i) a
$10 million cash dividend (the "Dividend") to be paid by UCLIC to UCFC prior to
the Closing; (ii) cash; and (iii) certain assets of UCLIC (the "Excluded
Assets") to be distributed to UCFC prior to the Closing. It is currently
estimated that the cash amount of the Purchase Price to be paid by the Purchaser
will be $99 million. The Purchase Price will be increased by the amount of the
Earnings (as defined below) of UCLIC during the period from January 1, 1996
through the Closing of the Proposed Sale. If an Excluded Asset is transferred or
sold by UCLIC prior to distribution of all remaining Excluded Assets to UCFC,
(i) UCFC will receive the value, in cash, set forth in the Stock Purchase
Agreement for such Excluded Asset and (ii) the Earnings will increase or
decrease depending upon whether the sale results in a gain or loss to UCLIC. The
fair market value, as of the time immediately prior to the Closing of the
Proposed Sale, of each of the categories of Excluded Assets will be computed
jointly by UCFC and the Purchaser based on a valuation methodology set forth in
the Stock Purchase Agreement. The Excluded Assets comprise the following
categories of assets of UCLIC: (i) certain real estate owned by UCLIC, and (ii)
the partnership interest of UCLIC in Cigna Partners. See "The Proposed
Sale -- Background of and Reasons for the Proposed Sale." At the Closing, the
Excluded Assets will be distributed by UCLIC to UCFC if not previously sold or
transferred by UCLIC. The real estate category of the Excluded Assets comprises
portions of the United Plaza office park, including the executive offices of
UCFC, and certain commercial real estate.
As used herein, Earnings means the income of UCLIC for the period beginning
January 1, 1996, and ending on the Closing Date, computed in accordance with
GAAP, net of all applicable income taxes and excluding any capital gains or
losses, except that all capital gains or losses attributable to Cigna Partners
will be included in UCLIC's income for the purposes of calculating Earnings. The
Earnings will be computed by UCFC prior to the Closing, with an estimate
provided for income to be earned from the date of calculation through the date
of the Closing. The Purchaser will pay to UCFC at the Closing the undisputed
portion of the Earnings estimate provided by UCFC. After the Closing, the
Purchaser will provide a statement of Earnings to UCFC based on the actual
results of operations of UCLIC through the Closing Date, which UCFC is entitled
to review and verify. Any disputes over this calculation of Earnings will be
resolved by Coopers & Lybrand L.L.P., or another mutually selected firm of
independent public accountants of national recognition.
If the corrected Earnings are more than UCFC's initial estimate of
Earnings, the Purchaser will, within two business days after the amount of such
difference is agreed to or calculated by the independent auditor, pay to UCFC
the amount of such difference, together with interest thereon from the Closing
Date to the date of payment at a rate equal to the rate of interest from time to
time announced publicly by Bank of New York as its prime commercial lending
rate. If the corrected Earnings are less than UCFC's initial estimate of
Earnings, UCFC will, within two business days after the amount of such
difference is agreed to or calculated by the independent auditor, refund to the
Purchaser the amount of such difference, together with interest thereon from the
Closing Date to the date of payment at the rate referred to in the preceding
sentence.
The corrected Earnings of UCLIC will not be determined until after the
Closing has occurred. As a result, the adjusted Purchase Price will not be known
at the time of the Annual Meeting.
Also, as a condition to the Closing UCFC will purchase a convertible
promissory note for $15 million in cash from an affiliate of the Purchaser. See
"-- Conditions to Closing."
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REPRESENTATIONS AND WARRANTIES
The Stock Purchase Agreement contains various representations and
warranties of UCFC and the Purchaser. These include representations and
warranties by UCFC as to (i) the organization and good standing of UCFC and
UCLIC, (ii) the authorization, execution and delivery of the Stock Purchase
Agreement, the validity and enforceability thereof against UCFC and the
noncontravention thereof with the articles of incorporation, by-laws, material
contracts and agreements of UCFC and UCLIC and with any material applicable
laws, judgments, orders or decrees, (iii) UCFC's ownership of the capital stock
of UCLIC and UCLIC's ownership of the capital stock of United Variable, (iv) the
possession by UCLIC of the material franchises, registrations, licenses,
memberships, authorizations and approvals needed to conduct its businesses, (v)
the capitalization of each of UCLIC and United Variable (collectively, the
"UCLIC Companies"), (vi) equity interests owned by UCLIC, (vii) the accuracy of
certain financial statements of UCLIC and the absence of undisclosed liabilities
or capital commitments, (viii) the compliance with commonly accepted actuarial
principles in the determination of UCLIC's reserves for insurance liabilities,
the fair statement of such reserves in accordance with sound actuarial
principles and the adequacy of such reserves, (ix) the ownership or lease of
real and personal property of UCLIC, (x) the intellectual property of UCLIC,
(xi) material litigation with respect to the UCLIC Companies, (xii) the absence
of material adverse changes or events in the business of the UCLIC Companies;
(xiii) compliance by the UCLIC Companies with material applicable law, (xiv) the
full and complete disclosure by UCFC to the Purchaser of any facts pertaining to
UCFC, the UCLIC Companies and of their businesses which are reasonably likely to
have a material adverse effect on UCFC, the UCLIC Companies or their businesses,
(xv) the accuracy of UCFC's disclosures to the Purchaser regarding insurance
policies covering UCFC and UCLIC and the adequacy of such coverage; (xvi)
certain pension plan matters, (xvii) various tax matters relating to the UCLIC
Companies, (xviii) Material Contracts of the UCLIC Companies, (xix) various
environmental matters relating to properties owned, leased or secured by
mortgages in favor of the UCLIC Companies, and (xx) the conduct of the business
of the UCLIC Companies subsequent to June 30, 1995.
The Stock Purchase Agreement also contains representations and warranties
of the Purchaser as to (i) its organization and good standing, the
authorization, execution and delivery of the Stock Purchase Agreement by the
Purchaser, and the validity and enforceability thereof against the Purchaser;
(ii) the noncontravention of the execution, delivery and performance of the
Stock Purchase Agreement by the Purchaser with the certificate of incorporation,
by-laws, material contracts and agreements of the Purchaser and with any
material laws, judgments, orders or decrees; (iii) required governmental or
other consents, approvals or authorizations; (iv) the Purchaser's purchase of
the Shares for the purpose of investment only; (v) the absence of actions,
proceedings or claims likely to materially affect the Purchaser's ability to
consummate the Proposed Sale; (vi) the absence of any brokerage, finder's or
other fee or commission incurred by the Purchaser, except as specified; (vii)
the organization and good standing of Knightsbridge Capital Fund I, L.P. (the
"Guarantor"), the authorization, execution and delivery of the Stock Purchase
Agreement by the Guarantor for the limited purpose of its guarantee of the
obligations of the Purchaser under the Stock Purchase Agreement and the validity
and enforceability of such guarantee against the Guarantor; and (viii) the
availability of funds sufficient to enable the Purchaser to consummate the
Proposed Sale and the availability for commitment by the Guarantor under the
Stock Purchase Agreement of total gross assets in excess of $68 million under
the management and control of the Guarantor.
For additional information concerning representations and warranties, see
"-- Termination" and "-- Survival of Certain Representations, Warranties and
Covenants."
CERTAIN COVENANTS
Conduct of Business Prior to Closing
UCFC has agreed that, during the period from the date of the Stock Purchase
Agreement until the Closing Date, neither UCLIC nor United Variable will conduct
its business other than in the ordinary course of business Consistent with Past
Practice. UCFC has further agreed to cause the UCLIC Companies to (i) continue
their advertising and promotional activities, pricing and purchasing policies,
operations, and
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business plan implementation, Consistent with Past Practice; (ii) not materially
shorten or lengthen the customary payment cycles for any of their payables or
receivables; (iii) use reasonable efforts to attempt to (A) keep available to
the Purchaser the services of the employees of UCLIC, (B) continue in full force
and effect without material modification all existing policies or binders of
insurance currently maintained in respect of UCLIC and its business except as
required by applicable law and (C) preserve their current relationships with
their employees, distributors, policyholders, contractholders, regulators,
rating agencies and other persons with which they have significant business
relationships; (iv) exercise, but only after notice to the Purchaser and receipt
of the Purchaser's prior written approval, any rights of renewal pursuant to the
terms of specified leases or subleases which by their terms would otherwise
expire; (v) maintain all material licenses, qualifications, registrations and
authorizations to do business in each jurisdiction in which they are so
licensed, qualified, registered or authorized; and (vi) not engage in any
practice, take any action, fail to take any action or enter into any
transaction, in each case outside the normal course of business or not
Consistent with Past Practice, which is reasonably likely to cause any
representation or warranty of UCFC to be untrue as of the date made and as of
the Closing Date, other than such representations and warranties as are made as
of another date (in which case to be untrue as of such date), or result in a
breach of any covenant made by UCFC in the Stock Purchase Agreement where, in
each case, the consequences thereof are reasonably likely to have a Material
Adverse Effect.
UCFC has also agreed that, prior to the Closing, except as the Purchaser
may otherwise consent in writing, (i) the UCLIC Companies will conduct their
investment activities (including without limitation commercial real estate
loans) only in the ordinary course of business Consistent with Past Practice,
(ii) neither UCLIC nor United Variable will make any commitment, actual or
contingent, to make any investment or capital contribution, or otherwise expend
capital, or purchase any securities, or supply funds, in each case in excess of
$100,000 in the aggregate, except for purchases and sales of home equity loans,
investment assets and the making of home equity loans in the ordinary course of
business Consistent with Past Practice.
In addition, UCFC has agreed to: (i) use reasonable efforts, and to cause
UCLIC to use reasonable efforts, Consistent with Past Practice to minimize the
termination, withdrawal or nonrenewal of in force insurance policies and annuity
contracts issued by UCLIC, (ii) cause all reserve liabilities of UCLIC, with
respect to insurance policies and annuity contracts established or reflected in
the books and records of UCLIC to be (A) established and reflected on a basis
consistent with the reserve liabilities and reserving methods followed in the
preparation of the 1995 and 1994 statutory annual statements of UCLIC unless
otherwise required by applicable law, (B) adequate to cover the total amount of
all reasonably anticipated matured and unmatured benefits, dividends, claims and
other liabilities of UCLIC under all insurance policies and annuity contracts
under which UCLIC has or will have any liability (including, without limitation,
any liability arising under or as a result of any reinsurance, coinsurance or
other similar agreement) and (C) in material compliance with applicable
insurance laws; (iii) cause UCLIC to continue to own assets that qualify as
legal reserve assets under applicable insurance laws in an amount equal to its
respective reserve liabilities; and (iv) to cause all reserve liabilities
calculated in accordance with GAAP, established or reflected in the books and
records of UCLIC, to be established and reflected on a basis consistent with the
reserve liabilities and reserving methods followed in the preparation of the
December 31, 1994 audited GAAP financial statements of UCLIC.
UCFC also has agreed not to, and not to knowingly permit UCLIC to, take any
action that could reasonably be expected to result in (a) certain of UCFC's
representations and warranties becoming untrue or (b) any condition to the
Purchaser's obligations in connection with the Proposed Sale not being
satisfied.
Confidentiality; Alternative Proposals
UCFC has agreed that it will keep confidential, and will instruct its
agents, representatives, employees, officers and directors to keep confidential,
all nonpublic information relating to the UCLIC Companies and their businesses,
except as required by law or administrative process or, to the extent the Board
of Directors of UCFC determines that the exercise of its fiduciary obligations
requires that such information be made available to any third party who submits
an unsolicited written Acquisition Proposal (as defined below) with
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respect to another potential acquisition of UCLIC, and except for information
which becomes public other than as a result of a breach of UCFC's
confidentiality covenant. In addition, a confidentiality agreement dated August
14, 1995 (the "Confidentiality Agreement") between UCFC and an affiliate of the
Purchaser remains in full force and effect.
Further, UCFC and UCLIC (including their respective officers, directors,
employees, representatives and agents) were required to cease any existing
discussions or negotiations regarding any Acquisition Proposal (see "The
Proposed Sale -- Background of and Reasons for the Proposed Sale") with any
parties with which such discussions or negotiations were conducted prior to the
date of the Stock Purchase Agreement, and are prohibited from directly or
indirectly (including, without limitation, through any intermediary retained by
UCFC or UCLIC) initiating or soliciting any inquiry regarding the making of any
Acquisition Proposal or engaging in discussions or negotiations with or
providing any non-public information to any third party with respect to an
Acquisition Proposal, subject to the exception noted above for engaging in
discussions or negotiations or furnishing information that the Board of
Directors determines is required in the exercise of its fiduciary duties in
connection with any unsolicited written Acquisition Proposal. UCFC will be
required, however, to pay a $2 million termination fee if it terminates the
Stock Purchase Agreement in order to accept such an Acquisition Proposal. See
"-- Termination".
For purposes of the Stock Purchase Agreement, the term "Acquisition
Proposal" means any good faith purchase offer made by a third party which was
not directly or indirectly solicited after January 30, 1996 (the date of the
Stock Purchase Agreement) by UCFC, UCLIC or any of their respective affiliates
to acquire a majority or greater equity interest in UCLIC or the Assets or
Business pursuant to a merger, consolidation or other business combination, sale
of shares of capital stock or similar transaction involving UCLIC, including,
without limitation, any single or multi-step transaction or series of related
transactions which is structured in good faith to permit such third party to
acquire (i) beneficial ownership of a majority or greater equity interest in
UCLIC or the Assets or Business or (ii) all or substantially all of the business
or assets of UCLIC or the Business.
The Purchaser has also agreed that it will keep confidential, and will
instruct its officers, employees and authorized agents, financing sources and
representatives to keep confidential, all nonpublic information relating to (i)
the UCLIC Companies and their businesses, until the Closing and (ii) UCFC and
its business (other than with respect to UCLIC) to the extent such information
is obtained in connection with the Proposed Sale, except in each case as
required by law or administrative process and except for information which
becomes public other than as a result of a breach of the Purchaser's
confidentiality covenant.
Use of Name and Intellectual Property
UCFC has agreed that following the Closing, the Purchaser will have the
exclusive (except as to UCFC and its affiliates in connection with UCFC's
business as conducted following the Closing and to the extent UCFC can so grant)
and royalty-free right to use the name "United" (the "Name") in connection with
the business of the UCLIC Companies, subject to certain limitations to avoid
confusion or conflict with UCFC's continued use of the Name in connection with
its business as conducted following the Closing. The Purchaser will not be
permitted any use of the logo of UCFC, except for continued use of UCLIC's
existing name and the logo on stationery or other clerical or similar supplies
until March 31, 1997, or such later date as UCFC may agree upon.
In addition, UCFC has agreed that, except as contemplated by the Stock
Purchase Agreement, from and after the Closing, UCFC and its affiliates will not
use any of the Owned Intellectual Property or Licensed Intellectual Property
(each as defined in the Stock Purchase Agreement) to the extent and for the
period that UCLIC or United Variable have exclusive rights to such Intellectual
Property, subject to the limitation that such exclusive rights will not limit
the right of UCFC and its affiliates to use the Name in connection with its
business as conducted following the Closing.
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Covenant Not to Compete
UCFC has agreed for a period of two years from the Closing, not to, and not
permit any of UCFC's affiliates to: (i) engage in any annuity business, whether
directly or indirectly, or hold any interest in any entity that engages in any
such annuity business, subject to specified exceptions for investments that are
not substantial and for certain business combinations, and (ii) solicit or
induce or attempt to induce any entities or persons, including customers,
employees, agents, suppliers and financial institutions that conducted business
with or were employed by the UCLIC Companies on or prior to the Closing Date, to
purchase annuities from any source other than UCLIC or terminate their
employment with the UCLIC Companies.
Other Agreements of UCFC and the Purchaser
UCFC agreed to prepare and disseminate to UCFC's shareholders this Proxy
Statement and the Board of Directors of UCFC agreed, subject to its fiduciary
obligations, to recommend the authorization of the Stock Purchase Agreement and
the Proposed Sale to UCFC's shareholders and to use all lawful efforts to
solicit and obtain such authorization.
UCFC and the Purchaser have agreed (i) not to issue any public release or
announcement concerning the Proposed Sale without prior notification to the
other party, except as required by law or regulation and except for this Proxy
Statement and other communications with UCFC's shareholders; (ii) to provide
post-closing transitional services to each other following the Closing until
December 31, 1996 (see "The Proposed Sale -- Certain Post-Closing Relationships
between UCFC and UCLIC"); and (iii) to use all reasonable efforts to cause the
Closing to occur. In addition, UCFC has agreed (i) to keep all current insurance
coverage in effect through the Closing Date; and (ii) to give the Purchaser and
its employees and representatives reasonable access prior to the Closing to the
personnel, properties and records of the UCLIC Companies.
For additional information concerning certain covenants, see
"-- Termination" and "-- Survival of Certain Representations, Warranties and
Covenants".
EMPLOYEE BENEFIT ARRANGEMENTS
UCFC has agreed that, effective as of the Closing Date, all employees of
the UCLIC Companies will cease to participate in UCFC's 401(k) savings plan and
employee stock ownership plan (the "401(k) and ESOP Plans") except to the extent
former employees of the UCLIC Companies are otherwise permitted to participate
in the 401(k) and ESOP Plans. UCFC has also agreed to take all actions necessary
to cause the UCLIC Companies to cease to be participating employers in the
401(k) Plan as of the Closing Date.
UCFC will indemnify the UCLIC Companies against any claims of participants,
beneficiaries or governmental agencies made against them in connection with the
401(k) and ESOP Plans including any penalties or other costs or liabilities
incurred by them as a consequence of, or in order to avoid, such plans failing
to qualify under Section 401(a) of the Code for any period prior to the Closing.
The UCLIC Companies will be responsible for and indemnify UCFC against the
payment of all supplemental retirement benefits or other nonqualified deferred
compensation, to the extent related to periods prior to the Closing Date and
disclosed to the Purchaser.
UCFC has also agreed to indemnify the Purchaser and the UCLIC Companies
against any claims made against them by employees or former employees of the
UCLIC Companies (i) for severance pay relating to any termination of employment
which occurred prior to the Closing, (ii) for nonqualified deferred compensation
not disclosed to the Purchaser prior to the Closing, or for any incentive or
contingent compensation relating to any employee benefit plan as in effect prior
to the Closing (to the extent related to periods prior to the Closing), or (iii)
for any health, medical, disability or workman's compensation claims incurred
prior to the Closing.
UCFC has agreed to "vest" all unvested stock options granted under UCFC's
1993 Stock Incentive Plan to employees of the UCLIC Companies, as well as those
employees of UCFC who are part of UCFC's commercial real estate servicing
business, and which UCFC has agreed to transfer to UCLIC on or prior to
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the Closing. As used in the Stock Purchase Agreement, "vest" means granting such
employees who hold unvested options the right to exercise such options during a
90-day period beginning on July 22, 1996, or such earlier date, on or after the
Closing Date, that their employment by the UCLIC Companies is terminated by
death, retirement, disability or involuntary severance.
TAX MATTERS
UCFC has agreed to join the Purchaser in timely making an election under
Section 338(h)(10) and Section 338(g) of the Code (and, if requested by the
Purchaser) any comparable election under state, local or foreign tax law) with
respect to the purchase and sale of the Shares; and to cooperate with the
Purchaser in completing and timely filing certain tax forms or other documents
required for such elections. UCFC has agreed to be responsible for any tax
liability for the taxable year that includes such election under Section
338(h)(10), including any tax liability related to the distribution of the
Excluded Assets.
UCFC has also agreed to timely prepare and file with the appropriate tax
authorities all tax returns of the UCLIC Companies that are required to be filed
on or before the Closing Date, as well as all combined or consolidated tax
returns in which the UCLIC Companies join with UCFC or any of its affiliates as
part of the same consolidated tax group, and UCFC has agreed to pay all taxes
due with respect to such tax returns. The Purchaser will timely file all other
tax returns of the UCLIC Companies required to be filed, and will pay all taxes
due with respect to such tax returns. All real property transfer, stock
transfer, documentary, sales, use, registration and other such taxes (including
but not limited to all applicable real estate transfer or gains taxes) and fees
incurred in connection with the transactions contemplated by the Stock Purchase
Agreement and the Proposed Sale (other than the transfer of the Excluded Assets)
will be shared equally by UCFC and the Purchaser. Any such taxes or fees payable
in connection with the Excluded Assets will be paid by UCFC. UCFC and the
Purchaser will cooperate in timely making all filings, returns, reports and
forms as may be required to comply with the provisions of applicable tax laws.
UCFC has agreed to indemnify the Purchaser and the UCLIC Companies against
and hold them harmless from all liability for (i) taxes of UCFC or any other
corporation which is or has been affiliated with UCFC; (ii) taxes resulting from
the Section 338(g) and 338(h)(10) elections (or any comparable elections under
state or local tax law) described above; (iii) taxes imposed on the UCLIC
Companies with respect to taxable periods of such corporations ending on or
before the Closing Date; (iv) with respect to taxable periods beginning before
the Closing Date and ending after the Closing Date, (A) taxes imposed on the
UCLIC Companies that are allocable, pursuant to an allocation specified in the
Stock Purchase Agreement, to the portion of such period ending on the Closing
Date, and (B) taxes imposed on the UCLIC Companies by reason of such
corporation's distributive share of income or loss from, or otherwise in respect
of, any partnership in which the UCLIC Companies was a member on or prior to the
Closing Date that are likewise allocable to the portion of such period ending on
the Closing Date; (v) taxes imposed on the UCLIC Companies by reason of being a
member of any affiliated group (other than any group for which UCLIC was the
common parent) with which any of the UCLIC Companies file or have filed a tax
return on a consolidated or combined basis for a taxable period ending on or
before the Closing Date; (vi) taxes imposed on the Purchaser or the UCLIC
Companies as a result of any breach by UCFC of its representations and
warranties concerning taxes; and (vii) reasonable legal fees and expenses
attributable to the items described in clauses (i) and (ii) above. Such
indemnification obligation will terminate when the applicable statute of
limitations with respect to the relevant tax liability expires.
CONDITIONS TO CLOSING
The respective obligations of UCFC and the Purchaser to consummate the
Proposed Sale are subject to the satisfaction (or waiver by such party) of
certain conditions, including (i) the expiration or termination of the waiting
period applicable under the HSR Act; (ii) the absence as of the Closing of any
injunction or order of any court or administrative agency, or any statute, rule
or regulation of any governmental authority of competent jurisdiction, which
restrains or is otherwise likely to render it impossible or unlawful to
consummate the Proposed Sale and the related transactions contemplated by the
Stock Purchase Agreement; (iii) all necessary insurance regulatory approvals,
except that approval of the Dividend is not a condition to
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Closing; and (iv) the approval of the Proposed Sale at the Annual Meeting of
UCFC by the affirmative vote of the holders of at least two-thirds of the total
voting power of the Common Stock and the PRIDES (voting together as a single
class) present in person or represented by proxy at the Annual Meeting.
The obligation of the Purchaser to consummate the Proposed Sale is also
subject to the satisfaction or waiver by the Purchaser of certain conditions
including: (i) certain representations and warranties of UCFC being true and
correct in all material respects as of the date of the Stock Purchase Agreement
and on and as of the Closing Date, the compliance by UCFC in all material
respects with all obligations and covenants required to be complied with at the
time of the Closing, and the receipt of a certificate of an authorized officer
of UCFC to that effect; (ii) receipt of resignations or evidence of removal,
effective as of the Closing, of all the directors and officers of the UCLIC
Companies; (iii) general release and discharge by UCFC of the UCLIC Companies
from all obligations accruing on or after the Closing Date to pay any amounts to
or perform any obligations owing to or indemnify UCFC pursuant to specified
agreements; (iv) the distribution of the Excluded Assets from UCFC; and (v) the
purchase by UCFC of a convertible promissory note from an affiliate of the
Purchaser for $15 million in cash.
The obligation of UCFC to consummate the Proposed Sale is also subject to
the satisfaction (or waiver by UCFC) of certain conditions including: (i) the
representations and warranties of the Purchaser being true and correct in all
material respects as of the date of the Stock Purchase Agreement and on and as
of the Closing Date, the compliance by the Purchaser in all material respects
with all obligations and covenants required to be complied with at the time of
Closing, and the receipt of a certificate of an authorized officer of the
Purchaser to that effect; and (ii) the total number of shares of Common Stock
that were not voted for the approval of the Proposed Sale, and as a result are
eligible to exercise dissenters' rights, being not more than 2% of the total
number of shares of Common Stock outstanding.
TERMINATION
The Stock Purchase Agreement may be terminated by the Purchaser at any time
prior to the Closing under the following circumstances: (i) an event or
condition occurs that has resulted in a "Material Adverse Effect" (as defined
below), and, in the case of a Material Adverse Effect reasonably susceptible to
cure, has not been cured within 30 calendar days after written notice by the
Purchaser specifying such Material Adverse Effect; (ii) any representation or
warranty of UCFC was not true and correct when made and, in the case of a breach
reasonably susceptible to cure, has not been cured within 30 calendar days after
written notice by the Purchaser specifying such breach; (iii) UCFC's failure to
comply with any covenant or agreement to be complied with by it and, in the case
of noncompliance that is reasonably susceptible to cure, such noncompliance has
not been cured within 30 calendar days after written notice by the Purchaser
specifying such noncompliance; (iv) UCFC, the UCLIC Companies makes a general
assignment for the benefit of creditors, or any proceeding is instituted by or
against UCFC, the UCLIC Companies seeking to adjudicate any of them bankrupt or
insolvent, or seeking liquidation, winding up or reorganization, arrangement,
adjustment, protection, relief or composition of its debts under any law
relating to bankruptcy, insolvency or reorganization; or (v) the shareholders of
UCFC entitled to vote on and approve the consummation of the transactions
contemplated by the Stock Purchase Agreement at the Annual Meeting do not
approve such transactions by the requisite amounts pursuant to applicable law
and UCFC's articles of incorporation and by-laws.
For purposes of the termination provisions described above and all other
provisions of the Stock Purchase Agreement, the term "Material Adverse Effect"
means any circumstance, change in, or effect on (a) the life insurance and
annuity business and all other businesses as conducted by the UCLIC Companies on
the date of the signing of the Stock Purchase Agreement (the "Business"), or (b)
the UCLIC Companies, taken as a whole (other than specifically limited changes
in interest rates, stock or debt markets or general economic conditions) that,
individually or in the aggregate with any other circumstances, changes in, or
effects on, the Business and the UCLIC Companies taken as a whole: (1) is or is
reasonably likely to be materially adverse to the business, operations,
prospects, results of operations or financial condition of the UCLIC Companies
taken as a whole, or (2) is reasonably likely to adversely affect the ability of
the Purchaser or the UCLIC
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Companies to conduct the Business in the manner in which it is currently
operated or conducted by the UCLIC Companies.
In addition, the Stock Purchase Agreement may be terminated by UCFC at any
time prior to the Closing under the following circumstances: (i) any
representation or warranty of the Purchaser or the Guarantor contained in the
Stock Purchase Agreement was not true and correct when made and, in the case of
a breach reasonably susceptible to cure, has not been cured within 30 calendar
days after written notice by UCFC specifying such breach; (ii) the failure of
the Purchaser or the Guarantor to comply with any covenant or agreement to be
complied with by them and, in the case of noncompliance that is reasonably
susceptible to cure, such noncompliance has not been cured within 30 calendar
days after written notice by UCFC specifying such breach; (iii) the Purchaser or
the Guarantor makes a general assignment for the benefit of creditors, or any
proceeding is instituted by or against the Purchaser seeking to adjudicate it
bankrupt or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts under
any law relating to bankruptcy, insolvency or reorganization; (iv) the
shareholders of UCFC entitled to vote on and approve the consummation of the
transactions contemplated by the Stock Purchase Agreement at the Annual Meeting
do not approve such transactions by the requisite amounts pursuant to applicable
law and UCFC's articles of incorporation and by-laws; or (v) a third party has
entered into a definitive agreement with UCFC or UCLIC with respect to an
Acquisition Proposal which the Board of Directors of UCFC in good faith has
determined to accept, after receipt by it of a fairness opinion of a nationally
recognized investment bank to the effect that the third party's Acquisition
Proposal is more favorable to UCFC than the transactions contemplated by the
Stock Purchase Agreement and payment by UCFC to the Purchaser of the termination
fee described below.
Further, the Stock Purchase Agreement may be terminated by either UCFC or
the Purchaser if the Closing has not occurred by May 31, 1996; subject to
extension to July 31, 1996 if any of certain conditions have not been satisfied
relating to the receipt by each of UCFC and the Purchaser of (a) specified
authorizations, consents, orders and approvals, (b) specified third-party
consents and estoppel certificates, and (c) all authorizations, consents, orders
and approvals required in connection with the transfer of the Excluded Assets
(collectively the "Required Consents and Approvals"); provided that UCFC or the
Purchaser, as applicable, is diligently seeking to satisfy such condition by
obtaining such Required Consents and Approvals. The right to terminate the Stock
Purchase Agreement based on the failure of the Closing to occur by May 31, 1996
(or July 31, 1996, if extended to such date), will not be available to UCFC or
to the Purchaser if such party's intentional failure to fulfill any obligation
under the Stock Purchase Agreement has been the cause of, or has resulted in,
the failure of the Closing to occur on or prior to such date.
The Stock Purchase Agreement may also be terminated by either the Purchaser
or UCFC (i) in the event that any governmental authority has issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Stock Purchase Agreement or, in
the reasonable determination of the Purchaser or UCFC, otherwise rendering
inadvisable the consummation of the transactions contemplated by the Stock
Purchase Agreement, and such order, decree, ruling or other action has become
final and nonappealable, or (ii) by mutual written consent.
In the event the Stock Purchase Agreement is terminated, it will become
void and neither UCFC nor the Purchaser will have any liability to the other,
except for (a) any liability relating to willful breach of the Stock Purchase
Agreement or (b) in specified circumstances, liabilities for the reimbursement
of certain expenses of the other party and, in the case of UCFC, the obligation
to pay to the Purchaser a termination fee of $2 million as further described
below.
If the Closing does not occur solely because of the failure to satisfy
specified conditions to the Purchaser's obligation to effect the Closing, UCFC
will be obligated to reimburse the Purchaser for its reasonable costs and
expenses, including, without limitation, reasonable fees and disbursements of
counsel, financial advisors, financing sources and accountants, incurred by the
Purchaser in connection with the preparation, negotiation and performance of the
Stock Purchase Agreement and the transactions contemplated by the Stock Purchase
Agreement up to $1 million ("Reimbursable Expenses").
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In general, the liability of UCFC for the Purchaser's Reimbursable Expenses
could arise in connection with the failure to satisfy the conditions to the
Purchaser's obligations to consummate the transactions contemplated by the Stock
Purchase Agreement that relate to each of the following matters: (i) the truth
and accuracy of the representations and warranties of UCFC and the compliance by
UCFC with the covenants and agreements to be complied with by UCFC on or before
the Closing; (ii) UCFC's delivery to the Purchaser of a certified true and
complete copy of the resolutions adopted by the Board of Directors of UCFC
authorizing the execution of the Stock Purchase Agreement and the consummation
of the transactions contemplated thereby; (iii) UCFC's delivery to the Purchaser
of a certificate certifying the names and signatures of the officers of UCFC
authorized to sign the Stock Purchase Agreement and the other documents to be
delivered thereunder; (iv) UCFC's delivery to the Purchaser of the resignations,
effective as of the Closing, or evidence of removal as of the Closing, of all
the directors and officers of the UCLIC Companies; (v) UCFC's delivery to the
Purchaser of certified copies of the articles of incorporation and by-laws of
the UCLIC Companies; (vi) UCFC's delivery to the Purchaser of a certified copy
of the minute books of the UCLIC Companies; (vii) UCFC's delivery to the
Purchaser of a statement, in a form reasonably satisfactory to the Purchaser,
pursuant to Section 1.897-2(h) of the Treasury Regulations under the Code
certifying that UCLIC's common stock is not a U.S. real property interest within
the meaning of Section 897(c)(1) of the Code; (viii) UCFC's delivery to the
Purchaser of good standing certificates or certificates of compliance or
certificates of existence, as applicable, for the UCLIC Companies from the
applicable governmental authority, of (a) the jurisdiction in which each such
entity is incorporated or organized, and (b) each other jurisdiction in which
each such entity does business; (ix) UCFC's delivery to the Purchaser of certain
general releases and discharges of the UCLIC Companies from liabilities or other
obligations to UCFC; (x) the execution and delivery of the Master Loan Sale
Agreement; (xi) the completion of the transfer of the Commercial Real Estate
Group to UCLIC; (xii) UCFC's having caused the distribution of the Excluded
Assets from UCLIC; (xiii) the termination by UCFC or the UCLIC Companies as
applicable, of the Inter-Company Arrangements and delivery to the Purchaser of
evidence of such termination which is reasonably acceptable to Purchaser; (xiv)
the approval and adoption of the Stock Purchase Agreement and all other matters
necessary to effectuate the transactions provided for in the Stock Purchase
Agreement at the Annual Meeting by the affirmative vote of at least two-thirds
of the voting power present; (xv) UCFC's delivery to the Purchaser at the
Closing of (a) stock certificates evidencing the Shares, (b) a receipt for the
Purchase Price minus the Excluded Assets Value Amount plus the Adjustment
Amount, (c) the Promissory Note, and (d) the opinions, certificates and other
documents required to be delivered pursuant to the Purchase Agreement; and (xvi)
the purchase by UCFC of a convertible promissory note from an affiliate of the
Purchaser for $15 million in cash.
Conversely, UCFC may be entitled to reimbursement by the Purchaser of
UCFC's Reimbursable Expenses in the event the Closing does not occur solely
because of the failure to satisfy certain conditions to UCFC's obligations to
effect the Closing. In general the conditions to UCFC's obligations to effect
the Closing which, if not satisfied, could give rise to an obligation of the
Purchaser to reimburse UCFC for its Reimbursement Expenses relate to the
following matters: (i) the truth and accuracy of the representations and
warranties of the Purchaser and the Guarantor and the compliance by the
Purchaser with the covenants and agreements to be complied with by the Purchaser
on or before the Closing; (ii) delivery to UCFC of a certified copy of the
resolutions adopted by the Board of Directors of the Purchaser and the Guarantor
evidencing its authorization of the execution and delivery of the Stock Purchase
Agreement and the other agreements to be executed by the Purchaser as
contemplated by the Stock Purchase Agreement and the consummation of the
transactions contemplated by the Stock Purchase Agreement; (iii) delivery to
UCFC of a certificate of the Secretary or an Assistant Secretary of the
Purchaser and the Guarantor certifying the names and signatures of the officers
of the Purchaser and the Guarantor authorized to sign the Stock Purchase
Agreement and the other documents to be delivered under the Stock Purchase
Agreement; (iv) the execution and delivery by the Purchaser, the UCLIC
Companies, or another affiliate of the Purchaser, of the Master Loan Sale
Agreement; (v) the approval and adoption of the Stock Purchase Agreement and all
other matters necessary to effectuate the transactions provided for in the Stock
Purchase Agreement at the Annual Meeting by the affirmative vote of at least
two-thirds of the voting power present; (vi) the Purchaser's delivery to UCFC at
the Closing of (a) the Purchase Price minus the Excluded Assets Value Amount
plus the
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Adjustment Amount, (b) the Promissory Note, and (c) the opinions, certificates
and other documents required to be delivered pursuant to the Stock Purchase
Agreement; (vii) the completion of the transfer of the Commercial Real Estate
Group to UCLIC; and (viii) the Purchaser's delivery to UCLIC of the Excluded
Assets Value Amount.
In addition, UCFC will be required to pay the Purchaser, simultaneously
with the termination of the Stock Purchase Agreement, a termination fee, in
cash, equal to $2 million in the event UCFC terminates the Stock Purchase
Agreement in connection with: (i) the shareholders not approving the Stock
Purchase Agreement and the transactions contemplated thereby at the Annual
Meeting by the requisite vote if the UCFC Board of Directors, prior to or
simultaneously with the vote on the Proposed Sale, withdraws its recommendation
to the shareholders to approve the Proposed Sale; or (ii) UCFC or UCLIC entering
into a definitive agreement with a third party with respect to an Acquisition
Proposal.
INDEMNIFICATION
UCFC has agreed to indemnify the Purchaser and its affiliates and their
respective officers, directors, employees, agents, consultants, successors and
assigns and hold them harmless on an after-tax basis, net of any amounts
received from insurance, guarantees, indemnification and other contractual and
legal rights, from any loss, liability, claim, damage or expense (including
attorneys', experts' and consultants' fees and expenses) ("Losses") actually
suffered or incurred by them arising out of or resulting from (i) the inaccuracy
of any representation or warranty of UCFC contained in the Stock Purchase
Agreement, including the schedules and exhibits thereto; (ii) the breach of any
covenant of UCFC contained in the Stock Purchase Agreement; (iii) the inaccuracy
of certain specific representations and warranties of UCFC contained in the
Stock Purchase Agreement which relate to the tax treatment of all insurance
policies, annuity contracts and employee benefit plans issued by UCLIC; (iv) the
specific indemnification provisions contained in the Stock Purchase Agreement
regarding liabilities under the employee benefit plans of the UCLIC Companies
and liabilities for taxes; (v) liabilities of UCLIC, United Variable, or, with
respect to their insurance and annuity businesses, UCFC in connection with the
Excluded Assets relating to matters existing at or prior to the Closing; (vi)
the former and, under specified circumstances, current assets, operations or
business of the UCLIC Companies or, with respect to the business of the UCLIC
Companies, the former assets, operations and business of UCFC (a) with respect
to which certain executive officers of UCFC and its subsidiaries (including the
UCLIC Companies) have knowledge or, under specified circumstances, are deemed to
have knowledge, or (b) which under specified circumstances relate to
environmental laws, pollutants and other hazardous materials. UCFC will not be
liable for any such indemnification unless the aggregate amount of all Losses
exceeds $2.5 million and then only to the extent of such excess, except for
indemnification against the following categories of Losses, in respect of which
UCFC will be liable for indemnification of the Purchaser from the first dollar
of any such Losses to the full amount of any such Losses incurred by the
Purchaser in connection with: (i) the representations of UCFC contained in the
Stock Purchase Agreement regarding (a) the capital stock of UCLIC and UCFC's
ownership of the Shares, or (b) the accuracy and completeness of the information
contained in, and the compliance with the requirements of the Exchange Act in
all material respects by this Proxy Statement; (ii) the covenants of UCFC
contained in the Stock Purchase Agreement regarding compliance with the
provisions of Section 121B and Section 131 of the Louisiana Business Corporation
Law (the "LBCL") which govern appraisal rights; (iii) UCFC's obligation to
indemnify the Purchaser for the inaccuracy of certain specific representations
and warranties of UCFC contained in the Stock Purchase Agreement that related to
the tax treatment of all insurance policies, annuity contracts, and employee
benefit plans issued by UCLIC; and (iv) the representations, covenants and
indemnities of UCFC contained in the Stock Purchase Agreement regarding
liabilities under the employee benefit plans of UCLIC and relating to federal
income taxation. In the case of any Losses relating to the matters described in
clauses (iii) and (iv) of the preceding sentence that are also eligible for
indemnification under provisions of the Stock Purchase Agreement which are
subject to the $2.5 million threshold, such threshold shall not apply and the
Purchaser would be entitled to seek indemnification from UCFC from the first
dollar to the full extent of any such Losses.
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The Purchaser has agreed to indemnify and to cause UCLIC to indemnify UCFC,
its affiliates and their respective officers, directors, employees, agents,
consultants, successors and assigns and hold them harmless on an after-tax
basis, net of any amounts received from insurance, guarantees, indemnification
and other contractual and legal rights, from any Loss actually suffered or
incurred by them arising out of or resulting from (i) the breach of any
representation or warranty of the Purchaser contained in the Stock Purchase
Agreement, including the schedules and exhibits thereto; and (ii) the breach of
any covenant of the Purchaser contained in the Stock Purchase Agreement
requiring performance after the Closing Date. The Purchaser will not be liable
for any such indemnification unless the aggregate amount of all Losses exceeds
$2.5 million, and then only to the extent of such excess. In addition, as a
condition to the Closing, an affiliate of the Purchaser will agree to defend and
indemnify UCFC and its affiliates and their respective officers, directors,
employees, agents, consultants, successors and assigns from any loss resulting
from or arising out of any decision, writ or order issued, declared or resolved
by a Governmental Authority requiring UCFC to reimburse UCLIC for all or part of
the Dividend or otherwise return or cause same to be not paid as of the Closing
Date.
SURVIVAL OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
In general, the representations and warranties contained in the Stock
Purchase Agreement, the Exhibits and Schedules thereto, and any certificate,
statement, report or other document delivered pursuant to the Stock Purchase
Agreement (collectively, the "Acquisition Documents"), survive the Closing until
April 30, 1997. However, the representations and warranties of UCFC regarding
the following matters survive until the expiration of the applicable statute of
limitation or any extension thereof: (i) the authorized capital stock of UCLIC
and UCFC's ownership of all of the issued and outstanding shares of capital
stock of UCLIC; (ii) the possession by UCFC and the UCLIC Companies, and the
validity of, all permits, licenses, certificates, consents, exemptions and
approvals required by law, including environmental laws (collectively,
"Permits"), which are necessary for the ownership, use, occupancy and operation
of the assets and the conduct of the business of each of UCFC and the UCLIC
Companies; (iii) the possession by each tenant and occupant of real property
owned or leased by the UCLIC Companies prior to the Closing (the "Real
Property"), and the validity of, all Permits necessary for the use, occupancy
and operation of the Real Property by each such tenant and occupant, and the
compliance by each such tenant and occupant with such Permits; (iv) the absence
of any existing practice, action or activity of any tenant or occupant of the
Real Property, or of any owner, tenant or occupant of any real property in which
the UCLIC Companies or, with respect to the Business of the UCLIC Companies,
UCFC, holds a security interest (the "Secured Real Property"), which will give
rise to civil or criminal liability or prevent compliance with applicable laws;
(v) the absence of any governmental notice to any tenant or occupant of the Real
Property or the Secured Real Property revoking, cancelling, rescinding,
materially modifying or refusing to renew any Permit or providing written notice
of any violation of law, including applicable environmental laws; (vi) the
absence of any existing practice, action or activity of the UCLIC Companies or,
with respect to the Business of the UCLIC Companies, UCFC, and the absence of
any condition of the assets or the Business of the UCLIC Companies, which will
give rise to any criminal or civil liability, or violate or prevent compliance
with applicable laws; (vii) the absence of any governmental notice to UCFC or
the UCLIC Companies revoking, cancelling, rescinding, materially modifying or
refusing to renew any Permit; (viii) the compliance with all Permits by the
UCLIC Companies; (ix) the listing of all Permits on the Schedules to the Stock
Purchase Agreement and the identification thereon of all Permits which will
require the consent of any governmental authority for the execution of the Stock
Purchase Agreement or the consummation of the transactions contemplated by the
Stock Purchase Agreement; (x) the absence of any violation by the UCLIC
Companies or, with respect to the business of the UCLIC Companies, UCFC, of any
applicable environmental law; (xi) the absence of any violation of applicable
environmental laws by any tenant or occupant of the Real Property or any owner,
tenant or occupant of the Secured Real Property in connection with the
ownership, use, occupancy or operation of the Real Property or the Secured Real
Property; (xii) the absence of any release of hazardous materials at, to, from,
or under any real estate currently or formerly owned by the UCLIC Companies or,
with respect to the business of the UCLIC Companies, UCFC, or at, to, from or
under any Secured Real Property; (xiii) the UCLIC Companies and, with respect to
their business, UCFC, not having generated, transported or arranged for the
transport of, or disposal of, any hazardous materials at any location; (xiv) the
tenants and occupants of
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the Real Property not having generated any hazardous materials at the Real
Property; (xv) the absence of any liabilities of the UCLIC Companies or, with
respect to their business, UCFC, in connection with the release of any hazardous
material at any location; (xvi) the absence of any underground storage tanks or
sumps, asbestos or polychlorinated biphenyls at any of the Real Property, except
as identified on the Schedules to the Stock Purchase Agreement; (xvii) the
absence of any lien in favor of any governmental authority on any of the Real
Property or the Secured Real Property in connection with any liability under
environmental laws or damages arising from, or costs incurred by such
governmental authority in response to, any release of hazardous materials;
(xviii) the absence of any past unresolved, pending or threatened administrative
or judicial actions, lawsuits, investigations or similar proceedings, or notices
of liability, potential liability, or violation, settlements, consent orders or
consent agreements, relating to environmental laws, Permits required under
applicable environmental laws, or hazardous materials, or arising from alleged
injury or threat of injury to health, safety or the environment ("Environmental
Claims"), and the absence of any circumstances that may form the basis of any
such Environmental Claim; (xix) the tax treatment under the Code, including but
not limited to specified sections of the Code, of all insurance or annuity
policies, plans or contracts, all financial products, employee benefit plans,
individual retirement accounts or annuities, or any similar or related policy,
contract, plan or product (whether individual, group or otherwise), issued or
sold by the UCLIC Companies on or before the Closing Date being and at all times
having been the same or more favorable to the purchaser, policyholder or
intended beneficiaries thereof as the tax treatment for which such contracts
qualified or purported to qualify at the time of their issuance or purchase;
(xx) the qualification as an annuity contract under Section 72 of the Code of
each annuity contract issued by UCLIC; (xxi) the qualification as a life
insurance contract for federal income tax purposes of each insurance policy
issued by UCLIC, and any such policy which is a modified endowment contract
under Section 7702A of the Code (each a "MEC") having been marketed as a MEC at
all relevant times or the policyholder otherwise having consented to such MEC
status; (xxii) the qualification under Section 401(a), 403(b) or 457(a), as
applicable, of the Code, of each employee benefit plan issued or sold by UCLIC;
(xxiii) this Proxy Statement and any amendment hereof or supplement hereto not
containing any untrue statement of material fact or any omission of material
fact necessary in order to make the statements herein, in light of the
circumstances in which such statements are made, not misleading, and the
compliance of this Proxy Statement as to form in all material respects with all
requirements of the Exchange Act; (xxiv) the inclusion of UCLIC in the
consolidated federal income tax returns of UCFC, historically and for the 1995
taxable year and through the Closing Date; (xxv) the timely filing of all
material tax returns and reports, (a) the payment of all taxes shown to be
payable on such tax returns and all tax assessments made against the UCLIC
Companies with respect to such tax returns and reports, (b) the accuracy and
completeness of such tax returns and reports, and (c) the absence of any
proposed adjustments by any tax authority with respect to such returns or
reports; (xxvi) the absence, except as disclosed in the Schedules to the Stock
Purchase Agreement of (a) any pending or to the best knowledge of UCFC
threatened actions or proceedings for the assessment or collection of taxes
against UCFC or United Variable, (b) any tax liens on any assets of UCFC or
United Variable, (c) the UCLIC Companies being or having been doing business or
engaged in a trade or business, or having business in force in any jurisdiction
in which it has not filed all required material income, franchise, or gross
premium tax returns or other applicable tax returns, (d) any outstanding waivers
or agreements extending the statute of limitations for any tax period with
respect to any tax to which the UCLIC Companies may be subject, (e) any
outstanding written requests for information made by a taxing authority to the
UCLIC Companies, (f) any obligation of the UCLIC Companies under any agreement
with respect to industrial development bonds or other obligations, with respect
to which the excludability from gross income of the holder for federal income
tax purposes could be affected by the transactions contemplated by the Stock
Purchase Agreement, (g) any power of attorney currently in force with respect to
any matter relating to taxes that could affect the UCLIC Companies, and (h) the
UCLIC Companies having been a member of any partnership or joint venture or the
holder of a beneficial interest in any trust for any period for which the
statute of limitations for any tax has not expired; (xxvii) the determination of
each reserve item with respect to the UCLIC Companies set forth in UCFC's 1994
consolidated tax return in accordance with Sections 807 and 846 of the Code, or
other applicable Code sections, and the consistent application of such reserve
items with respect to the filing of UCFC's consolidated tax returns for the
years ended December 31, 1991 through December 31, 1994, and the consistent
application of such reserve items with respect to the UCLIC Companies in UCFC's
1995 and 1996
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consolidated tax returns when such returns are filed; (xxviii) the absence of
any changes in the $5,239,860 balance in the policyholder surplus account
reported in UCFC's consolidated tax return for UCLIC and the computation and
maintenance of those account balances for the tax years subsequent to 1958 in
accordance with Section 815 of the Code and the regulations thereunder, and the
absence of any subtraction from UCLIC's policyholder surplus account under
Section 815 of the Code from December 31, 1994 up to and including the Closing
Date, exclusive of any effect of the Section 338 election described elsewhere in
this Proxy Statement (see "The Proposed Sale -- Certain Tax Consequences") and
the transfer of the Excluded Assets; and (xxix) the qualification of UCLIC for
1995 and for the taxable year including the Closing Date as a "life insurance
company" within the meaning of Section 816(a) of the Code and the Treasury
Regulations thereunder, except for any change in such qualification resulting
from the Section 338 election.
In addition, certain covenants of UCFC survive after the Closing Date,
including UCFC's covenants and agreements relating to the following: (i)
maintaining the confidentiality of nonpublic information relating to the UCLIC
Companies and their businesses (see "-- Confidentiality"); (ii) the exclusive
(except as to UCFC and its affiliates in connection with UCFC's business) and
royalty-free right granted to Purchaser to use the name "United" after the
Closing in connection with the business of the UCLIC Companies (subject to
certain limitations to avoid confusion with UCFC's continued use of such name in
connection with UCFC's business); (iii) non-competition, as described in
"-- Covenant Not to Compete"; (iv) UCFC's general release of the UCLIC Companies
from any obligation accruing on or after the Closing Date to pay any amounts to
UCFC, perform any obligations owing to UCFC or indemnify UCFC; (v) the use of
all reasonable efforts to take all appropriate action and do all things
necessary, proper or advisable under applicable law to carry out the provisions
of the Stock Purchase Agreement; (vi) the removal of all security interests,
mortgages, liens (including environmental liens and tax liens), charges, adverse
claims, preferential arrangements or restrictions of any kind from all of the
assets (other than the Excluded Assets) of the UCLIC Companies; (vii) the
provision of certain post-closing transitional services by UCFC to UCLIC or an
affiliate of UCLIC at the same level and type as such services have historically
been provided to the UCLIC Companies until December 31, 1996 (or a mutually
agreed upon later date) and the reimbursement of Purchaser for specified
corresponding post-closing transitional services provided by UCLIC to UCFC;
(viii) the completion of the transfer of the Commercial Real Estate Group to
UCLIC and the appointment of UCLIC as agent to service specified commercial
mortgage pass-through certificates in substitution for UCFC; (ix) compliance
with the provisions of Section 121B and Section 131 of the LBCL governing
dissenting shareholders' appraisal rights (see "Voting with Regard to the
Proposed Sale -- Dissenters' Rights"); (x) UCFC's obligation to cause the
amendment of the lease between United Companies Realty and Development Company,
Inc., as lessor, and UCLIC, as lessee, relating to UCLIC's current home office,
specifically the premises located at Three United Plaza, (the "UCLIC Home Office
Lease") such that the UCLIC Home Office Lease provides for a termination date
two years and six months from the Closing Date, with such renewal rights as are
in the existing lease; (xi) UCFC's making a timely, effective and irrevocable
election under Section 338(h)(10) of the Code as soon as practicable following
the Closing Date (see "-- Tax Matters"); (xii) UCFC's indemnification of
Purchaser and the UCLIC Companies against certain liabilities relating to
employee benefit plans and other matters pertaining to employees or former
employees of the UCLIC Companies (for additional information concerning such
employee matters, see "-- Employee Benefit Arrangements"); and (xiii) certain
tax matters, including UCFC's indemnification of Purchaser and the UCLIC
Companies against certain liabilities relating to taxes (for additional
information concerning such tax matters; see "-- Tax Matters").
VOTING WITH REGARD TO THE PROPOSED SALE
GENERAL
The affirmative vote of two-thirds of the total voting power of the Common
Stock and the PRIDES (voting together as a single class) present in person or
represented by proxy is required for approval of the Proposed Sale. Abstentions
with respect to the Proposed Sale will have the same effect as a vote against
the Proposed Sale. With respect to broker non-votes, the shares will not be
considered present at the Annual
38
41
Meeting (except for fulfillment of quorum requirements); consequently, broker
non-votes will not be counted with regard to the Proposed Sale, but they have
the effect of reducing the number of affirmative votes required to approve the
Proposed Sale, because they reduce the voting power present or represented from
which the two-thirds is calculated. Notwithstanding such, the Company urges each
shareholder to vote and urges shareholders whose shares are held in the name of
their broker, bank or other nominee to instruct such person to vote their
shares.
THE BOARD OF DIRECTORS OF UCFC RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED SALE.
DISSENTERS' RIGHTS
Under the Louisiana Business Corporation Law (the "LBCL"), shareholders of
a Louisiana corporation are entitled to the right to dissent from a proposed
sale of all or substantially all of the assets of such corporation.
Significantly, if the proposed sale is approved by less than 80% of the total
voting power of the shares outstanding and the sale is then consummated, any
shareholders who dissented from the proposed sale and who comply with the
procedural requirements of Section 131 of the LBCL may be entitled to receive
payment of the fair cash value of their shares. Set forth below is a summary of
the procedures relating to a shareholder's right to dissent. This summary of the
relevant provisions of the LBCL does not purport to be a complete statement of a
shareholder's right to dissent and is qualified in its entirety by the text of
Section 131 of the LBCL, a copy of which is attached hereto as Exhibit C.
Any shareholder electing to dissent from a proposed sale of assets must
vote such shareholder's shares against the proposed sale and must file with the
corporation, prior to or at the meeting of shareholders at which the proposed
sale is submitted to a vote, written objection to the proposal. Neither a vote
against the proposed sale nor a specification in a proxy to vote against the
proposed sale will in and of itself constitute the necessary written objection
to the proposed sale. Moreover, by voting in favor of, or abstaining from voting
on, the proposed sale, or by returning a proxy without instructing the proxy
holders to vote against the proposed sale, a shareholder waives such
shareholder's rights under Section 131 of the LBCL. The right to dissent may be
exercised only by the record owners of the shares and not by persons who hold
shares only beneficially. Beneficial owners who wish to dissent from a proposed
sale should have the record ownership of the shares transferred to their names
or instruct the record owner to follow the procedures specified in Section 131
of the LBCL on their behalf.
If the proposed sale of assets is approved by less than 80% of the total
voting power of the shares outstanding and the sale of assets is consummated,
the corporation is required to promptly thereafter give written notice of the
approval and consummation of the sale, by registered mail, to each shareholder
who filed a written objection to and voted such shareholder's shares against the
proposed sale, at the shareholder's last address on the corporation's records.
Within 20 days after the mailing of the corporation's written notice to
dissenting shareholders, each dissenting shareholder must (i) file with the
corporation a written demand for the fair cash value of such shareholder's
shares as of the day before the vote was taken; (ii) deposit in escrow in a
chartered bank or trust company located in the parish of the registered office
of the corporation, such shareholder's share certificates, duly endorsed and
transferred to the corporation upon the sole condition that the certificates
shall be delivered to the corporation upon payment of the value of the shares
determined in accordance with the provisions of Section 131 of the LBCL; and
(iii) deliver to the corporation along with such shareholder's demand the
written acknowledgement of the chartered bank or trust company that it holds the
share certificates. A dissenting shareholder's demand to the corporation must
state the value demanded and the address to which the reply of the corporation
may be sent. If a dissenting shareholder does not vote such shareholder's shares
against the proposed sale and does not deliver the written objection, the demand
and the bank acknowledgement to the corporation within the time periods
specified above, the shareholder shall conclusively be presumed to have
acquiesced in the proposed sale and will forfeit any right to seek payment
pursuant to Section 131 of the LBCL.
If the corporation does not agree to the value demanded by a dissenting
shareholder or does not agree that a payment is due, it shall notify the
dissenting shareholder in writing of its disagreement within 20 days after
39
42
receipt of the shareholder's demand and bank acknowledgment. The corporation
shall state in its notice of disagreement the value it will agree to pay if any
payment should be held to be due. If the corporation fails to respond to the
dissenting shareholder, it shall be liable for and shall pay to the dissenting
shareholder the value demanded by him for such shareholder's shares.
If, after both parties have complied with the procedures described above,
the corporation and the dissenting shareholder disagree as to the fair cash
value of the shares or as to whether any payment is due, the dissenting
shareholder may, within 60 days after receipt of the corporation's written
notice of its disagreement, file suit against the corporation requesting that a
court fix and decree the fair cash value of the shares as of the day before the
vote for the proposed sale dissented from was taken. Such suit must be filed in
the district court of the parish in which the corporation has its registered
office. The court shall determine summarily whether any payment is due, and, if
so, the cash value of the shares. Any dissenting shareholder entitled to file a
suit may, within the 60-day period, intervene as a plaintiff in a suit filed by
another dissenting shareholder. No order or decree shall be made by the court
staying the proposed sale of assets, and the sale may be consummated
notwithstanding the suit. If any dissenting shareholder fails to either bring
suit or intervene in another's suit within 60 days after receipt of the
corporation's notice of disagreement, such shareholder shall be conclusively
bound (i) by the corporation's statement that no payment is due or (ii) to
accept the value of such shareholder's shares as fixed by the corporation in its
notice of disagreement.
If the fair value of the shares has been agreed upon between the
shareholder and the corporation, or the corporation has become liable for the
value demanded by the shareholder because of its failure to give notice of
disagreement and of the value it will pay, or a shareholder fails to bring suit
within 60 days after receipt of the corporation's notice of disagreement and
becomes bound to accept the value the corporation agrees is due, an action of
the shareholder to recover the fair value of such shareholder's shares must be
brought within five years from the date the value was agreed upon or the
liability of the corporation became fixed.
If the corporation, in its notice of disagreement, offered to pay to the
dissenting shareholder an amount in cash deemed by it to be the fair cash value
of the shares, and if, upon the institution of a suit by the dissenting
shareholder claiming an amount in excess of the amount so offered, the
corporation deposits in the registry of the court the amount it offered to the
shareholder, then, if the amount finally awarded the shareholder, exclusive of
interest and costs, exceeds the amount offered and deposited by the corporation,
the corporation shall be liable for the costs of the proceeding; otherwise, the
shareholder shall be liable for the costs of the proceeding.
Upon filing a demand for the value of such shareholder's shares, the
shareholder shall cease to have any of the rights as a shareholder, except the
rights accorded by Section 131 of the LBCL. A dissenting shareholder's demand
may be withdrawn by the shareholder at any time before the corporation gives its
notice of disagreement. After the corporation provides a notice of disagreement,
a dissenting shareholder may not withdraw such shareholder's demand without the
written consent of the corporation.
If a dissenting shareholder's demand is withdrawn, or the proposed sale is
abandoned or rescinded, or a court determines that the shareholder is not
entitled to receive payment for such shareholder's shares, or the shareholder
otherwise loses such shareholder's right to dissent, the dissenting shareholder
shall not have the right to receive payment for such shareholder's shares and
the shareholder's share certificates shall be returned to him (and, upon his
request, new certificates shall be issued to such shareholder in exchange for
the old ones endorsed to the corporation). Additionally, under these
circumstances, the dissenting shareholder shall be reinstated to all such
shareholder's rights as a shareholder as of the filing of such shareholder's
demand for value, including any intervening preemptive rights, and the right to
payment of any intervening dividend or other distribution, or, if any rights
have expired or any dividend or distribution other than in cash has been
completed, in lieu thereof, at the election of the corporation, the fair value
thereof in cash as determined by the board of directors of the corporation as of
the time of such expiration or completion, but without prejudice otherwise to
any corporate proceedings that may have been taken in the interim.
The Stock Purchase Agreement provides, as a condition to the obligations of
UCFC to consummate the Proposed Sale, that the number of shares of the Common
Stock as to which dissenters' rights are exercised pursuant to Section 131 of
the LBCL cannot exceed 2% of the total number of shares of the Company's
40
43
Common Stock outstanding on the Closing Date of the Proposed Sale. Therefore, if
(i) the Proposed Sale is not approved by the holders of at least 80% of the
total voting power of the outstanding shares of the Common Stock and the PRIDES
voting together as a single class, and (ii) the number of shares of Common Stock
as to which dissenters' rights under the LBCL are exercised exceeds 2%, then the
Proposed Sale ultimately may not be consummated.
41
44
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
based on UCFC's Consolidated Financial Statements. The unaudited pro forma
consolidated balance sheet is based on the March 31, 1996, consolidated balance
sheet of UCFC included in UCFC's Quarterly Report on Form 10-Q for the three
months ended March 31, 1996 (the "Form 10-Q") incorporated herein by reference,
and assumes that the Proposed Sale was consummated on March 31, 1996. The
unaudited pro forma consolidated statement of income for the three months ended
March 31, 1996, is based on the consolidated statement of income for the three
months ended March 31, 1996 included in the Form 10-Q incorporated herein by
reference, and assumes that the Proposed Sale was consummated on January 1,
1996. The unaudited pro forma consolidated statement of income for the year
ended December 31, 1995, is based on the consolidated statement of income for
the year ended December 31, 1995 included in UCFC's Annual Report on Form 10-K
(the "Form 10-K") incorporated herein by reference, and assumes that the
Proposed Sale was consummated on January 1, 1995. The unaudited pro forma
consolidated statements of income for the year ended December 31, 1994 and 1993
do not give effect to the Proposed Sale; however, such data reflect UCLIC as a
discontinued operation. The unaudited pro forma consolidated financial
statements and related notes should be read in conjunction with UCFC's
Consolidated Financial Statements and the notes thereto included in the Form
10-K and Form 10-Q, which are incorporated herein by reference.
The unaudited pro forma consolidated financial statements of UCFC do not
purport to represent what the consolidated financial position or results of
operations of UCFC would have been if the Proposed Sale had in fact been
consummated on such dates or at the beginning of such periods or to project the
financial position or results of operations for any future date or period. The
pro forma adjustments are based upon available information and upon certain
assumptions that UCFC's management believes are reasonable under the
circumstances.
42
45
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
PRO FORMA ADJUSTMENTS
DISPOSITION ----------------------------
HISTORICAL OF UCLIC DEBIT CREDIT PRO FORMA
---------- ----------- ----------- ----------- ---------
Cash and cash equivalents.................. $ 56,099 $ (38,469) $ 108,674(a) $ (15,000)(b) $ 37,569
2,602(a) (89,932)(c)
1,730(f) (2,270)(e)
14,135(g)
Temporary investment -- reserve accounts... 179,037 179,037
Investment securities:
Trading.................................. 949 (949) --
Available-for-sale....................... 1,092,664 (1,092,452) 212
Held-to-maturity......................... 51,553 (61,553) 15,000(b) 15,000
10,000(d)
Other.................................... 25,393 (25,393) 17,233(a) 17,233
Loans -- net............................... 406,164 (314,622) 9,229(a) 100,771
Capitalized excess servicing income........ 304,088 (1,943) 1,155(a) 303,300
Deferred policy acquisition costs.......... 89,375 (89,375) --
Accrued interest receivable................ 54,327 (15,426) 161(d) 39,062
Property -- net............................ 39,167 (23,014) 22,845(a) 38,998
Interdivision receivable................... (2,282) 4,884(e) (2,602)(a) --
Other assets............................... 89,120 (58,322) 140(d) (288)(e) 30,650
---------- ----------- -------- --------- --------
Total assets...................... $2,387,936 $(1,723,800) $ 207,788 $(110,092) $761,832
========== =========== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Annuity reserves........................... $1,390,495 $(1,390,495) $ -- $ -- $ --
Notes payable.............................. 326,883 (140) 89,932(c) (10,140)(d) 246,951
Insurance reserves......................... 111,416 (111,416) --
Deferred income tax payable................ 62,333 (12,269) (2,782)(a) 52,846
Allowance for loss on loans serviced....... 48,490 48,490
Repurchase agreements...................... 28,178 28,178
Interdivision payable...................... (2,274) (2,274)(e) --
Other liabilities.......................... 44,681 (39,220) (4,472)(a) 25,281
---------- ----------- -------- --------- --------
(1,000)(a)
(161)(d)
(52)(e)
(14,135)(g)
Total liabilities................. 2,012,476 (1,555,814) 89,932 (35,016) 401,746
---------- ----------- -------- --------- --------
Stockholders' equity:
Preferred stock.......................... 3,910 3,910
Common stock............................. 58,731 (8,401) (8,401)(a) 58,731
Additional paid-in capital............... 180,813 (28,980) (28,980)(a) 180,813
Net unrealized gain (loss) on
securities............................. 9,240 (9,208) 32
Retained earnings........................ 137,259 (121,397) 6,166(a) (119,667)(a) 131,093
(1,730)(f)
Treasury stock and ESOP debt............. (14,493) (14,493 )
---------- ----------- -------- --------- --------
Total stockholders' equity........ 375,460 (167,986) 6,166 (158,778) 360,086
---------- ----------- -------- --------- --------
Total liabilities and
stockholders' equity............ $2,387,936 $(1,723,800) $ 96,098 $(193,794) $761,832
========== =========== ======== ========= ========
See notes to pro forma consolidated financial statements.
43
46
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
ADJUSTMENTS
DISPOSITION -------------------
HISTORICAL OF UCLIC DEBIT CREDIT PRO FORMA
---------- ----------- ------ ------- ---------
Revenues
Loan sale gains........................... $ 39,809 $ -- $ -- $ -- $39,809
Interest, charges and fees on loans....... 34,614 (9,371) 672(n) 24,571
Investment income......................... 25,505 (23,472) 418(o) (1,371)(h) 4,085
(381)(i)
(300)(j)
(418)(n)
Loan servicing income..................... 4,233 380 95(p) (744)(n) 5,262
Net insurance premiums.................... 1,618 (1,618) --
Interdivision reimbursement............... (52) (52)(k) --
------- -------- ------ ------- -------
Total............................. 105,779 (34,133) 1,185 (3,266) 73,727
======= ======== ====== ======= =======
Expenses
Personnel................................. 22,011 (1,418) 20,593
Interest on annuity policies.............. 18,549 (18,549) --
Interest.................................. 8,683 (1,176) 167(m) (1,528)(l) 6,146
Insurance commissions..................... 3,425 (3,363) (62)(n) --
Insurance benefits........................ 2,776 (2,776) --
Loan loss provision....................... 2,578 (22) 2,556
Other operating........................... 18,205 (3,233) 873(h) (418)(o) 15,979
552(m)
Interdivision reimbursement............... (935) 935(k) --
------- -------- ------ ------- -------
Total............................. 76,227 (31,472) 2,527 (2,008) 45,274
======= ======== ====== ======= =======
Income from continuing operations before
income taxes.............................. 29,552 (2,661) 3,712 (5,274) 28,453
Provision for income taxes.................. 10,594 (931) 537(q) 10,200
------- -------- ------ ------- -------
Income from continuing operations........... $ 18,958 $ (1,730) $4,249 $(5,274) $18,253
======= ======== ====== ======= =======
Earnings per share from continuing
operations:
Primary................................... $ 0.59 $ 0.57
Fully diluted............................. $ 0.58 $ 0.56
Weighted average shares outstanding:
Primary................................... 31,948 31,948
Fully diluted............................. 32,725 32,725
See notes to pro forma consolidated financial statements.
44
47
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS
DISPOSITION ----------------------------
HISTORICAL OF UCLIC DEBIT CREDIT PRO FORMA
---------- ----------- ----------- ----------- ---------
Revenues
Loan sale gains................................. $ 142,156 $ -- $ -- $ -- $ 142,156
Interest, charges and fees on loans............. 128,665 (37,947) 2,534(n) 88,184
Investment income............................... 104,062 (99,327) 1,376(o) (5,485)(h) 12,682
(1,262)(i)
(1,200)(j)
(1,376)(n)
Loan servicing income........................... 14,559 1,427 452(p) (3,156)(n) 18,690
Net insurance premiums.......................... 8,508 (8,508) 0
Interdivision reimbursement..................... (130) (130)(k) 0
-------- --------- ------- -------- --------
Total................................... 397,950 (144,485) 4,362 (12,609) 261,712
-------- --------- ------- -------- --------
Expenses
Interest on annuity policies.................... 79,087 (79,087) 0
Personnel....................................... 76,022 (5,260) 70,762
Interest........................................ 28,308 (3,417) 668(m) (6,907)(l) 18,652
Loan loss provision............................. 16,025 (4,051) 11,974
Insurance commissions........................... 13,630 (13,427) (203)(n) 0
Insurance benefits.............................. 9,930 (9,930) 0
Other operating................................. 60,184 (12,955) 3,490(h) (1,376)(o) 51,544
2,201(n)
Interdivision reimbursement..................... (4,259) 4,259(k) 0
-------- --------- ------- -------- --------
Total................................... 283,186 (132,386) 10,618 (8,486) 152,932
-------- --------- ------- -------- --------
Income from continuing operations before income
taxes........................................... 114,764 (12,099) 14,980 (21,095) 108,780
Provision for income taxes........................ 41,805 (4,065) 1,885(q) 39,625
-------- --------- ------- -------- --------
Income from continuing operations................. $ 72,959 $ (8,034) $16,865 $ (21,085) $ 69,155
======== ========= ======= ======== ========
Earnings per share from continuing operations:
Primary......................................... $ 2.39 $ 2.27
Fully diluted................................... $ 2.36 $ 2.24
Weighted average shares outstanding:
Primary......................................... 30,501 30,501
Fully diluted................................... 30,903 30,903
See notes to pro forma consolidated financial statements.
45
48
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
HISTORICAL ADJUSTMENTS(2) PRO FORMA
---------- -------------- ---------
Revenues:
Interest, charges and fees on loans................... $ 111,994 $ (47,311) $ 64,683
Loan sale gains....................................... 86,735 -- 86,735
Investment income..................................... 84,666 (81,796) 2,870
Loan servicing income................................. 19,926 4,638 24,564
Net insurance premiums................................ 11,373 (11,373) --
Other................................................. -- 3,686 3,686
-------- --------- --------
Total......................................... 314,694 (132,156) 182,538
-------- --------- --------
Expenses:
Interest on annuity policies.......................... 73,065 (73,065) --
Personnel............................................. 57,380 (4,959) 52,421
Interest.............................................. 14,563 (1,201) 13,362
Loan loss provision................................... 13,457 (5,059) 8,398
Insurance commissions................................. 14,264 (14,264) --
Insurance benefits.................................... 12,654 (12,654) --
Other operating....................................... 45,237 (11,874) 33,363
-------- --------- --------
Total......................................... 230,620 (123,076) 107,544
-------- --------- --------
Income from continuing operations before income taxes... 84,074 (9,080) 74,994
Provision for income taxes.............................. 29,492 (3,194) 26,298
-------- --------- --------
Income from continuing operations....................... 54,582 (5,886) 48,696
Loss from discontinued operations:
Income (loss) from discontinued operations, net of
income
tax expense of $491................................ (5,048) 5,886 838
-------- --------- --------
Total......................................... (5,048) 5,886 838
-------- --------- --------
Net income.............................................. $ 49,534 $ -- $ 49,534
======== ========= ========
Per share data:
Income from continuing operations..................... $ 1.92 $ (.21) $ 1.71
Income (loss) from discontinued operations............ (.18) .21 .03
-------- --------- --------
Net income............................................ $ 1.74 $ -- $ 1.74
======== ========= ========
See notes to pro forma consolidated financial statements.
46
49
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
HISTORICAL ADJUSTMENTS(2) PRO FORMA
---------- -------------- ---------
Revenues:
Interest, charges and fees on loans................... $ 92,737 $ (51,270) $ 41,467
Loan sale gains....................................... 59,441 -- 59,441
Investment income..................................... 75,527 (74,216) 1,311
Loan servicing income................................. 13,624 5,452 19,076
Net insurance premiums................................ 18,684 (18,684) --
Other................................................. -- 2,581 2,581
-------- --------- --------
Total......................................... 260,013 (136,137) 123,876
-------- --------- --------
Expenses:
Interest on annuity policies.......................... 76,086 (76,086) --
Personnel............................................. 40,784 (3,878) 36,906
Interest.............................................. 10,158 (277) 9,881
Loan loss provision................................... 17,343 (4,994) 12,349
Insurance commissions................................. 13,920 (13,920) --
Insurance benefits.................................... 18,200 (18,200) --
Other operating....................................... 40,461 (16,147) 24,314
-------- --------- --------
Total......................................... 216,952 (133,502) 83,450
-------- --------- --------
Income from continuing operations before income taxes... 43,061 (2,635) 40,426
Provision for income taxes.............................. 14,744 (993) 13,751
-------- --------- --------
Income from continuing operations....................... 28,317 (1,642) 26,675
Loss from discontinued operations:
Income (loss) from discontinued operations, net of
income
tax expense of $679................................ (676) 1,642 966
Loss on disposal, net of income tax benefit of
$8,326............................................. (16,066) -- (16,066)
-------- --------- --------
Total......................................... (16,742) 1,642 (15,100)
-------- --------- --------
Net income.............................................. $ 11,575 $ -- $ 11,575
======== ========= ========
Per share data:
Income from continuing operations..................... $ 1.20 $ (.07) $ 1.13
Loss from discontinued operations..................... (.71) .07 (.64)
-------- --------- --------
Net income............................................ $ .49 $ -- $ .49
======== ========= ========
See notes to pro forma consolidated financial statements.
47
50
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The unaudited pro forma consolidated balance sheet as of March 31, 1996
gives effect to the sale of United Companies Life Insurance Company
("UCLIC"), which is anticipated to be sold in 1996, subject to approval by
shareholders and various insurance regulatory insurance authorities, as
though such sale had taken place on March 31, 1996. The unaudited pro forma
consolidated statements of income for the year ended December 31, 1995 and
for the three months ended March 31, 1996 give effect to the sale of UCLIC
as if such transaction had taken place on January 1, 1995 and January 1,
1996, respectively. The pro forma adjustments are described below:
BALANCE SHEET ADJUSTMENTS
(a) Reflects proceeds received from sale of UCLIC of $108,674,000 in cash,
$22,845,000 in real estate, $9,229,000 in foreclosed properties, and
$17,233,000 in other investment securities offset by $4,472,000 in
current income taxes, $2,782,000 in deferred income taxes and $1,000,000
in expenses payable related to sale resulting in a $6,166,000 loss on
sale. An excess servicing gain of $1,155,000 on the sale of loans sold
previously to UCLIC by UCFC is included in the above loss. In addition,
collection from UCLIC of an outstanding receivable of $2,602,000 is
assumed.
(b) Reflects purchase of $15,000,000 note receivable from affiliate of
purchaser.
(c) Assumes $89,932,000 decrease in notes payable from use of net proceeds
of sale.
(d) Reflects the adjustments for amounts previously eliminated as
interdivision debt and related interest accruals.
(e) Reflects the adjustments for amounts previously eliminated as
interdivision receivables and payables.
(f) Reflects additional proceeds according to sales agreement for net
income of UCLIC from January 1, 1996 to March 31, 1996 of $1,730,000.
(g) Reflects amount to eliminate intercompany cash adjustment prior to
sale.
INCOME STATEMENT ADJUSTMENTS
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH
1995 31, 1996
------------ ------------
(h) Assumes rental income, depreciation expense and other
operating expenses from real estate and foreclosed
properties acquired in sale --
Rental income...................................... $ 5,485,000 $1,371,000
Depreciation expense............................... (440,000) (110,000)
Other operating expenses........................... (3,050,000) (763,000)
The 1995 rental income, depreciation expense, and
other operating expenses reflect historical amounts
recorded by UCLIC for the respective properties. The
1996 amounts were assumed based upon the amounts for
1995. The depreciation on the real estate was
calculated using the straight-line method over 10, 15
and 45 years.
(i) Assumes investment income from investment securities
acquired in sale. The income reflects the historical
amount recorded by UCLIC for the investment
securities for the respective periods................ 1,262,000 381,000
48
51
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH
1995 31, 1996
------------ ------------
(j) Reflects interest income at 8.00% from $15,000,000
note receivable purchased from affiliate of
purchaser............................................ 1,200,000 300,000
(k) Assumes a net reduction in income from the elimination
of the management agreement with UCLIC............... (4,129,000) (883,000)
(l) Assumes reduction in interest expense in 1995 and 1996
from $88,126,000 and $88,126,000, respectively,
reduction in notes payable from use of net sales
proceeds. The average interest rates on the notes
payable for the respective periods were 7.84% and
6.94% and represent the actual interest rates for the
notes payable assumed to be reduced.................. 6,907,000 1,528,000
(m) Assumes the adjustment to interest expense for amount
previously eliminated as interdivision debt.......... (668,000) (167,000)
(n) Assumes the adjustments for amounts previously
eliminated as interdivision revenues and expenses --
Interest, charges and fees on loans................ (2,534,000) (672,000)
Investment income.................................. 1,376,000 418,000
Loan servicing income.............................. 3,156,000 744,000
Insurance commissions.............................. 203,000 62,000
Other operating expenses........................... (2,201,000) (552,000)
(o) Assumes the elimination of interdivision revenues and
expenses arising after the sale --
Rental income...................................... 1,376,000 418,000
Other operating expenses........................... (1,376,000) (418,000)
(p) Assumes amortization of capitalized excess servicing
income based upon the Company's prepayment experience
related to sale of loans to UCLIC by UCFC under
warehouse loan agreement............................. (452,000) (95,000)
(q) Assumes adjustment to provision for income taxes to
the historical rate for the aforementioned pro forma
adjustments.......................................... (1,885,000) (537,000)
(2) Management of the Company believes that the "measurement date", as defined
in Accounting Principles Board Opinion No. 30, for the disposal of UCLIC's
operations will not occur until the Proposed Sale is approved by the
Company's shareholders. Pursuant to Louisiana law, the Company's Board of
Directors is not clearly vested with the legal authority to sell all the
outstanding capital stock of UCLIC. Rather, to assure a valid disposition
under Louisiana law, the shareholders of the Company, by an affirmative
vote of a least two-thirds of the shareholders present or represented at
the Annual Meeting, must approve the Proposed Sale. The accompanying
unaudited pro forma consolidated statements of income for the years ended
December 31, 1994 and 1993 reflect the reclassification of UCLIC's
operating results to income from discontinued operations.
49
52
SECURITY HOLDINGS OF MANAGEMENT AND OTHERS
The following table sets forth the amount and percent of shares of Common
Stock (as adjusted to reflect a 100% Common Stock dividend paid by the Company
on October 20, 1995) and the amount and percent of shares of PRIDES which, as of
February 29, 1996, are deemed under the rules of the Securities and Exchange
Commission (the "SEC") to be "beneficially owned" by each director of the
Company, by each executive officer of the Company, by all directors and
executive officers of the Company as a group, and by any person or "group" (as
that term is used in the Securities Exchange Act of 1934, as amended) known to
the Company as of that date to be a "beneficial owner" of more than 5% of the
outstanding shares of Common Stock or PRIDES:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
DIRECTORS AND EXECUTIVE OFFICERS TITLE OF CLASS OWNERSHIP(1)(2) OF CLASS(3)
- -------------------------------------------- -------------- --------------- -----------
James J. Bailey, III........................ Common Stock 177,860(4)(5) --
General Robert H. Barrow (retired).......... Common Stock 61,274(4) --
J. Terrell Brown............................ Common Stock 917,449(5)(6)(7) 3.223%
Richard A. Campbell......................... Common Stock 166,703(4) --
PRIDES 9,000 --
Harris J. Chustz, Jr........................ Common Stock 123,027(5) --
John D. Dienes.............................. Common Stock 115,489(6)(7) --
C. Geron Hargon............................. Common Stock 45,170(6)(7) --
Roy G. Kadair, M.D.......................... Common Stock 25,800(4) --
Robert D. Kilpatrick........................ Common Stock 45,026(4) --
O. Miles Pollard, Jr........................ Common Stock 72,900(4) --
Dale E. Redman.............................. Common Stock 245,013(6)(7) --
Robert B. Thomas, Jr........................ Common Stock 58,576(6)(7) --
William H. Wright, Jr....................... Common Stock 396,790(4)(5) 1.407%
All directors and executive officers........ Common Stock 2,525,962 8.648%
as a group (13 persons)................... PRIDES 9,000 --
OTHER PERSONS
United Companies Financial Corporation
Employee Stock Ownership Plan and Trust
515 South Flower Street, Suite 2700
Los Angeles, CA 90071-2291................ Common Stock 4,003,494(8) 14.224%
AIM Management Group, Inc.
AIM Advisors, Inc.
AIM Capital Management, Inc.
11 Greenway Plaza, Suite 1919
Houston, TX 77046......................... Common Stock 1,680,399(9) 6.0%
Highbridge Capital Corporation
Highbridge Capital Management, Inc.
Dubin & Swieca Capital Management, Inc.
c/o Highbridge Capital Corporation
The Residence, Unit #2, South Church
Street
Grand Cayman, Cayman Islands
British West Indies....................... PRIDES 306,550(10) 15.68%
50
53
- ---------------
(1) Under rules promulgated by the SEC, "beneficial ownership" includes having
or sharing with others the power to vote or direct the investment of
securities. Accordingly, a person having or sharing the power to vote or
direct the investment of securities is deemed to "beneficially own" the
securities even if such person has no right to receive any part of the
dividends on or the proceeds from the sale of these securities. Also,
because "beneficial ownership" extends to persons, such as co-trustees
under a trust, who share power to vote or control the disposition of the
securities, the very same securities may be deemed "beneficially owned" by
two or more persons shown in the table. Information with respect to
"beneficial ownership" shown in the table above is based upon information
supplied by the directors and executive officers of the Company and filings
made with the SEC or furnished to the Company by any shareholder.
(2) Includes pro rata shares, where applicable, that have been allocated to an
individual's account in the Company's Employee Stock Ownership Plan and
Trust (the "ESOP") and in the Company's Employees' Savings Plan and Trust
(the "401(k) Plan").
(3) Less than 1% except as otherwise indicated.
(4) Includes shares which the named holder as of February 29, 1996, was
entitled to acquire upon the exercise of options granted (whether or not
such options are vested) under the Company's 1993 and 1989 Non-Employee
Director Stock Option Plans.
(5) Includes shares held by family members and controlled affiliates.
(6) Includes shares which the following named holders as of February 29, 1996,
were entitled to acquire upon exercise of options granted (whether or not
such options are vested) under the Company's 1993 and 1989 Stock Incentive
Plans: Mr. Brown, 313,824; Mr. Dienes, 78,998; Mr. Hargon, 30,000; Mr.
Redman, 171,488; and Mr. Thomas, 44,000; all executive officers as a group
(5 persons), 638,310; and all directors, executive officers and senior vice
presidents as a group (27 persons), 774,368.
(7) Includes shares of restricted stock awarded to the named holder under the
Company's 1993 Stock Incentive Plan: Mr. Brown, 19,000 shares; Mr. Dienes,
13,000 shares; Mr. Hargon, 14,000 shares; Mr. Redman, 13,000 shares; and
Mr. Thomas, 10,000 shares. On February 23, 1996, a restriction lapsed and
because a performance goal of the Company was met as of December 31, 1995,
50% of the restricted shares awarded to Messrs. Brown, Dienes, Redman and
Thomas became fully vested.
(8) Held by U.S. Trust Company of California as trustee. An ESOP participant
exercises voting rights over shares of Common Stock allocated to the
participant's account, whether or not vested, by providing voting
instructions to the trustee. Voting rights for any unallocated shares of
Common Stock held by the ESOP are voted by the trustee in proportion to the
voting of allocated shares by the ESOP participants. At February 29, 1996,
there were approximately 815,000 unallocated shares held by the ESOP. The
Plan Administrator, a committee composed of five officers and directors of
the Company, may, in certain circumstances, direct the trustee to purchase,
sell, resell or otherwise dispose of shares of Common Stock.
(9) This information is based solely upon a Schedule 13G for the year ended
December 31, 1995. However, in correspondence to the Company accompanying
the Schedule 13G, this group of shareholders indicated that they owned
shares of PRIDES which they included in the number of shares of Common
Stock set forth in the Schedule 13G (which is the number of shares set
forth in the table above). While the shareholder group did not provide to
UCFC the number of PRIDES they beneficially owned, they did indicate that
the PRIDES had been converted, as of December 31, 1995, into shares of
Common Stock and added into the total number disclosed in the Schedule 13G.
Without such conversion, the group of shareholders provided that their
ownership percentage in the Common Stock would be only 4.9%.
(10) This information is based solely upon a Schedule 13G for the year ended
December 31, 1995.
51
54
ELECTION OF DIRECTORS
In accordance with Section 4.1 of the by-laws of the Company, the Company's
Board of Directors has fixed the number of directors at eleven, divided into
three classes that are approximately equal in number to each other, with terms
expiring in successive years. The Board of Directors has nominated General
Robert H. Barrow, John D. Dienes and O. Miles Pollard as directors to hold
office for a term of three years expiring with the 1999 Annual Meeting of
Shareholders or until their respective successors and duly elected and
qualified. Each of the nominees is at present a director of the Company. The
terms of office of the other eight directors of the Company continue after the
Annual Meeting as set forth below. The enclosed form of Proxy confers
discretionary authority with respect to the election of directors, but no
authority under the Proxy Statement will be exercised to vote for the election
of any person as a director,other than the persons named in this Proxy Statement
who have been nominated by the present Board of Directors, unless, for some
reason not presently known, one or more of such nominees should become
unavailable. In such event, it is intended that the Proxy would be voted for a
substitute nominee or nominees who would be designated by the Board of Directors
prior to the Annual Meeting. In order to be elected a director, a nominee must
receive a plurality of the votes cast by the holders of the Common Stock and the
PRIDES. The name and age, principal occupation or employment, and other data
regarding each nominee and those directors whose terms continue after the Annual
Meeting, based on information received from the respective nominees and
directors are set forth below:
NOMINEES TO SERVE UNTIL THE 1999 ANNUAL MEETING
ROBERT H. BARROW, GENERAL (RETIRED)
General Barrow, age 74, has served as a director of the Company since 1983.
He retired as Commandant of the United States Marine Corps in July, 1983.
General Barrow is a member of the Board of Advisors, Baton Rouge Region, Premier
Bank, National Association.
JOHN D. DIENES
Mr. Dienes, age 54, serves as President and Chief Operating Officer of the
Company and is an executive officer of each Subsidiary of the Company. At the
time Mr. Dienes joined the Company in February 1994, he had over 30 years of
experience in the financial industry. Prior to his employment with the Company,
Mr. Dienes served as Executive Vice President and Director of Western Corporate
Banking for NationsBank Corporation, Dallas, Texas, his employer since 1988.
O. MILES POLLARD, JR.
Mr. Pollard, age 58, has served as a director of the Company since 1990. He
is engaged in private investments and serves as President of Cadogan Properties,
Inc. and Secretary of Randall Management Services, Inc. He is a director of
First Commerce Corporation and City National Bank of Baton Rouge.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE ABOVE NOMINEES FOR
DIRECTOR.
DIRECTORS WHOSE TERMS CONTINUE AFTER THE ANNUAL MEETING
Directors whose terms continue until the 1998 Annual Meeting
JAMES J. BAILEY, III
Mr. Bailey, age 54, has served as a director of the Company since 1987. Mr.
Bailey is managing partner of Bailey Family Investments and Chairman of Tri-Star
Investments, and he is a member of the Board of Directors of First Commerce
Corporation, City National Bank of Baton Rouge and St. Mary Bank and Trust,
Franklin, Louisiana.
52
55
J. TERRELL BROWN
Mr. Brown, age 56, is Chairman of the Board of Directors and Chief
Executive Officer of the Company and Chief Executive Officer of each of the
subsidiaries of the Company. He has served as a director and executive officer
since 1972 and was named Chief Executive Officer in 1985. Mr. Brown is also a
director of Hibernia Corporation and Sizeler Property Investors, Inc.
RICHARD A. CAMPBELL
Mr. Campbell, age 64, has served as a director of the Company since 1987.
For the past five years, Mr. Campbell has been an independent oil and gas
exploration geologist in Lafayette, Louisiana, and has co-invested with Camex
Operating Company and/or Camex, Inc. in oil and gas exploration activities.
ROBERT D. KILPATRICK
Mr. Kilpatrick, age 72, has served as a director of the Company since 1989.
Mr. Kilpatrick serves as a director of Kuhlman Corporation and is an advisory
director of Boardroom Consultants, Inc. Prior to retirement in 1989, Mr.
Kilpatrick served as Chairman of the Board and Chief Executive Officer of CIGNA
Corporation and served as a director of CIGNA Corporation until 1994.
Directors whose terms continue until the 1997 Annual Meeting
HARRIS J. CHUSTZ, JR.
Mr. Chustz, age 45, has served as a director of the Company since 1995. He
has served as the Manager of Finance and Accounting with Florida Keys Electric
Cooperative since 1976. Mr. Chustz is the son of the Company's former Chairman
of the Board, Harris J. Chustz.
ROY G. KADAIR, M.D.
Dr. Kadair, age 50, has served as a director of the Company since 1995. Dr.
Kadair is a practicing physician (Internal Medicine) and has been associated
with the Baton Rouge Clinic for over 18 years. He is a director and member of
the executive committee of General Health System, and serves on the board of
directors of Baton Rouge General Hospital and Gulf South Health Plans.
DALE E. REDMAN
Mr. Redman, age 48, is Executive Vice-President, Chief Financial Officer
and Assistant Secretary of the Company and Vice Chairman of each of the
subsidiaries of the Company. Prior to his appointment as Chief Financial Officer
and Executive Vice President in 1988, Mr. Redman served as Secretary and
Treasurer of the Company. He has served as a director since 1983. Mr. Redman is
also a director of Picadilly Cafeterias, Inc.
WILLIAM H. WRIGHT, JR.
Mr. Wright, age 69, has served as a director of the Company since 1972. He
serves as Chairman of the Board and Chief Executive Officer of Wright Insurance
Agency, Inc. and is a director of City National Bank of Baton Rouge.
53
56
BOARD MEETINGS, COMMITTEES AND COMPENSATION
During the year ended December 31, 1995, 12 meetings of the Board of
Directors were held. Each incumbent director who is a nominee for reelection
attended at least 75% of the aggregate of the meetings of the Board of Directors
and committees of the Board held during the period for which he was a director
or a member of a particular committee. The following Directors presently serve
on the Audit Committee: James J. Bailey, III, General Robert H. Barrow, Roy G.
Kadair, M.D., and William H. Wright, Jr. The Audit Committee met 6 times in
1995. The primary functions of the Audit Committee are as follows: to review the
scope and timing of the audit and non-audit services to be rendered by the
Company's independent accountants; to approve the audit plans of the independent
accountants and internal auditors and to review their reports upon completion of
their audits; to review the appropriateness of the Company's accounting
policies, the adequacy of its financial controls and the reliability of the
financial information reported to the public; and to report to the Board of
Directors on its activities. The following directors presently serve on the
Compensation Committee: Richard A. Campbell, Harris J. Chustz, Jr., Robert D.
Kilpatrick and O. Miles Pollard, Jr. The Compensation Committee met 7 times in
1995. The primary functions of the Compensation Committee are as follows: to
review and approve, subject to ratification by the Board of Directors, the Chief
Executive Officer's compensation; to consult with the Chief Executive Officer
and approve compensation for members of senior management; to administer the
Company's stock incentive plans (other than plans in which non-employee
directors participate), including approval of all awards thereunder; to approve
an annual aggregate amount that may be used for the current year's management
incentive plan and to administer such plan; and to report to the Board of
Directors on its activities. On January 31, 1995, the Board of Directors
established a Nominating Committee to be comprised of non-management directors.
The following directors presently serve on the Nominating Committee: James J.
Bailey, III, Robert D. Kilpatrick and William H. Wright, Jr. The primary
functions of the Nominating Committee are to review the qualifications of
candidates for the Company's Board of Directors suggested by Board members,
management, shareholders and others, to consider the performance of incumbent
directors in determining whether to nominate them for reelection and to
recommend to the Board a slate of nominees for election as directors. No
specific procedures have been adopted for shareholders to follow in submitting
recommendations to the Nominating Committee for its consideration in
recommending to the Board a slate of nominees.
Directors who are full-time employees of the Company receive no additional
compensation for services as a director. The Company has entered into employment
agreements and has executed change of control contracts with each of its
officer-directors as described below under "Employment Agreements and Change of
Control Arrangements". Each non-employee director received $1,000 per Board
meeting and $500 per Committee meeting attended during 1995. Each Committee
Chairman received an annual retainer of $1,000. Each director who is not an
employee of the Company also received during 1995 an annual retainer of $4,800,
paid in quarterly increments.
Each director who is not an employee of the Company is entitled to
participate in the Company's 1993 Non-Employee Director Stock Option Plan (the
"1993 Director Plan"). The 1993 Director Plan provides for the automatic grant
of stock options to purchase 4,000 shares of the Company's Common Stock to each
non-employee director each year upon his or her election or reelection to the
Board of Directors. In 1993, 1994 and 1995, each non-employee director has been
awarded options to purchase 17,600, 8,800 and 8,000 shares of Common Stock,
respectively (after an adjustment for a 100% common stock dividend paid on
October 18, 1993, a 10% common stock dividend paid on January 10, 1995 and a
100% common stock dividend paid on October 20, 1995), under the 1993 Director
Plan. The Company also has another option plan for non-employee directors, the
1989 Non-Employee Director Stock Option Plan (the "1989 Director Plan"). All
shares reserved for issuance under the 1989 Director Plan, however, have been
awarded pursuant to options. The exercise prices of options awarded under the
1993 and 1989 Director Plans are based upon 100% of the fair market value of the
Common Stock on the date of the grants. As of February 1, 1996, options to
purchase 380,360 shares of Common Stock at an average exercise price of $9.76
per share are outstanding under the Company's 1989 and 1993 Director Plans.
54
57
EXECUTIVE OFFICERS
In addition to the individuals nominated for director above who are also
executive officers of the Company, the following two individuals presently serve
as executive officers of the Company:
C. GERON HARGON
Mr. Hargon, age 50, serves as Executive Vice President of the Company and
President of United Companies Lending Group, Inc. ("UCLG"), United Companies
Lending Corporation ("UCLC"), Pelican Mortgage Company, Inc., United Companies
Mortgage of Tennessee, Inc. and Adobe, Inc., wholly-owned subsidiaries of the
Company. Mr. Hargon joined the Company on September 1, 1995. Mr. Hargon has
nearly 25 years experience in the financial services industry, most recently
serving as Chairman of Hibernia National Bank's South Central Region. During his
19 years with Hibernia, Mr. Hargon served as Chief Operating Officer and also
managed its Baton Rouge and Texas commercial banking operations.
ROBERT B. THOMAS, JR.
Mr. Thomas, age 49, serves as Executive Vice President of the Company and
Chairman and President of UCLIC, a wholly-owned subsidiary of the Company. Mr.
Thomas joined UCLIC in February of 1993. Prior to his employment with UCLIC, Mr.
Thomas served as a principal of Lewis and Ellis, Inc., a Dallas, Texas actuarial
consulting firm and, through Lewis and Ellis, served as consulting actuary to
UCLIC for approximately 15 years. The Purchaser has informed the Company that
Mr. Thomas will continue to be responsible for the day-to-day operations of
UCLIC after consummation of the Proposed Sale.
55
58
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth certain information on the annual and
long-term compensation for the Chief Executive Officer and each of the five most
highly compensated executive officers of the Company (collectively, the Chief
Executive Officer and such other executive officers shall be referred to herein
as the "Named Executive Officers") for the years ended December 31, 1995, 1994
and 1993.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------------------
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
NAME AND BONUS COMPENSATION AWARDS OPTIONS(4)/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) ($)(3) SARS(#) ($)(5)
- -------------------------- ---- --------- ------- ------------ ---------- ----------- ------------
J. Terrell Brown.......... 1995 393,750 833,616 -- 304,000 50,000 39,308
Chairman and Chief 1994 378,304 297,205 -- -- -- 41,240
Executive Officer 1993 375,625 76,395 -- -- 110,000 32,114
W. Roger Clark(7)......... 1995 135,106 -- -- 160,000 20,000 20,277
Executive Vice President 1994 168,702 136,094 -- -- -- 23,164
and President, UCLC 1993 155,269 39,027 -- -- 44,000 12,382
John D. Dienes, .......... 1995 266,250 475,699 -- 208,000 24,000 20,505
President and Chief 1994 220,864 241,805(6) -- -- 54,998 --
Operating Officer 1993 -- -- -- -- -- --
C. Geron Hargon(8)........ 1995 66,668 359,025 -- 437,500 30,000 --
Executive Vice President 1994 -- -- -- -- -- --
and President, UCLC 1993 -- -- -- -- -- --
Dale E. Redman,........... 1995 246,095 445,298 -- 208,000 24,000 19,592
Executive Vice President 1994 236,014 189,131 -- -- -- 23,711
and Chief Financial 1993 218,333 55,793 -- -- 44,000 14,218
Officer
Robert B. Thomas, Jr. .... 1995 219,625 395,818 -- 160,000 -- 20,505
Executive Vice President 1994 209,366 168,116 -- -- -- 21,882
and Chairman and 1993 175,269 49,732 -- -- 44,000 --
President, UCLIC
- ---------------
(1) Amounts awarded under the Company's Management Incentive Plan for the
respective fiscal years, even if deferred. Included in the amounts awarded
to J. Terrell Brown in 1995, 1994 and 1993 were $16,562, $16,729, and
$16,998, respectively, which were deferred pursuant to an unfunded salary
deferral agreement entered into between the Company and Mr. Brown in 1989.
The aggregate amount payable by the Company to Mr. Brown at February 29,
1996 was $136,023.
(2) No personal benefits, which are non-cash compensation, are disclosed in the
"Other Annual Compensation" column since they did not exceed the lesser of
either $50,000 or 10% of the total annual salary and bonus for any of the
named executive officers.
(3) Reflects the value of the shares of restricted stock based upon the closing
price of the Company's Common Stock reported on the National Association of
Securities Dealers Quotations National Stock Market (the "Nasdaq Stock
Market") on the date of award. The shares of the restricted stock vest in
50% increments on the anniversary date of the award in each of the two years
thereafter except the shares awarded to Mr. Hargon, which vest in 25%
increments on the anniversary date of the award in each of the four years
thereafter. The awards are also subject to certain performance-based
conditions. During the
56
59
restriction period for the shares of restricted stock, the named executive
officer is entitled to receive dividends and exercise voting privileges on
such restricted shares. At December 29, 1995, the shares of restricted stock
held by Messrs. Brown, Clark, Dienes, Hargon, Redman and Thomas had a fair
market value of $501,125, $263,750, $342,875, $369,250, $342,875 and
$263,750, respectively.
(4) Represents options granted under the Company's stock option plans for
employees after giving effect to stock dividends. All options have been
granted at an exercise price equal to 100% of the fair market value of the
Common Stock on the date of the grant. For additional information regarding
options granted during the last fiscal year, see "Option Grants in Last
Fiscal Year," and for information regarding current holdings of options, see
"Options Exercised and Year-End Values of Unexercised Options."
(5) Amounts reported include amounts contributed or accrued for 1995, 1994 and
1993 for the named officers under the Company's Employee Stock Ownership
Plan ("ESOP") and Employees' Savings Plan and Trust. Amounts for J. Terrell
Brown for 1995, 1994 and 1993 also include $16,729, $16,998 and $17,134,
respectively, in loans to Mr. Brown for payment of a portion of the premium
on a life insurance policy. The loans were made without interest and are
secured by an assignment of the policy. See "Transactions with Management
and Others."
(6) Includes $41,667 paid to Mr. Dienes in the form of a bonus upon commencement
of his employment with the Company.
(7) Information regarding the compensation of Mr. Clark is included in this
table and those that follow because he served as an executive officer during
1995, even though he retired effective as of August 31, 1995.
(8) Information regarding the compensation of Mr. Hargon is included in this
table and those that follow because he served as an executive officer during
1995, even though he did not join the Company until September 1, 1995.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information regarding the options granted
during the year ended December 31, 1995, to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(1) YEAR ($/SH)(1) DATE 5% ($) 10% ($)
- --------------------------------------- ---------- ---------- --------- ----------------- -------- ----------
J. Terrell Brown....................... 50,000 7.5 22.375 June 14, 2005 703,576 1,782,999
W. Roger Clark......................... 20,000 3.0 22.375 June 14, 2005 281,430 713,200
John D. Dienes......................... 24,000 3.6 22.375 June 14, 2005 337,716 855,840
C. Geron Hargon........................ 30,000 4.5 31.25 September 1, 2005 589,589 1,494,134
Dale E. Redman......................... 24,000 3.6 22.375 June 14, 2005 337,716 855,840
- ---------------
(1) The options granted to the Named Executive Officer were awarded under the
Company's 1993 Stock Incentive Plan (the "1993 Plan"). The options granted
under the 1993 Plan are not exercisable, except in limited circumstances,
until three years have elapsed from the date such options are granted. The
exercise price of the options, which can be no less than 100% of the fair
market value of a share of Common Stock on the date of grant, has been
adjusted to reflect a 100% stock dividend paid by the Company on October 20,
1995. The number of shares underlying the above options have also been
adjusted to reflect such stock dividend. The options will expire ten years
from the date of grant.
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60
OPTIONS EXERCISED AND YEAR-END VALUES OF UNEXERCISED OPTIONS
The following table sets forth information, as of December 31, 1995,
regarding the number of shares received and the value realized upon exercise of
stock options, and the number and value of exercisable and unexercisable options
to purchase Common Stock of the Company held by any of the Named Executive
Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END 1995 OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END(#) YEAR-END($)(1)(2)(3)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
J. Terrell Brown................. -- -- 153,824 160,000 $3,534,794 $ 2,394,995
W. Roger Clark................... 69,060 $1,598,962 -- 64,000 -- 957,998
John D. Dienes................... -- -- -- 78,998 -- 534,109
Dale E. Redman................... -- -- 103,488 68,000 2,383,065 973,998
C. Geron Hargon.................. -- -- -- 30,000 -- --
Robert B. Thomas, Jr............. -- -- 22,000 22,000 489,625 438,999
- ---------------
(1) All options were awarded at the fair market value of the shares of Common
Stock on the date of the grant.
(2) Values in each column are based on the closing price, as reported on the
Nasdaq Stock Market, of the Company's Common Stock on December 29, 1995
($26.375).
(3) The exercise prices of the reported options range from $2.77 to $31.25 per
share (as adjusted for stock dividends) with a weighted average exercise
price of $9.91 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors during
1995 were Richard A. Campbell, Harris J. Chustz, Jr., Robert D. Kilpatrick and
O. Miles Pollard, Jr. No member of the Compensation Committee was an officer or
employee of the Company or any of its subsidiaries during 1995. No executive
officer of the Company served during 1995 as a director or as a member of the
compensation committee of another entity, one of whose executive officers served
as a director or on the Compensation Committee of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The compensation program for executives and key employees of the Company is
administered by the Compensation Committee (the "Committee") of the Company's
Board of Directors. During 1995, the Committee was comprised of the following
members, each of whom were outside, independent directors of the Company:
Richard A. Campbell, Chairman, Harris J. Chustz, Jr., Robert D. Kilpatrick and
O. Miles Pollard, Jr. In accordance with the rules and regulations of the
Securities and Exchange Commission, the Committee offers the following report on
the compensation policies for the executive officers and key employees of the
Company. This report outlines the duties of the Committee with respect to
executive compensation, the components of the Company's executive officer
compensation program and the basis on which 1995 compensation was determined for
the executive officers of the Company, with particular focus on the 1995
compensation for the Company's Chief Executive Officer (the "CEO").
Duties of the Committee include establishing the compensation program for
the CEO, consulting with the CEO and approving compensation for other executive
officers, administering the Company's Management Incentive Plan including the
approval of annual amounts to be distributed as bonuses thereunder, and
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administering the Company's stock option plans for employees. In performing
these duties, the Committee focuses upon: (i) providing a competitive
compensation program that enables the Company to attract, retain and motivate a
high-quality executive management team focused on enhancing shareholder value;
(ii) coordinating compensation programs with the Company's annual and long-term
objectives and strategies; and (iii) providing compensation opportunities that
are based on the performance of the Company.
The Committee's overall philosophy on executive compensation, of course, is
to link compensation to the value and level of performance of the executive. To
achieve this, various pay delivery systems are utilized, including principally
base salary, cash bonuses, and equity-based incentives, which include the award
of stock options and restricted stock. The compensation decisions of the
Committee relative to the Company's executive officers and key employees are
described below as to each pay delivery system.
MANAGEMENT COMPENSATION
Base Salary. The salary levels of the Company's executive officers are
reviewed by the Committee annually. In determining appropriate base-salary
levels, the Committee considers such factors as duties and responsibilities
inherent in the position in question, initiative, performance, tenure and pay
practices for executives of other companies in the financial services industry,
as well as business conditions generally prevailing in the mortgage and
insurance industries.
While the Company achieved record earnings in 1994, the base salary levels
of executives were not increased substantially for 1995. Rather, for year-end
1995, executives received cash bonuses that were significantly higher than in
prior years as a result of Company performance.
Cash Bonuses. Annual awards are made to executives and key employees of
cash compensation pursuant to the Company's Management Incentive Plan. The cash
bonuses are based upon the attainment by the Company of financial objectives
based on return on equity during the prior year. Awards are made from a bonus
pool determined as a percentage of the Company's prior year net income as
specified by the Committee; however, funding of the bonus pool is capped at 10%
of after tax net income. Plan participants are assigned to one of five
eligibility levels based on the participant's contribution to and impact upon
the success of the Company. Bonuses are not paid unless a specified threshold
level of financial performance is achieved by the Company, which is presently
set at a minimum of a 10% return on equity. Accordingly, compensation of
executive officers and key employees is generally higher during years in which
Company performance meets or exceeds the specified goals. Net income for the
year ended December 31, 1995, totaled $69.5 million compared to $49.5 million
during 1994. As a result, total cash bonuses paid to 145 individuals
participating in the Management Incentive Plan during 1995 was approximately
$5.2 million, compared to cash bonuses of approximately $2.6 million paid to 102
individuals participating in the plan during 1994. An amendment to the
Management Incentive Plan approved at the 1995 Annual Meeting of Shareholders
allows a participant to submit an advance written election to the Committee
requesting that all or part of the award otherwise payable thereunder in cash,
be paid in shares of the Company's Common Stock. The Committee believes that
this election mechanism further facilitates a tie between employee compensation
and the Company's performance as reflected in the value of its Common Stock.
Equity-Based Incentives. The Company maintains stock incentive plans to
provide officers, supervisory personnel, other key employees and consultants
with additional incentive to promote the financial success of the Company
through the award of stock options and shares of restricted stock. Options
granted under the Company's 1993 Stock Incentive Plan ("the 1993 Plan") have
generally been long-term (10 years) and vest three years after the date of
grant. With such features, the Company considers stock options as a way of
aligning the interests of management with the long-term interests of the
Company's shareholders and inducing such executives to remain with the Company
on a long-term basis. During 1995, options (as adjusted for the 100% common
stock dividend paid on October 20, 1995) to purchase the Company's Common Stock
were awarded as follows: Mr. Brown, 50,000 shares; Mr. Clark, 20,000; Mr.
Dienes, 24,000; Mr. Hargon, 30,000; and Mr. Redman, 24,000. The exercise price
of such options is $22.375 per share, the fair market value of the shares of
Common Stock on the date of grant (as adjusted for stock dividends), except for
the options awarded to Mr. Hargon, which have an exercise price of $31.25 per
share (as adjusted), the fair market value
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on the date of award, the effective date of Mr. Hargon's employment. As of
December 31, 1995, options to purchase in the aggregate approximately 1.5
million shares of the Company's Common Stock were held by 323 employees under
the Company's stock option plans for employees. Included in this amount as of
December 31, 1995, were options to purchase 702,310 shares of the Company's
Common Stock at an average exercise price of $9.91 per share held by the
executive officers named in the Summary Compensation Table. On February 23,
1995, the Committee and the Board of Directors authorized an amendment to the
1993 Plan to allow the award of restricted stock thereunder, and the Company's
shareholders approved such amendment at the 1995 Annual Meeting of Shareholders.
The Committee has made the following awards of restricted stock (as adjusted to
reflect a 100% Common Stock dividend paid by the Company on October 20, 1995)
under the 1993 Plan: Mr. Brown, 19,000 shares; Mr. Clark, 10,000 shares; Mr.
Dienes, 13,000 shares; Mr. Hargon, 14,000 shares; Mr. Redman, 13,000 shares; and
Mr. Thomas, 10,000 shares. Except for the award to Mr. Hargon, each of the
awards to the foregoing executives vest in 50% increments on the first and
second anniversary date of the award, if (i) the executive is still in the
employ of the Company on each date and (ii) the Company reaches certain
performance levels established by the Committee which, for the awards above, is
a 10% annual return on equity for each year ending December 31. Mr. Hargon's
award vests in 25% increments on each of November 1, 1996, 1997, 1998 and 1999,
if (i) Mr. Hargon is still employed by the Company on such dates; and (ii) the
Company attains a 10% return on equity for the twelve-month period ending on
each of September 30, 1996, 1997, 1998 and 1999. On February 23, 1996, a
restriction period lapsed, and because the Company reached the performance level
established for the year ended December 31, 1995, 50% of the shares of
restricted stock awarded to Messrs. Brown, Clark, Dienes, Redman and Thomas
vested. If the Proposed Sale is consummated, the Committee has decided to waive
the restriction period and performance goal condition for the remaining
restricted shares of Mr. Thomas.
As noted above, an amendment to the Management Incentive Plan allows
participants to elect to receive shares of Common Stock in lieu of cash
thereunder. This amendment allows employees of the Company to increase their
equity interests in the Company at no cost to the employee, and concomitantly
reduces the cash necessary for the Company to pay bonuses. Further, the Company
considers this amendment as well as the amendment to the Company's 1993 Plan,
which allows the award of restricted stock thereunder, as additional means of
(i) providing compensation through equity-based incentives; and (ii) linking the
interests of management with the long-term interests of the Company and its
shareholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In establishing the compensation for Mr. Brown, the Committee observes the
same guidelines as set forth for executive officers generally. No specific
weighting is assigned to these guidelines, or factors, in determining the CEO's
compensation. During 1995, the base salary of Mr. Brown was increased by 5%
pursuant to the guaranteed increase in base salary under his employment contract
with the Company, which is discussed in greater detail below. The most
significant increase in total compensation of Mr. Brown for 1995 resulted from
his participation in the Management Incentive Plan, which is based upon the
performance of the Company as discussed above.
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POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deduction allowable to the Company for compensation paid to the Chief Executive
Officer and each of the four other most highly compensated executive officers to
$1 million. Qualified performance-based compensation is excluded from this
limitation if certain requirements are met. The Company's policy is generally to
preserve the Federal income tax deductibility of compensation paid, to the
extent feasible. The Committee believes that awards under the Company's
Management Incentive Plan and its awards of options made under stock option
plans for employees will qualify as performance-based compensation and thereby
be excluded from the $1 million limitation. Notwithstanding the Company's policy
to preserve the Federal income tax deductibility of compensation payments, under
certain circumstances, the Committee, in its discretion, may authorize payments,
such as salary, bonuses or otherwise that may cause an executive officer's
income to exceed the deductible limits.
Richard A. Campbell, Chairman
Harris J. Chustz, Jr.
Robert D. Kilpatrick
O. Miles Pollard, Jr.
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EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has employment contracts with key management employees,
including Messrs. Brown and Redman. An employment contract between the Company
and Mr. Dienes expired in February 1996. The term of the contracts with Messrs.
Brown and Redman extends to June 1, 1997. The contracts with Messrs. Brown and
Redman, which were originally executed in 1981, generally require payment of a
minimum base salary with a 5% guaranteed annual increase for the term of the
contracts. The Company plans to execute, during 1996, an employment contract
with Mr. Hargon that will provide for a minimum base salary with a guaranteed
annual increase for the term of the contract.
The Company also has in effect deferred compensation agreements with
Messrs. Brown and Redman pursuant to which, upon retirement at or after age 55,
the employee will receive deferred compensation payments in monthly payments for
10 years. The deferred compensation amount increases based on the number of
years of service after age 55, with a cap at age 70. For Messrs. Brown and
Redman, should they elect to exercise this agreement at age 55, they will
receive $35,000 per annum for the 10 year period. Should they wait until age 65
to exercise this agreement, they will receive $200,000 and $135,000 per annum,
respectively, for the 10 year period. The Company has purchased life insurance
on the lives of Messrs. Brown and Redman to fund its obligations under these
deferred compensation agreements. Under a separate split dollar agreement, the
beneficiaries of Messrs. Brown and Redman will receive a death benefit equal to
the policy value, $1,365,000 and $1,120,000, respectively, minus the lesser of
the cash value of the policy or premiums paid and any policy indebtedness to the
insurer. Under an additional unfunded salary deferral agreement entered into in
1989, a specified amount of compensation otherwise payable to Mr. Brown is
credited to an account to be paid to Mr. Brown or beneficiaries designated by
him on the earlier of Mr. Brown's death or termination of employment. During
1995 Mr. Brown's compensation, as reflected in the Bonus section of the Summary
Compensation Table, includes $16,562 which was deferred pursuant to this
agreement.
In addition, the Company has supplemental retirement agreements with
Messrs. Clark, Dienes and Thomas pursuant to which, upon retirement, the
employee will receive monthly payments for 15 years. The annual amounts payable
under such agreements are as follows: Mr. Clark, $60,000; Mr. Dienes, $84,000;
and Mr. Thomas, $60,000. The Company has purchased life insurance on the lives
of Messrs. Clark, Dienes and Thomas to fund its obligations under these
agreements.
Although not the purpose of these employment, deferred compensation and
supplemental retirement agreements, a possible effect of such contracts may be
to discourage or deter a potential tender offer for the Company.
During 1995, the Company entered into change of control contracts with
Messrs. Brown, Dienes, Hargon and Redman. The contracts provide, in general,
that each executive will be entitled to a lump sum payment of two years salary
and bonus plus the continuation of certain benefits if the executive is
terminated without cause or his duties or responsibilities are diminished within
24 months after a change of control of the Company. The Company believes that
these contracts are important in retaining qualified management through a
transition in ownership, if a change were to occur, by providing such executives
with a certain comfort level during such transition so that they can focus on
what is in the best interests of the shareholders rather than on their position
with the Company.
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STOCK PERFORMANCE GRAPH
The following line graph provides a comparison of the total shareholder
return on the Company's Common Stock with the return of the NASDAQ Index for
U.S. Companies and the NASDAQ Index of Financial Stocks for the period
commencing January 1, 1991 and ending December 29, 1995. All amounts have been
calculated as if all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN OF THE COMPANY, NASDAQ (U.S. COMPANIES)
AND NASDAQ FINANCIAL STOCKS
UNITED COM- NASDAQ STOCK
PANIES FINAN- NASDAQ STOCK MARKET
MEASUREMENT PERIOD CIAL MARKET (U.S. FINANCIAL
(FISCAL YEAR COVERED) CORPORATION COMPANIES) STOCKS
1990 100.0 100.0 100.0
1991 146.1 160.5 154.7
1992 129.3 186.9 221.3
1993 580.6 214.5 257.2
1994 443.3 209.7 257.8
1995 869.3 296.5 375.6
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company and its subsidiaries have, from time to time, made loans to
certain of its executive officers and directors and/or to entities in which such
persons have a material interest. Each of these loans were secured by a first
mortgage on the residence, and/or commercial or other real estate. There were no
such loans outstanding during 1995 or through March 15, 1996.
Since 1989, the Company has made loans to Mr. Brown without interest,
secured by an assignment of a life insurance policy owned by Mr. Brown. The
loans were incurred to pay a portion of the premium on the assigned life
insurance policy. The Company has agreed to make annual loans of comparable
amounts for payment of a portion of these insurance premiums through the earlier
of the date of termination of Mr. Brown's employment or 2004. As of March 1,
1996, the aggregate principal and accrued interest owed by Mr. Brown on such
loans was $136,023.
In the ordinary course of business, the Company and its subsidiaries have
purchased liability, worker's compensation, fidelity bond and various property
and other insurance coverage from the Wright Insurance Agency, Inc., of which
Mr. Wright is the majority owner. Premiums paid by the Company and its
subsidiaries for this insurance coverage were approximately $1.9 million for the
year ended December 31, 1995. The Company and its subsidiaries expect to
purchase additional insurance coverage in the future from the Wright Insurance
Agency, Inc. The Company believes that the premiums paid to the Wright Insurance
Agency, Inc. for the above-described coverage are comparable to those premiums
that would be charged by an unaffiliated third party for insurance of similar
coverage.
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At December 31, 1995, the Company guaranteed loans to the ESOP made by a
financial institution with an aggregate principal balance outstanding of $6.0
million. The loans are to be repaid with interest at rates which range from 7.5%
to 7.7% per annum. The proceeds of the loans were used by the ESOP for purchases
of the Company's Common Stock.
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act"), requires the Company's directors and certain officers and
persons who own more than ten percent of the Company's Common Stock to file with
the SEC reports of ownership and changes in ownership of the Common Stock.
Directors, certain officers and greater than ten percent beneficial owners are
required by applicable regulations to furnish the Company with all Section 16(a)
forms they file.
Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no Form
5 reports were required to be filed, the Company believes that, during 1995 all
of its directors and pertinent officers complied with all applicable filing
requirements under Section 16(a).
AUDITOR SERVICES
The Company's consolidated financial statements for the year ended December
31, 1995, incorporated by reference in this Proxy Statement were audited by the
firm of Deloitte & Touche LLP as set forth in their report with respect thereto.
Such firm has been selected as the Company's auditors until replaced by the
Board of Directors and is not being submitted for approval or ratification by
the shareholders. A representative of such firm will be present at the 1996
Annual Meeting of Shareholders to respond to any appropriate questions and will
have the opportunity to make a statement, if he or she so desires.
SHAREHOLDER PROPOSALS
Any shareholder's proposal to be considered by the Company for inclusion in
the 1997 Annual Meeting of Shareholders proxy material must be submitted in
accordance with applicable regulations of the Securities and Exchange Commission
and received by the Company at its principal executive offices no later than
January 21, 1997.
In order for a shareholder to bring any business or nominations before the
Annual Meeting, certain conditions set forth in Section 2.8 and Subsection 4.9.2
of the by-laws of the Company must be complied with, including, but not limited
to, the delivery of a notice to the Secretary of the Company not less than 60
days in advance of the Annual Meeting, or if fewer than 70 days notice or prior
disclosure of the date of the Annual Meeting is given or made to the
shareholders, not later than the tenth day following the day on which the notice
of the date of the Annual Meeting was mailed or such prior disclosure was made.
The requirements as to the form and content of such advance notice are set forth
in Section 2.8 and Subsection 4.9.2 of the Company's by-laws, a copy of which is
available upon request from the Company's Secretary, at (504) 924-6007.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Company with the SEC
pursuant to the Exchange Act are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995 as amended by Amendment No. 1 on Form 10-K/A-1 and
Amendment No. 2 on Form 10-K/A-2;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
(c) The Company's Current Report on Form 8-K filed on February 9,
1996;
(d) The description of the Company's 6 3/4% PRIDESSM Convertible
Preferred Stock contained in the Company's Registration Statement on Form
8-A filed on June 9, 1995;
(e) The description of the Company's Preferred Share Purchase Rights
contained in the Company's Registration Statement on Form 8-A filed on
August 5, 1994;
(f) UCLIC's Annual Report on Form 10-K for the year ended December 31,
1995; and
(g) UCLIC's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.
All documents filed by the Company with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement shall be deemed to be incorporated by reference in this Proxy
Statement and to be part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO DALE
E. REDMAN, CHIEF FINANCIAL OFFICER, UNITED COMPANIES FINANCIAL CORPORATION, 4041
ESSEN LANE, BATON ROUGE, LOUISIANA, 70809. TELEPHONE REQUESTS MAY BE DIRECTED TO
MR. REDMAN AT (504) 924-6007.
OTHER MATTERS
The Board of Directors knows of no other matters which may be properly, or
are likely to be, brought before the Annual Meeting. However, if any proper
matters are brought before the meeting, the persons named in the enclosed Proxy
will vote thereon as the Board of Directors recommends.
BY ORDER OF THE BOARD OF DIRECTORS
SHERRY E. ANDERSON,
Secretary
Baton Rouge, Louisiana
May 21, 1996
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EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------------
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
---------------------
BETWEEN
UNITED COMPANIES FINANCIAL CORPORATION
AS SELLER
AND
UC LIFE HOLDING CORP.
AS PURCHASER
DATED AS OF JANUARY 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASE OF ALL OF THE OUTSTANDING CAPITAL STOCK OF UNITED
COMPANIES LIFE INSURANCE COMPANY.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
69
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS............................................................... A-1
SECTION 1.01. Certain Defined Terms................................................ A-1
ARTICLE II PURCHASE AND SALE........................................................ A-8
SECTION 2.01. Purchase and Sale of the Shares...................................... A-8
SECTION 2.02. Purchase Price....................................................... A-8
SECTION 2.03. Closing.............................................................. A-8
SECTION 2.04. Closing Deliveries by the Seller..................................... A-8
SECTION 2.05. Closing Deliveries by the Purchaser.................................. A-8
SECTION 2.06. Purchase Price Adjustment............................................ A-8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER............................ A-10
SECTION 3.01. Organization, Authority and Qualification of the Seller.............. A-10
SECTION 3.02. Organization, Authority and Qualification of the Company............. A-10
SECTION 3.03. Capital Stock of the Company; Ownership of the Shares................ A-11
SECTION 3.04. Subsidiaries......................................................... A-11
SECTION 3.05. Corporate Books and Records.......................................... A-12
SECTION 3.06. No Conflict.......................................................... A-12
SECTION 3.07. Governmental and Other Authorizations; Notices and Consents.......... A-12
SECTION 3.08. Financial Information and Books and Records.......................... A-13
SECTION 3.09. Reserves............................................................. A-14
SECTION 3.10. No Undisclosed Liabilities or Capital Commitments.................... A-14
SECTION 3.11. Acquired Assets...................................................... A-14
SECTION 3.12. Conduct in the Ordinary Course; Absence of Certain Changes, Events
and Conditions..................................................... A-15
SECTION 3.13. Litigation........................................................... A-17
SECTION 3.14. Certain Interests.................................................... A-17
SECTION 3.15. Compliance with Laws................................................. A-17
SECTION 3.16. Environmental and Other Permits and Licenses; Related Matters........ A-18
SECTION 3.17. Material Contracts................................................... A-19
SECTION 3.18. Intellectual Property................................................ A-20
SECTION 3.19. Real Property........................................................ A-21
SECTION 3.20. Tangible Personal Property........................................... A-22
SECTION 3.21. Assets............................................................... A-22
SECTION 3.22. Insurance Issued..................................................... A-22
SECTION 3.23. Distributors......................................................... A-23
SECTION 3.24. Employee Benefit Matters............................................. A-23
SECTION 3.25. Labor Matters........................................................ A-25
SECTION 3.26. Key Employees........................................................ A-26
SECTION 3.27. Risk Management...................................................... A-26
SECTION 3.28. Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney.......... A-27
SECTION 3.29. Full Disclosure...................................................... A-27
SECTION 3.30. Proxy Statement...................................................... A-28
SECTION 3.31. Brokers.............................................................. A-28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................... A-28
SECTION 4.01. Organization and Authority of the Purchaser.......................... A-28
SECTION 4.02. No Conflict.......................................................... A-28
SECTION 4.03. Governmental and Other Authorizations; Notices and Consents.......... A-29
SECTION 4.04. Investment Purpose................................................... A-29
A-i
70
PAGE
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SECTION 4.05. Litigation........................................................... A-29
SECTION 4.06. Brokers.............................................................. A-29
SECTION 4.07. Organization and Authority of the Guarantor.......................... A-29
SECTION 4.08. Funding and Assets................................................... A-29
ARTICLE V ADDITIONAL AGREEMENTS..................................................... A-30
SECTION 5.01. Conduct of Business Prior to the Closing............................. A-30
SECTION 5.02. Access to Information................................................ A-31
SECTION 5.03. Confidentiality by Seller............................................ A-31
SECTION 5.04. Governmental and Other Authorizations; Notices and Consents.......... A-32
SECTION 5.05. Notice of Developments............................................... A-33
SECTION 5.06. Acquisition Proposals................................................ A-33
SECTION 5.07. Use of Names and Intellectual Property............................... A-34
SECTION 5.08. Non-Competition...................................................... A-34
SECTION 5.09. Release of Indemnity and other Obligations........................... A-35
SECTION 5.10. Further Action....................................................... A-35
SECTION 5.11. Release of Liens on Assets........................................... A-35
SECTION 5.12. Excluded Assets...................................................... A-35
SECTION 5.13. Services............................................................. A-35
SECTION 5.14. Termination of Inter-Company Arrangements............................ A-36
SECTION 5.15. Commercial Real Estate Group......................................... A-36
SECTION 5.16. Master Loan Sale Agreement........................................... A-36
SECTION 5.17. Proxy Statement...................................................... A-37
SECTION 5.18. Meeting of the Stockholders.......................................... A-37
SECTION 5.19. Appraisal Rights..................................................... A-37
SECTION 5.20. Location............................................................. A-37
SECTION 5.21. Rating Agencies...................................................... A-37
SECTION 5.22. Confidentiality by Purchaser......................................... A-37
SECTION 5.23. New Director and Officer Slates...................................... A-38
SECTION 5.24. Section 338(h)(10) Election.......................................... A-38
SECTION 5.25. Cash Dividend........................................................ A-38
ARTICLE VI EMPLOYEE MATTERS......................................................... A-38
SECTION 6.01. 401(k) Plan and ESOP................................................. A-38
SECTION 6.02. Supplemental Pension Benefits........................................ A-38
SECTION 6.03. Other Benefits; Qualified Plans...................................... A-38
SECTION 6.04. No Third Party Beneficiary Rights or Rights to Continued
Employment......................................................... A-39
ARTICLE VII TAX MATTERS............................................................. A-39
SECTION 7.01. Representations and Warranties....................................... A-39
SECTION 7.02. Section 338(h)(10) Election.......................................... A-40
SECTION 7.03. Access to Information................................................ A-41
SECTION 7.04. Returns and Payments................................................. A-41
SECTION 7.05. Indemnity............................................................ A-41
SECTION 7.06. Contests............................................................. A-42
SECTION 7.07. Time of Payment...................................................... A-43
SECTION 7.08. Cooperation and Exchange of Information.............................. A-44
SECTION 7.09. Retention of Tax Returns and Records................................. A-44
SECTION 7.10. Conveyance Taxes..................................................... A-44
SECTION 7.11. Miscellaneous........................................................ A-44
SECTION 7.12. Refunds of Taxes..................................................... A-45
SECTION 7.13. Tax Cooperation by Successors and Assigns............................ A-45
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PAGE
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ARTICLE VIII CONDITIONS TO CLOSING.................................................. A-45
SECTION 8.01. Conditions to Obligations of the Seller.............................. A-45
SECTION 8.02. Conditions to Obligations of the Purchaser........................... A-47
ARTICLE IX SURVIVAL AND INDEMNIFICATION............................................. A-49
SECTION 9.01. Survival of Representations, Warranties and Covenants................ A-49
SECTION 9.02. Indemnification...................................................... A-49
SECTION 9.03. Limits on Indemnification............................................ A-53
ARTICLE X TERMINATION AND WAIVER.................................................... A-53
SECTION 10.01. Termination by the Seller or Purchaser............................... A-53
SECTION 10.02. Effect of Termination................................................ A-55
SECTION 10.03. Waiver............................................................... A-55
ARTICLE XI GENERAL PROVISIONS....................................................... A-55
SECTION 11.01. Guarantee............................................................ A-55
SECTION 11.02. Expenses............................................................. A-55
SECTION 11.03. Notices.............................................................. A-56
SECTION 11.04. Public Announcements................................................. A-57
SECTION 11.05. Headings............................................................. A-57
SECTION 11.06. Severability......................................................... A-57
SECTION 11.07. Entire Agreement..................................................... A-57
SECTION 11.08. Assignment........................................................... A-57
SECTION 11.09. No Third Party Beneficiaries......................................... A-57
SECTION 11.10. Amendment............................................................ A-57
SECTION 11.11. Governing Law........................................................ A-58
SECTION 11.12. Counterparts......................................................... A-58
SECTION 11.13. Specific Performance................................................. A-58
SECTION 11.14. Further Clarification................................................ A-58
DISCLOSURE SCHEDULE
3.02 Organization, Authority and Qualification of the Company
3.04 Subsidiaries
3.07 Governmental Consents and Approvals
3.10 No Undisclosed Liabilities on Capital Commitments
3.12 Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions
3.13 Litigation
3.14 Certain Interests
3.15 Compliance with Laws
3.16 Environmental and Other Permits and Licenses; Related Matters
3.17 Material Contracts
3.18 Intellectual Property
3.19 Real Property
3.20 Tangible Personal Property
3.22 Insurance Issued
3.23 Distributors
3.24 Employee Benefit Matters
3.25 Labor Matters
3.26 Key Employees
3.27 Risk Management
3.28 Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney
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5.01 Certain Prohibited Actions
5.04 Consents and Approvals
5.12 Excluded Assets
7.01 Tax Matters
EXHIBITS
Exhibit 1 List of Individuals in connection with Special Knowledge Definition
Exhibit 5.07(a) Seller's Logo
Exhibit 5.13(a) Company Services
Exhibit 5.13(c) Seller Services
Exhibit 5.16 Master Loan Sale Agreement
Exhibit 8.01(f) Dewey Ballantine Legal Opinion
Exhibit 8.02(f) Kantrow, Spaht, Weaver & Blizter (A Professional Law Corporation) Legal
Opinion
Exhibit 8.02(v) Term Sheet for Promissory Note
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AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of January 30,
1996, between UNITED COMPANIES FINANCIAL CORPORATION, a Louisiana company (the
"Seller") and UC LIFE HOLDING CORP., a Delaware corporation (the "Purchaser").
WITNESSETH:
WHEREAS, Seller owns all the issued and outstanding shares (the "Shares")
of common stock, $2.00 par value per share (the "Common Stock"), of United
Companies Life Insurance Company, a Louisiana stock life insurance company (the
"Company");
WHEREAS, the Seller wishes to sell the Shares to the Purchaser, and the
Purchaser wishes to purchase the Shares from the Seller, upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, the Seller and the Purchaser hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Accounting Principles" has the meaning specified in Section 2.06.
"Acquisition Documents" has the meaning specified in Section 9.01.
"Acquisition Proposal" has the meaning specified in Section 5.06.
"Action" means any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
"Actual Income Statement" has the meaning specified in Section 2.06.
"Additional Scheduled Information" has the meaning specified in the
definition of "Disclosure Schedule".
"Adjusted Adjustment Amount" has the meaning specified in Section 2.06.
"Adjustment Amount" has the meaning specified in Section 2.06.
"Adjustment Period" has the meaning specified in Section 2.06.
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Agreement" or "this Agreement" means this Amended and Restated Stock
Purchase Agreement, dated as of the date set forth in the preamble to this
Agreement, between the Seller and the Purchaser (including the Exhibits hereto
and the Disclosure Schedule) and all amendments hereto made in accordance with
the provisions of Section 11.10.
"Asset" or "Assets" has the meaning specified in Section 3.21.
"Balance Sheet" means the statement of assets and the statement of
liabilities, surplus and other funds included in the annual statement of the
Company filed with, or submitted to, the Louisiana Department for the year ended
December 31, 1994, together with all related notes, exhibits and schedules
thereto, a copy of each of which has been delivered to the Purchaser by the
Seller.
"Balance Sheet Date" means June 30, 1995.
"Best" means A.M. Best Company, Inc.
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"Bona Fide Acquisition Proposal" has the meaning set forth in Section
10.01.
"Business" means the life insurance and annuity business and all other
business which are on the date hereof being conducted by the Company and the
Subsidiary.
"Business Day" means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized by law to be closed in The City of New
York or Baton Rouge, Louisiana.
"Calculation Date" has the meaning specified in Section 2.06.
"Cash Dividend" has the meaning specified in Section 5.25.
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. Sections 9601 et seq.
"Cigna Partnership" means CIGNA Mezzanine Partners III, L.P.
"Claim Notice" has the meaning specified in Section 9.02.
"Closing" has the meaning specified in Section 2.03.
"Closing Income Statement" has the meaning specified in Section 2.06.
"Closing Date" has the meaning specified in Section 2.03.
"COBRA" means continuation coverage as set forth in Sections 601 and 602 of
ERISA.
"Code" means the Internal Revenue Code of 1986, as amended through the date
hereof.
"Commercial Real Estate Group" has the meaning specified in Section 5.15.
"Commission" has the meaning specified in Section 3.15.
"Common Stock" has the meaning specified in the recitals to this Agreement.
"Company" has the meaning specified in the recitals to this Agreement.
"Company Annual Statements" has the meaning specified in Section 3.08.
"Company GAAP Statements" has the meaning specified in Section 3.08.
"Company Interim GAAP Statement" has the meaning specified in Section 3.08.
"Company Quarterly Statements" has the meaning specified in Section 3.08.
"Company Separate Accounts Annual Statement" has the meaning specified in
Section 3.08.
"Company Services" has the meaning specified in Section 5.13.
"Consistent With Past Practice" means substantially consistent with the
past applicable practice of the Company or the Subsidiary, as applicable, but
without regard to inconsistencies of practice resulting from changes in the
assets, liabilities, business or products of the Company or the Subsidiary, as
applicable.
"Control" (including, without limitation, the terms "controls", "controlled
by" and "under common control with"), with respect to the relationship between
or among two or more Persons, means the possession, directly or indirectly, or
as trustee or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
"Corrected Amount" has the meaning specified in Section 2.06.
"Dewey Ballantine" means Dewey Ballantine, legal counsel to the Purchaser
and the Guarantor in connection with this Agreement and the transactions
contemplated hereby.
"D&P" means Duff & Phelps Credit Rating Co.
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"Disclosure Schedule" means the schedules attached hereto and delivered to
the Purchaser by the Seller together with this Agreement, as amended in writing
from time to time during the period commencing on the date hereof through the
date that is 5 Business Days prior to the Closing Date by delivery by the Seller
to the Purchaser (information contained in such amendments to the Disclosure
Schedule shall be referred to as "Additional Scheduled Information").
"Encumbrance" or "Encumbrances" means any security interest, pledge,
mortgage, lien (including, without limitation, environmental and tax liens),
charge, encumbrance, adverse claim, preferential arrangement or restriction of
any kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership;
provided, however, that such term does not include the right, if any, imposed by
applicable insurance laws of insurance regulatory authorities to attach such an
encumbrance upon occurrence of certain violations of applicable insurance laws
or regulations; provided, further, that the exercise of such right by any such
authority, or the existence of any such encumbrance due to the exercise of such
regulatory authority, shall be included in the definition of Encumbrance.
"Enhanced Special Knowledge" means (subject to Section 11.14 hereof) (i)
Special Knowledge and (ii) those facts, circumstances and information which the
Seller Knowledge Group should have known in the reasonable conduct of the
Business prior to the Closing Date.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, notices of liability or potential liability,
investigations, proceedings, settlements, consent orders or consent agreements
by any Person relating in any way to, any Environmental Law, Environmental
Permits or Hazardous Materials, or arising from alleged injury or threat of
injury to health, safety or the environment.
"Environmental Law" means any Law, now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof, including,
without limitation, any judicial or administrative order, consent decree or
judgment, relating to or addressing the environment, health, safety or Hazardous
Materials.
"Environmental Lien" means a lien in favor of any Governmental Authority
for any (a) liability under any Environmental Law, or (b) damages arising from,
or costs incurred by, such Governmental Authority in response to a Release of a
Hazardous Material.
"Environmental Permits" means all Permits required under any applicable
Environmental Law.
"ERISA" has the meaning specified in Section 3.24.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning specified in Section 5.12.
"Excluded Assets Value Amount" has the meaning specified in Section 5.12.
"Financial Statements" has the meaning specified in Section 3.08.
"GAAP" means United States generally accepted accounting principles and
practices as in effect at the time of preparation and delivery of the applicable
Financial Statements.
"Governmental Authority" means any United States federal, state or local or
any foreign government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.
"Governmental Order" or "Governmental Orders" means any order, writ,
judgment, injunction, decree, stipulation, determination or award entered by or
with any Governmental Authority.
"Guarantor" has the meaning specified in Section 4.07.
"Hazardous Materials" means any pollutant, hazardous substance, radioactive
substance, toxic substance, hazardous waste, medical waste, radioactive waste,
special waste, petroleum or petroleum-derived
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substance or waste, asbestos, polychlorinated biphenyls, or any hazardous or
toxic constituent thereof and includes, but is not limited to, any substance
defined in or regulated under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all indebtedness of
such Person, whether or not contingent, for borrowed money, (b) all obligations
of such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through (f)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to or in any
other manner invest in the debtor (including, without limitation, any agreement
to pay for property or services irrespective of whether such property is
received or such services are rendered) or (iv) otherwise to assure a creditor
against loss, and (i) all Indebtedness referred to in clauses (a) through (f)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Encumbrance on property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness.
"Indemnified Party" has the meaning specified in Section 9.02.
"Indemnifying Party" has the meaning specified in Section 9.02.
"Indemnity Notice" has the meaning specified in Section 9.02.
"Intellectual Property" means (a) trademarks, service marks, trade dress,
logos, trade names and corporate names, whether or not registered, (b)
copyrights, whether or not registered, (c) registrations of and applications for
registration of any of the foregoing, (d) computer software, including, without
limitation, source code, operating systems and specifications, data, data bases,
files, documentation and other materials related thereto, data and
documentation, (e) trade secrets and confidential, technical and business
information, and (f) whether or not confidential, technology (including, without
limitation, know-how and show-how), research and development information,
drawings, plans, proposals, technical data, copyrightable works, financial,
marketing and business data, pricing information, business and marketing plans
and distributor, policyholder, contractholder and supplier lists and
information.
"Inter-Company Arrangements" has the meaning specified in Section 3.14.
"Investment Advisers Act" means the Investment Advisers Act of 1940, as
amended.
"IRS" means the Internal Revenue Service of the United States.
"Law" or "Laws" means any United States federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order, Permit other requirement
or rule of law.
"Lease" for purposes of Sections 3.17, 3.19 and 3.20 means any and all
leases, subleases, sale/leaseback agreements or similar arrangements, whether or
not capitalized.
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"Leased Real Property" means the real property leased by the Company or the
Subsidiary, as tenant, together with, to the extent leased by the Company or the
Subsidiary, all buildings and other structures, facilities or improvements
currently or hereafter located thereon, all fixtures, systems, equipment and
items of personal property of the Company or the Subsidiary attached or
appurtenant thereto, and all easements, licenses, rights and appurtenances
relating to the foregoing.
"Lender MAEs" means those changes in economic conditions, interest rates or
stock or debt markets (such as, without limitation as to other such changes,
suspensions of trading on major stock exchanges, a general moratorium on
commercial banking activities, and an outbreak of hostilities), the absence of
which are customarily included by lenders in standard loan documentation
(including, without limitation, commitment letters) for loans in connection with
leveraged acquisitions as conditions precedent to the lender's or lenders'
requirement to close the lending transaction.
"Liabilities" means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including, without limitation, those arising under any Law
(including, without limitation, any Environmental Law), Action or Governmental
Order and those arising under any contract, agreement, arrangement, commitment
or undertaking.
"Licensed Intellectual Property" means all Intellectual Property licensed
or sublicensed to the Company or the Subsidiary from a third party.
"Losses" has the meaning specified in Section 9.02.
"Louisiana Department" means the Department of Insurance of the State of
Louisiana.
"Louisiana Lease" has the meaning specified in Section 5.20.
"Master Loan Sale Agreement" has the meaning specified in Section 5.16.
"Material Adverse Effect" means any circumstance, change in, or effect on
the Business, the Company and the Subsidiary taken as a whole (other than
changes in market interest rates or general economic conditions (except for any
of the foregoing which are Lender MAEs)) that, individually or in the aggregate
with any other circumstances, changes in, or effects on, the Business, the
Company and the Subsidiary taken as a whole: (a) is or is reasonably likely to
be materially adverse to the business, operations, prospects, results of
operations or financial condition of the Company and the Subsidiary, taken as a
whole, or (b) is reasonably likely to adversely affect the ability of the
Purchaser, the Company or the Subsidiary to operate or conduct the Business in
the manner in which it is currently operated or conducted by the Company and the
Subsidiary.
"Material Contracts" has the meaning specified in Section 3.17.
"Multiemployer Plan" has the meaning specified in Section 3.24.
"Multiple Employer Plan" has the meaning specified in Section 3.24.
"Name" has the meaning specified in Section 5.07.
"Notice Period" has the meaning specified in Section 9.02.
"Other Departments" has the meaning specified in Section 3.08.
"Owned Intellectual Property" means all Intellectual Property in and to
which the Company or the Subsidiary holds, or has a right to hold, right, title
and interest.
"Owned Real Property" means the real property owned by the Company or the
Subsidiary prior to the Closing (including any properties then in the process of
being foreclosed), together with all buildings and other structures, facilities
or improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company or the Subsidiary
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Permits" has the meaning specified in Section 3.16.
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"Permitted Encumbrances" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of $100,000 in the
aggregate or which are being contested in good faith and for which reserves in
accordance with GAAP have been established on the Financial Statements; (b)
Encumbrances imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's liens and other similar liens arising in the ordinary
course of business securing obligations that (i) are not overdue for a period of
more than 30 days or (ii) are not in excess of $100,000 in the case of a single
property or $250,000 in the aggregate at any time or which are being contested
in good faith and for which reserves in accordance with GAAP have been
established on the Financial Statements; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation or to secure
public or statutory obligations; (d) Liens related to deposits to secure
policyholders' obligations as required by the insurance departments of the
various states; and (e) minor survey exceptions, reciprocal easement agreements
and other customary encumbrances on title to real property that (i) were not
incurred in connection with any Indebtedness, (ii) do not render title to the
property encumbered thereby unmarketable and (iii) do not, individually or in
the aggregate, materially adversely affect the value or use of such property for
its current and reasonably foreseeable purposes.
"Person" means any individual, partnership, firm, corporation, association,
trust, unincorporated organization, governmental authority or other entity, as
well as any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act.
"Plans" has the meaning specified in Section 3.24.
"Pooling and Servicing Agreements" has the meaning specified in Section
5.15.
"Promissory Note" means specified in Section 8.02.
"Proxy Statement" has the meaning specified in Section 3.30.
"Purchase Price" has the meaning specified in Section 2.02.
"Purchase Price Bank Account" means a bank account in the United States of
America to be designated by the Seller in a written notice to the Purchaser at
least five Business Days before the Closing.
"Purchaser" has the meaning specified in the preamble to this Agreement.
"Purchaser Knowledge" means the actual knowledge of the Purchaser Knowledge
Group at or prior to the Closing Date or which the Purchaser Knowledge Group is
conclusively presumed to know, based on facts, circumstances or information
contained or described at any time prior to the Closing Date in the books,
records, files or other documents of the Purchaser Knowledge Group. For purposes
hereof, "Purchaser Knowledge Group" means each of Messrs. David J. Stone, James
P. McDermott, Charles Lubochinski, Michael Prager and Steven W. Fickes.
"Purchaser Knowledge Group" has the meaning specified in the definition of
"Purchaser Knowledge."
"Real Property" means the Leased Real Property and the Owned Real Property.
"Regulations" means the Treasury Regulations (including, without
limitation, Temporary Regulations) promulgated by the United States Department
of Treasury with respect to the Code or other federal tax statutes and in effect
as of the date hereof.
"Release" means the release or threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migrating into the indoor or outdoor environment of any Hazardous Material.
"Reserve Liabilities" has the meaning specified in Section 3.09.
"Returns" has the meaning specified in Section 7.01.
"S&P" means Standard & Poor's Corporation.
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"SAP" means, with respect to an insurance company, the accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
and the insurance regulatory authority in the state in which such insurance
company is domiciled.
"SAP Statements" means the Company Annual Statements and the Company
Quarterly Statements.
"Section 338(h)(10) Election" has the meaning specified in Section 7.02.
"Section 338 Forms" has the meaning specified in Section 7.02.
"Secured Real Property" has the meaning specified in Section 3.16.
"Seller" has the meaning specified in the preamble to this Agreement.
"Seller Group" has the meaning specified in Section 7.01.
"Seller Group Consolidated Returns" has the meaning specified in Section
7.01.
"Seller Master Loan Sale Parties" has the meaning specified in Section
3.01.
"Seller Services" has the meaning specified in Section 5.13.
"Seller's Accountants" means Deloitte & Touche, LLP independent accountants
of the Seller.
"Seller's Knowledge Group" has the meaning specified in the definition of
"Special Knowledge."
"Shares" has the meaning specified in the recitals to this Agreement.
"Special Knowledge" means (subject to Section 11.14 hereof) the actual
knowledge of the executive officers of the Seller or the subsidiaries of the
Seller (including, without limitation, the Company and the Subsidiary) at or
prior to the Closing Date (collectively, the "Seller's Knowledge Group") or
which the Seller's Knowledge Group is conclusively presumed to know, based on
facts, circumstances or information contained or described at any time prior to
the date hereof in the books, records, files or other documents of Seller, the
Company, the Subsidiary or any other subsidiary of the foregoing. For purposes
hereof, the executive officers of the Seller or the subsidiaries of Seller shall
mean the individuals listed on Exhibit 1 hereto.
"Special Meeting" has the meaning specified in Section 3.30.
"Statutory Statements" has the meaning specified in Section 3.08.
"Subsidiary" means United Variable, the only entity which is controlled by
the Company directly or indirectly through one or more intermediaries.
"Tangible Personal Property" has the meaning specified in Section 3.20.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, premiums, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes; license,
registration and documentation fees; and customs duties, tariffs, and similar
charges.
"Tax Returns" has the meaning specified in Section 7.01.
"Third Party" has the meaning specified in Section 5.06.
"Third Party Claim" has the meaning specified in Section 9.02.
"United Variable" means United Variable Services, Inc., a Louisiana
corporation which is wholly-owned by the Company.
"401(k) and ESOP Plans" has the meaning specified in Section 6.01.13
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ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Shares. Upon the terms and subject
to the conditions of this Agreement, at the Closing, the Seller shall sell to
the Purchaser, and the Purchaser shall purchase from the Seller, the Shares.
SECTION 2.02. Purchase Price. The aggregate purchase price for the Shares
shall be $164 million in cash (the "Purchase Price"), as adjusted pursuant to
Section 2.06.
SECTION 2.03. Closing. Upon the terms and subject to the conditions of this
Agreement, the sale and purchase of the Shares contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the offices of Dewey
Ballantine, 1301 Avenue of the Americas, New York, New York at 10:00 A.M. New
York time on the last day of the calendar month following the later to occur of
(i) expiration or termination of all applicable waiting periods under the HSR
Act and (ii) receipt of the last required approval or consent to consummate this
Agreement, or at such other place or at such other time or on such other date as
the Seller and the Purchaser may mutually agree upon in writing (the day on
which the Closing takes place being the "Closing Date"). Immediately prior to
the Closing, Seller shall cause the Company to distribute to Seller the Cash
Dividend as set forth in Section 5.25 and the Excluded Assets as set forth in
Section 5.12.
SECTION 2.04. Closing Deliveries by the Seller. At the Closing, the Seller
shall deliver or cause to be delivered to the Purchaser:
(a) stock certificates evidencing the Shares duly endorsed in blank,
or accompanied by stock powers duly executed in blank, in form satisfactory
to the Purchaser and with all required stock transfer tax stamps affixed,
if applicable;
(b) a receipt from the Seller for (i) the Purchase Price minus the
Cash Dividend and the Excluded Assets Value Amount, (ii) the Adjustment
Amount and (iii) the Promissory Note; and
(c) the opinions, certificates and other documents required to be
delivered pursuant hereto.
SECTION 2.05. Closing Deliveries by the Purchaser. (a) At the Closing, the
Purchaser shall deliver to the Seller:
(i) the Purchase Price minus the Cash Dividend and the Excluded Assets
Value Amount plus the Adjustment Amount by wire transfer in immediately
available funds to the Purchase Price Bank Account or as requested by
Seller; and
(ii) the Promissory Note registered in the name of Seller; and
(iii) the opinions, certificates and other documents required to be
delivered pursuant hereto.
(b) At the Closing, the Purchaser shall deliver to the Company the Excluded
Assets Value Amount, as determined in accordance with Section 5.12(b), by wire
transfer in immediately available funds to one or more accounts designated by
the Company.
SECTION 2.06. Purchase Price Adjustment. (a) Subject to and in accordance
with the procedures set forth in this Section 2.06, the Cash Purchase Price
shall be increased by an amount (the "Adjustment Amount") equal to the income of
the Company, computed in accordance with GAAP net of all applicable income Taxes
and excluding any capital gains or losses (provided, however, that capital gains
or losses attributable to the Cigna Partnership, to the extent not otherwise
included in income, shall be included), for the period beginning on January 1,
1996 and ending on the Closing Date (the "Adjustment Period"), which amount may
be adjusted following the Closing in accordance with this Section 2.06;
provided, however, that the Adjustment Amount shall not include any income or
liability for Taxes arising from the Section 338(h)(10) Election, and for the
distribution of the Excluded Assets, or transfer of the Commercial Real Estate
Group or the payment or the Cash Dividend.
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(b) Not less than ten calendar days prior to the Closing Date (the
"Calculation Date"), Seller shall deliver to the Purchaser (i) an unaudited
consolidated income statement of the Company for the Adjustment Period which
shall include a projection of income from the Calculation Date through the
Closing Date (the "Closing Income Statement") and (ii) Seller's calculation of
the Adjustment Amount. Such Closing Income Statement shall be (i) prepared in
accordance with GAAP and on the basis of the same accounting principles,
consistently applied, as used in the preparation of the Company's most recent
annual GAAP financial statements previously provided to the Purchaser, other
than the normal estimation of accruals and normal year end audit adjustments
(the "Accounting Principles") and (iii) certified by the chief financial officer
of the Seller as fairly presenting in all material respects, in accordance with
the Accounting Principles, the Adjustment Amount.
(c) No less than five calendar days prior to the Closing Date, the
Purchaser shall in good faith notify Seller in writing of any objections based
on an indication of manifest error in Seller's calculation of the Adjustment
Amount. If the Purchaser does not so notify Seller, then on the Closing Date,
the Adjustment Amount will be paid by the Purchaser to the Seller in addition to
the Cash Purchase Price, as provided in Section 2.05(a).
(d) If the Purchaser shall in good faith give such notice of objection no
less than five calendar days prior to the Closing Date, the Purchaser and Seller
shall negotiate in good faith to resolve all or any part of such dispute on or
prior to the Closing Date, and the amount as so agreed, if any, will be paid by
the Purchaser to the Seller in addition to the Cash Purchase Price. If, after
such good faith negotiations, Purchaser and Seller are nevertheless unable to
agree as to any portion of the Adjustment Amount, such portion shall not be paid
at the Closing, and shall be determined and paid pursuant to subsections (e)
through (h) below.
(e) As promptly as practicable, but in any event within 60 calendar days
following the Closing Date, the Purchaser shall deliver to the Seller a
consolidated income statement of the Company for the Adjustment Period prepared
on the basis of the Accounting Principles consistently applied in accordance
with past practice (the "Actual Income Statement") which will include a separate
calculation of the actual income of the Company completed in accordance with
GAAP, net of all applicable Taxes and excluding any capital gains or losses
(provided, however, that capital gains or losses attributable to the Cigna
Partnership, to the extent not otherwise included in income, shall be included),
during the Adjustment Period (the "Adjusted Adjustment Amount").
(f) Seller (and its advisors) shall be entitled to review, and the
Purchaser shall make available for review at mutually agreeable times and
places, the work papers, schedules, memoranda and other documents used by the
Purchaser and its advisors in the preparation of the Actual Income Statement and
calculation of the Adjusted Adjustment Amount. Such review, and any review or
determination by the independent public accountants referred to below, shall be
only for the limited purposes of calculating the Adjusted Adjustment Amount, and
shall not be used for any other purpose. If Seller shall in good faith disagree
with the Purchaser's calculation of the Adjusted Adjustment Amount, it shall
deliver a notice to the Purchaser, within 20 Business Days after completion of
such review by Seller, which review shall take no longer than 20 Business Days
following delivery to Seller of such calculation, setting forth Seller's
disagreement with such calculation and setting forth Seller's calculation of
such amount. A failure to give such notice within such period shall be deemed to
constitute Seller's acceptance of such calculation. If Seller gives such notice,
Seller and the Purchaser shall, during the 20 Business Days after delivery to
the Purchaser of such notice, negotiate in good faith to resolve the
disagreement. If at the end of such 20 Business Days period no resolution is
reached, either party may request that the disagreement be resolved by a firm of
independent public accountants of national recognition agreed upon by Seller and
the Purchaser (it being agreed that, in the absence of a further agreement, the
firm of Coopers & Lybrand, L.L.P. will be mutually agreeable to Seller and the
Purchaser). The calculation of the Adjusted Adjustment Amount shall be made by
such firm within the range of the respective calculations of the Purchaser and
the Seller and when so made shall be conclusive, and shall be binding on, and
nonappealable by, the parties. The fees and disbursements of such firm shall be
borne by the party requesting such independent audit, or equally by the parties
requesting such audit.
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(g) The difference between the Adjustment Amount, or, if not previously
paid in full, the portion thereof that was paid by the Purchaser to the Seller
at the Closing, and the Adjusted Adjustment Amount (the "Corrected Amount")
shall be paid to Seller by the Purchaser or to the Purchaser by Seller, as
applicable. If the Adjustment Amount, or, if not previously paid in full, the
portion thereof that was paid by the Purchaser to the Seller at the Closing
equals the Adjusted Adjustment Amount, no payment by the Purchaser or Seller
shall be made. If the Purchaser or Seller is required to make a payment pursuant
to this Section, such payment shall be made no later than two Business Days
after (i) the parties agree to the Corrected Amount or (ii) the independent
auditor provided for above calculates the Corrected Amount, as applicable, and
shall be in immediately available funds by wire transfer to an account
designated by the party entitled to receive the Corrected Amount.
(h) The Corrected Amount shall be accompanied by the payment of interest at
the prime rate from the Closing Date to the date of additional payment or
refund, as the case may be. For this purpose, the "prime rate" shall mean the
rate announced by the Bank of New York at its principal office as its prime
commercial lending rate as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
Subject to the terms and conditions of this Agreement, the Seller hereby
represents and warrants to the Purchaser as of the date hereof, except as may
otherwise be set forth on the Disclosure Schedule, as set forth in Sections 3.01
through 3.32, as follows:
SECTION 3.01. Organization, Authority and Qualification of the Seller. The
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Louisiana and has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Seller, the performance by the Seller of its
obligations hereunder and the consummation by the Seller of the transactions
contemplated hereby have been duly authorized by all requisite action on the
part of the Seller other than approval by its shareholders. This Agreement has
been duly executed and delivered by the Seller, and (assuming due authorization,
execution and delivery by the Purchaser) upon receipt of the requisite approval
by its shareholders, and the necessary approvals by Governmental Authorities,
this Agreement will constitute a legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors of
insurance companies, rights of creditors generally or by general principles of
equity. The Affiliates of Seller which are parties to the Master Loan Sale
Agreement (the "Seller Master Loan Sale Parties") shall have at the Closing each
taken all requisite action to authorize the Master Loan Sale Agreement, and
shall have at the Closing all necessary power and authority to enter into the
Master Loan Sale Agreement and to consummate the transactions contemplated
thereby. The Master Loan Sale Agreement, upon its execution and delivery by
Purchaser and the Seller Master Loan Sale Parties, will constitute a legal,
valid and binding obligation of the Seller Master Loan Sale Parties enforceable
against the Seller Master Loan Sale Parties in accordance with its terms except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors of
insurance companies, rights of creditors generally or by general principles of
equity.
SECTION 3.02. Organization, Authority and Qualification of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Louisiana and has all necessary power and
authority to own, operate or lease the properties and assets now owned, operated
or leased by it and to conduct the Business. The Company is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the properties owned or leased by it or the operation of its business makes such
licensing or qualification necessary, other than those jurisdictions where the
failure to be so licensed or qualified are not reasonably likely to have a
Material Adverse Effect, and all such jurisdictions are set forth on Section
3.02 of the Disclosure Schedule. The Company is licensed to write life and
health
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insurance, which includes fixed annuities, and variable products, which include
variable annuities, in each of the jurisdictions listed in Section 3.02 of the
Disclosure Schedule (which also specifies each jurisdiction as to which the
license held by the Company specifically authorizes reinsurance activities). All
of the foregoing registrations, licenses, qualifications and memberships are in
full force and effect and neither the Company nor the Subsidiary has received
any notice of any event, inquiry, investigation or proceeding that is reasonably
likely to result in the suspension, revocation or limitation of any such
registration, license, qualification or membership, and to the best knowledge of
the Seller, there is no sustainable basis for any such suspension, revocation or
limitation. All corporate actions taken by the Company have been duly
authorized, and the Company has not taken any action that in any respect
conflicts with, constitutes a default under or results in a violation of any
provision of its Articles of Incorporation or By-laws except where such actions
taken or not taken are not reasonably likely to have a Material Adverse Effect.
True and correct copies of the Articles of Incorporation and By-laws of the
Company, each as in effect on the date hereof, have been delivered by the Seller
to the Purchaser.
SECTION 3.03. Capital Stock of the Company; Ownership of the Shares. (a)
The authorized capital stock of the Company consists of 4,200,528 shares of
Common Stock. As of the date hereof, 4,200,528 shares of Common Stock are issued
and outstanding, all of which are validly issued, fully paid and nonassessable.
None of the issued and outstanding shares of Common Stock was issued in
violation of any preemptive rights.
(b) There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the capital
stock of the Company or obligating the Seller or the Company to issue or sell
any shares of capital stock of, or any securities or obligations convertible
into or exchangeable for shares of capital stock of the Company, or any other
interest in, the Company.
(c) The Shares constitute all the issued and outstanding capital stock of
the Company and are owned of record and beneficially solely by Seller and are
registered in the name of Seller free and clear of all Encumbrances. Upon
consummation of the transactions contemplated by this Agreement and registration
of the Shares in the name of the Purchaser in the stock records of the Company,
the Purchaser, assuming it shall have purchased the Shares for value in good
faith and without notice of any adverse claim, will own all the issued and
outstanding capital stock of the Company free and clear of all Encumbrances
other than those, if any, created by the Purchaser.
(d) There are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any of the Shares.
SECTION 3.04. Subsidiaries. (a) There are no Subsidiaries other than United
Variable. Section 3.04 of the Disclosure Schedule sets forth, with respect to
the Subsidiary, the jurisdiction and date of its incorporation, its authorized
capital stock, the number and type of its issued and outstanding shares of
capital stock and the current ownership of such shares.
(b) The Company is not a member of (nor is any part of the Business
conducted through) any partnership other than those identified in Section 3.04
of the Disclosure Schedule. The Company is not a participant in any joint
venture or similar arrangement.
(c) The Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Louisiana and has all necessary
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by it and to conduct its business. The Subsidiary is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, other than those
jurisdictions where the failure to be so qualified or licensed is not reasonably
likely to have a Material Adverse Effect, and all such jurisdictions are set
forth on Section 3.04(a) of the Disclosure Schedule. The Subsidiary is a
registered broker-dealer under the Exchange Act and, in connection with its
present business activities, is not required to register as a broker-dealer in
any state. The Subsidiary is a registered investment adviser under the
Investment Advisers Act and, in connection with its present business activities,
is not required to register as an investment adviser in any state, other than
those jurisdictions where the failure to be so registered is not reasonably
likely to have a Material Adverse Effect. All of the foregoing registrations,
licenses, qualifications
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and memberships are in full force and effect and the Subsidiary has not received
any notice of any event, inquiry, investigation or proceeding that is reasonably
likely to result in the suspension, revocation or limitation of any such
registration, license, qualification or membership, and to the best knowledge of
the Seller, there is no sustainable basis for any such suspension, revocation or
limitation.
(d) All the outstanding shares of capital stock of the Subsidiary are
validly issued, fully paid, nonassessable, free of preemptive rights and owned
by the Company, free and clear of all Encumbrances.
(e) There are no options, warrants, convertible securities, or other
rights, agreements, arrangements or commitments of any character relating to the
capital stock of the Subsidiary or obligating the Seller, the Company or the
Subsidiary to issue or sell any shares of capital stock of, or any other
interest in, the Subsidiary.
(f) All corporate actions taken by the Subsidiary have been duly authorized
and the Subsidiary has not taken any action that in any respect conflicts with,
constitutes a default under or results in a violation of any provision of, its
charter or by-laws (or similar organizational documents) except where such
actions taken or not taken are not reasonably likely to have a Material Adverse
Effect. True and complete copies of the charter and by-laws (or similar
organizational documents), in each case as in effect on the date hereof, of the
Subsidiary have been delivered by the Seller to the Purchaser.
(g) The Subsidiary is not a member of (nor is any part of its business
conducted through) any partnership nor is the Subsidiary a participant in any
joint venture or similar arrangement.
(h) There are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any shares of capital stock of or any other interests in the Subsidiary.
SECTION 3.05. Corporate Books and Records. The minute books of the Company
and the Subsidiary contain minutes of all meetings of, and accurately reflect
all material actions taken by, the stockholders, Boards of Directors and all
committees of the Boards of Directors of the Company and the Subsidiary.
Complete and accurate copies of all such minute books of the Company and the
Subsidiary from and after 1979 have been made available to the Purchaser by the
Seller.
SECTION 3.06. No Conflict. Assuming that the requisite approval of the
shareholders of the Seller is obtained and that all consents, approvals,
authorizations and other actions described in Section 3.07 have been obtained
and all filings and notifications listed in Section 3.07 of the Disclosure
Schedule have been made, the execution, delivery and performance of this
Agreement by the Seller do not and will not (a) violate, conflict with or result
in the breach of any provision of the charter or by-laws (or similar
organizational documents) of the Seller, the Company or the Subsidiary, (b)
conflict with or violate (or cause an event which would be reasonably likely to
have a Material Adverse Effect as a result of) any Law or Governmental Order
applicable to the Seller, the Company, the Subsidiary or any of their respective
assets, properties or businesses, including, without limitation, the Business,
except where such conflict or violation is not reasonably likely to have a
Material Adverse Effect or (c) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or the lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Shares or on any of the assets or properties of the Seller, the
Company or the Subsidiary pursuant to any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which the Seller, the Company or the Subsidiary is
a party or by which any of the Shares or any of such assets or properties is
bound or affected except where such conflict or breach is not reasonably likely
to have a Material Adverse Effect.
SECTION 3.07. Governmental and Other Authorizations; Notices and Consents.
(a) The execution, delivery and performance of this Agreement do not and will
not require any consent, approval, authorization or other order of, action by,
filing with or notification to any Governmental Authority or any other third
party, except (a) as required by the insurance laws of the State of Louisiana
and any other state in which the
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Company is doing business, (b) the notification requirements of the HSR Act and
(c) as set forth on Section 3.07 of the Disclosure Schedule.
(b) The Seller does not have knowledge of any facts or circumstances
pertaining to the Purchaser which are reasonably likely to prevent the parties
hereto from obtaining the governmental consents and approvals contemplated by
Section 3.07(a).
SECTION 3.08. Financial Information and Books and Records. (a) The Seller
has previously furnished, and for the period ended December 31, 1995 will
furnish, to the Purchaser true and complete copies of (i) the audited
consolidated GAAP balance sheet of the Company and its Subsidiary for each of
the fiscal years ended as of December 31, 1995, December 31, 1994 and December
31, 1993, and the related audited GAAP consolidated statements of earnings,
stockholder's equity and cash flows for each of such periods then ended together
with all related notes and schedules thereto, accompanied by the reports thereon
of the Company and the Seller's Accountants, which reports shall be
"unqualified" except for references therein to adoption of new accounting
policies agreed to by the auditors (collectively referred to herein as the
"Company GAAP Statements") and (ii) the unaudited GAAP consolidated balance
sheets of the Company and its Subsidiary as of March 31, June 30, September 30
and December 31, 1995, the end of each fiscal quarter thereafter and the related
unaudited GAAP consolidated statements of earnings, stockholder's equity and
cash flows for each three-month period then ended, together with all related
notes and schedules thereto (collectively referred to herein as the "Company
Interim GAAP Statements" and, together with the Company GAAP Statements, the
"Financial Statements"). The Financial Statements (i) were or will be prepared
in accordance with the books of account and other financial records of the
Company and the Subsidiary, (ii) present or will present fairly in all material
respects the consolidated financial condition and results of operations of the
Company and the Subsidiary as of the dates thereof or for the periods covered
thereby in accordance with GAAP, applied on a basis consistent with the past
practices of the Company except as noted therein and (iii) include or will
include all adjustments that are necessary for a fair presentation of the
consolidated financial condition and the results of the operations of the
Company and the Subsidiary as of the dates thereof or for the periods covered
thereby in accordance with GAAP (subject, in the case of the Company Interim
GAAP Statements, to normal estimation of accruals and normal year-end audit
adjustments).
(b) The Seller has previously furnished, and for the period ended December
31, 1995 will furnish, to the Purchaser true and complete copies of (i) the
statutory annual statement of the Company filed with or submitted to the
Louisiana Department, and any other state department of insurance or similar
regulatory authority with which the Company has filed statutory annual
statements which are different from those filed with the Louisiana Department
(the "Other Departments"), for each of the four years ended as of December 31,
1995, December 31, 1994, December 31, 1993, and December 31, 1992, together with
all related notes, exhibits and schedules thereto (collectively referred to
herein as the "Company Annual Statements") and (ii) the statutory quarterly
statements of the Company filed with or submitted to the Louisiana Department
and any Other Departments for each of the three-month periods ended as of March
31, June 30, and September 30, 1995 and the end of each fiscal quarter
thereafter, together with all related notes, exhibits and schedules thereto
(collectively referred to herein as the "Company Quarterly Statements" and,
together with the Company Annual Statements, the "Statutory Statements"). The
Statutory Statements (i) were or will be prepared from the books of account and
other financial records of the Company, (ii) were or will be filed with or
submitted to the Louisiana Department or Other Departments on forms prescribed
or permitted by the Louisiana Department or the Other Departments, as
applicable, (iii) were or will be prepared in accordance with SAP applied on a
basis consistent with the past practices of the Company except as noted therein
and complied on their respective dates of filing or submission in all material
respects with Louisiana Law and with all other applicable Laws; provided that
any such non-compliance is not reasonably likely to have a Material Adverse
Effect and (iv) present or will present fairly in all material respects the
assets, liabilities, capital and surplus, results of operations and cash flows
of the Company as of the dates thereof or for the periods covered thereby in
accordance with SAP (subject, in the case of the Company Quarterly Statement, to
normal estimation of accruals and reserves and normal year-end audit
adjustments).
(c) The Seller for the period ended December 31, 1995 will deliver to the
Purchaser a true and complete copy of the annual statement of the separate
accounts of the Company to be filed with or submitted to the
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Louisiana Department for the year ended as of December 31, 1995, together with
all related notes, exhibits and schedules thereto (referred to herein as the
"Company Separate Accounts Annual Statement"). The Company Separate Accounts
Annual Statement (i) was or will be prepared from the books of account and other
financial records of the Company, (ii) was or will be filed with or submitted to
the Louisiana Department on forms prescribed or permitted by the Louisiana
Department, (iii) was or will be prepared in accordance with SAP applied on a
basis consistent with the past practices of the Company (except as set forth in
the notes, exhibits or schedules thereto) and complied on their respective dates
of filing or submission in all material respects with Louisiana Law and with all
other applicable Laws; provided that any such non-compliance is not reasonably
likely to have a Material Adverse Effect and (iv) present or will presents
fairly in all material respects the combined statutory assets, liabilities and
surplus, and results of operations of the separate accounts of the Company as of
the dates thereof or for the periods covered thereby in accordance with SAP.
(d) The books of account and other financial records of the Company and the
Subsidiary: (i) reflect or will reflect, in all material respects, all items of
income and expense and all assets and liabilities required to be reflected
therein in accordance with GAAP or SAP, as applicable, (ii) are or will be in
all material respects complete and correct, and (iii) have been or will be
maintained in accordance with good business, accounting and, with respect to the
Company, actuarial practices.
SECTION 3.09. Reserves. All reserves and other liabilities reflected in
lines 1, 2, 3, and 4 of page 3 of the 1994 and 1995 Company Annual Statements
("Reserve Liabilities") (i) were and will be, as applicable, determined in
accordance with commonly accepted actuarial standards consistently applied
except as noted therein, (ii) were and will be, as applicable, fairly stated in
accordance with sound actuarial principles, (iii) were and will be, as
applicable, based on actuarial assumptions which were in accordance with or more
conservative than those appropriate for such insurance policies and annuity
contracts, (iv) met or will meet, as applicable, the requirements of the
insurance Laws of the state of domicile and, in the aggregate, each other
jurisdiction in which the Company is licensed to write life insurance or issue
annuities and (v) reflected or will reflect, as applicable, the related
reinsurance, coinsurance and other similar agreements of the Company. Adequate
provision for all such Reserve Liabilities has been made (under commonly
accepted actuarial principles consistently applied) to cover the total amount of
all reasonably anticipated matured and unmatured benefits, claims and other
liabilities of the Company under all insurance policies and annuity contracts
under which the Company has any liability (including, without limitation, any
liability arising under or as a result of any reinsurance, coinsurance or other
similar agreement) on December 31, 1994. At the time of the Closing, the Reserve
Liabilities will be sufficient to satisfy all cash flow testing requirements
applicable thereto under applicable Law.
SECTION 3.10. No Undisclosed Liabilities or Capital Commitments. To
Seller's Enhanced Special Knowledge: (a) There are no Liabilities of the Company
or the Subsidiary, other than liabilities (i) reflected or reserved against in
the Financial Statements, (ii) under life and health insurance and annuity
policies issued by the Company, (iii) disclosed in Section 3.10 of the
Disclosure Schedule, (iv) relating to post-Closing state insurance guaranty fund
assessments relating to insurance companies that are insolvent or are taken
under conservatorship, placed in receivership or rehabilitation or subject to
similar action prior to the Closing or (v) incurred since the Balance Sheet Date
in the ordinary course of the Business Consistent With Past Practice and which
have not had and are not reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Section 3.10 of the Disclosure Schedule and
except for purchases and sales of home equity loans and investment assets in the
ordinary course of business Consistent With Past Practice, neither the Company
nor the Subsidiary is subject to any commitment, actual or contingent, to make
any investment or capital contribution, or otherwise expend capital, or purchase
any securities, or supply funds to any Person, in each case in excess of
$100,000 in the aggregate.
SECTION 3.11. Acquired Assets. Each asset of the Company and the Subsidiary
(including, without limitation, the benefit of any licenses, leases or other
agreements or arrangements) acquired since the Balance Sheet Date has been
acquired for consideration, to the Seller's knowledge, of not more than the fair
market value of such asset at the date of such acquisition.
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SECTION 3.12. Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions. Since the Balance Sheet Date, except as disclosed on the
Disclosure Schedule or contemplated by this Agreement (a) the Business has been
conducted in the ordinary course and Consistent With Past Practice and (b)
neither the Company nor the Subsidiary has:
(i) permitted or allowed any of the assets or properties (whether
tangible or intangible) of the Company or the Subsidiary to be subjected to
any Encumbrance, other than Permitted Encumbrances and Encumbrances that
will be released at or prior to the Closing;
(ii) except in the ordinary course of business Consistent with Past
Practice, discharged or otherwise obtained the release of any Encumbrance
or paid or otherwise discharged any Liability, other than current
liabilities reflected on the Balance Sheet and current liabilities incurred
in the ordinary course of business Consistent With Past Practice since the
Balance Sheet Date;
(iii) other than loans to policyholders and commercial real estate
loans in the ordinary course of business Consistent With Past Practice,
made any loan to, guaranteed any Indebtedness of, or otherwise incurred any
Indebtedness on behalf of any Person;
(iv) failed to pay any creditor any amount owed to such creditor when
due, except any amounts being contested in good faith and not in excess of
$100,000 in the aggregate or for which reserves in accordance with GAAP
have been established on the Financial Statements;
(v) redeemed any of the capital stock or declared, made or paid any
dividends or distributions with respect to capital (whether in cash,
securities or other property) to the holders of capital stock of the
Company or the Subsidiary or otherwise, other than dividends, distributions
and redemptions declared, made or paid by the Subsidiary solely to the
Company;
(vi) made any material changes in the customary methods of operations
of the Company or the Subsidiary, including, without limitation,
purchasing, marketing, selling, pricing, underwriting, investing or
actuarial practices and policies;
(vii) merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person or acquired a substantial portion of
the assets or business of any Person or any division or line of business
thereof, or otherwise acquired any material assets other than in the
ordinary course of business Consistent With Past Practice;
(viii) made any capital expenditure or commitment for any capital
expenditure in excess of $100,000 in the aggregate;
(ix) sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed (including,
without limitation, investment assets, leasehold interests and intangible
assets), other than (A) the sale of investment assets (including, without
limitation, home equity loans) in the ordinary course of business
Consistent With Past Practice and (B) the distribution of Excluded Assets
in accordance with Section 5.12;
(x) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of,
or any other interest in, the Company or the Subsidiary, other than the
sale of annuity contracts in the ordinary course of business Consistent
With Past Practice or as contemplated by Section 5.12;
(xi) except as set forth in Section 3.12 of the Disclosure Schedule
and except as disclosed in the Seller's most recent proxy statement, and
except for salary and benefits which are provided Consistent With Past
Practice, entered into any agreement, arrangement or transaction with any
of its directors, officers, employees or shareholders (or with any
relative, beneficiary, spouse or Affiliate of such Person), other than an
insurance policy or annuity contract containing standard terms and
purchased by such Person;
(xii) except as set forth in Section 3.12 of the Disclosure Schedule,
(A) granted any increase, or announced any increase, in the wages,
salaries, compensation, bonuses, incentives, pension or other
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benefits payable by the Company or the Subsidiary to any of its employees,
including, without limitation, any increase or change pursuant to any Plan
except for regular salary increases in the ordinary course of business
Consistent With Past Practice or (B) established or increased or promised
to increase any benefits under any Plan;
(xiii) revalued (other than in accordance with SAP or GAAP, as
appropriate) or, except as set forth in Section 3.12 of the Disclosure
Schedule, restructured any assets of the Company or the Subsidiary;
(xiv) amended, terminated, cancelled or compromised any material
claims of the Company or the Subsidiary or waived any other rights of
substantial value to the Company or the Subsidiary;
(xv) made any change in any method of accounting or accounting
practice or policy used by the Company or the Subsidiary and disclosed in
the Financial Statements or the SAP Statements other than changes which
were required by GAAP or SAP or Guideline 33 of the National Association of
Insurance Commissioners;
(xvi) failed to maintain the Assets Consistent With Past Practices;
(xvii) allowed any material Permit or material Environmental Permit
that was issued or relates to the Company or the Subsidiary or otherwise
relates to any material Asset to lapse or terminate or failed to renew any
such Permit or Environmental Permit or any insurance policy under which the
Company or the Subsidiary is an insured that is scheduled to terminate or
expire on or prior to the Closing Date;
(xviii) incurred any Indebtedness in excess of $100,000 in the
aggregate (other than repurchase agreements and reverse repurchase
agreements entered into in the ordinary course of business Consistent With
Past Practice);
(xix) amended, modified or consented to the termination of any
Material Contract or the Company's or the Subsidiary's rights thereunder;
(xx) amended or restated the Articles of Incorporation or the By-laws
(or other organizational documents) of the Company or the Subsidiary;
(xxi) terminated, discontinued, closed or disposed of any office,
facility or other business operation, or laid off any employees other than
in the ordinary course of business Consistent With Past Practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of the
Regulations or announced or planned any such action or program for the
future;
(xxii) except pursuant to confidentiality agreements, disclosed any
secret or confidential Intellectual Property or permitted to lapse or
abandoned any Intellectual Property (or any registration or grant thereof
or any application relating thereto) to which, or under which, the Company
or the Subsidiary has any right, title, interest or license and which is
material to the Business;
(xxiii) except as set forth in Section 3.12 of the Disclosure
Schedule, settled or compromised any liability, with respect to Taxes of
the Company or the Subsidiary;
(xxiv) suffered any casualty loss or damage with respect to any of the
Assets which in the aggregate have a replacement cost in excess of
$100,000, whether or not such loss or damage shall have been covered by
insurance;
(xxv) except as set forth in Section 3.12 of the Disclosure Schedule,
made any material amendment to the insurance policies or annuity contracts
in force of the Company or made any material change in the methodology used
in the determination of, or destrengthened the Reserve Liabilities of the
Company or any reserves contained in the 1994 Company GAAP Statements with
respect to insurance policies and annuity contracts;
(xxvi) except as set forth in Section 3.12 of the Disclosure Schedule,
terminated, amended or entered into as ceding or assuming insurer any
reinsurance, coinsurance or other similar agreement or any
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trust agreement or security agreement related thereto, other than renewals
on substantially the same terms, in the ordinary course of business;
(xxvii) except as set forth in Section 3.12 of the Disclosure
Schedule, amended or introduced any life insurance policy or annuity
contract;
(xxviii) suffered any Material Adverse Effect;
(xxix) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 3.12 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights
or commitments with respect to any of the actions specified in this Section
3.12, except as expressly contemplated by this Agreement; or
(xxx) except for the transactions contemplated by this Agreement,
taken or failed to take any action which could cause the Adjustment Amount
to be greater than it would otherwise be in the ordinary course of
business.
SECTION 3.13. Litigation. Set forth in Section 3.13 of the Disclosure
Schedule (with respect to each Action disclosed therein) are the parties, the
nature of the proceeding, the date and method commenced and the amount of
damages (if known) or other relief sought and, if applicable, paid or granted.
Except as set forth in Section 3.13 of the Disclosure Schedule, there are no
Actions by or against the Company or the Subsidiary (or by or against the Seller
or any Affiliate thereof and relating to the Business, the Company or the
Subsidiary), or affecting any of the Assets, pending before any Governmental
Authority (or, to the best knowledge of the Seller, threatened to be brought by
or before any Governmental Authority). No such Action is reasonably likely to
have a Material Adverse Effect or is reasonably likely to affect the legality,
validity or enforceability of this Agreement or the consummation of the
transactions contemplated hereby. None of the Company, the Subsidiary, any of
the Assets or the Seller is subject to any Governmental Order (nor, to the best
knowledge of the Seller, are there any such Governmental Orders threatened to be
imposed by any Governmental Authority) which is reasonably likely to have a
Material Adverse Effect.
SECTION 3.14. Certain Interests. Seller or any Affiliate of Seller (other
than the Company or the Subsidiary) does not have, and no officer or director of
the Seller, the Company or the Subsidiary and no relative or spouse (or relative
of such spouse) who resides with, or is a dependent of, any such officer or
director has (i) outstanding any Indebtedness to the Company or the Subsidiary
or (ii) except as set forth in Section 3.12(a)(xi) and Section 3.14 of the
Disclosure Schedule, entered into any transactions with the Company or the
Subsidiary (any arrangement referred to in (i) or (ii) shall be referred to as
an "Inter-Company Arrangement"). All Inter-Company Arrangements are set forth in
Section 3.14 of the Disclosure Schedule.
SECTION 3.15. Compliance with Laws. To the Seller's Enhanced Special
Knowledge, the Company and the Subsidiary have each conducted and continue to
conduct the Business in accordance with all material Laws and Governmental
Orders applicable to the Company or the Subsidiary or any of the Assets or the
Business, and neither the Company nor the Subsidiary is in violation of any such
Law or Governmental Order, except as set forth in Section 3.15 of the Disclosure
Schedule. The Company and the Subsidiary have duly and validly filed or caused
to be filed all material reports, statements, documents, registrations, filings
or submissions that were required by applicable Laws to be filed; all such
filings complied with all applicable Laws in all material respects when filed,
and no material deficiencies have been asserted with respect to any such filings
which have not been satisfied. All outstanding insurance policies, annuity
contracts and assumption certificates issued by the Company and now in force
are, to the extent required under applicable Laws, on forms approved by the
insurance regulatory authority of the jurisdiction where issued or have been
filed with and not objected to by such authority within the period provided for
objection, and utilize premium rates which if required to be filed with or
approved by insurance regulatory authorities have been so filed or approved and
the premiums charged conform thereto. The Company and the Subsidiary, as
applicable, have filed all forms, reports, statements and other documents
required by Law to be filed by them with the Securities and Exchange Commission
(the "Commission"), including, without limitation, (a) all Annual Reports on
Form 10-K, (b) all Quarterly Reports on Form 10-Q, (c) all Current Reports on
Form 8-K,
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(d) all other reports and registration statements, including, without
limitation, in connection with sales of variable annuity or variable life
contracts, and (e) all amendments and supplements to all such reports and
registration statements, and all such forms, reports, statements and other
documents, including, without limitation, those filed after the date hereof, did
not at the time they were filed (at the time they became effective and so long
as they remain effective in the case of registration statements and amendments
thereto), or will not at the time they are filed (at the time they became
effective and so long as they remain effective in the case of registration
statements and amendments thereto), contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Each of the separate accounts of the
Company or the Subsidiary that is required to be registered as an investment
company under the Investment Company Act of 1940 is so registered (each of which
is listed in Section 3.15 of the Disclosure Schedule). All forms, reports,
statements and other documents required by Law to be filed with the Commission
by or on behalf of each of the separate accounts of the Company or the
Subsidiary, including, without limitation, all registration statements and all
amendments and supplements to all such registration statements, including,
without limitation, in connection with sales of variable life insurance policies
and variable annuity contracts, have been so filed by or on behalf of such
separate accounts, and all such forms, reports, statements and other documents,
including, without limitation, those filed after the date hereof, did not at the
time they were filed (at the time they became effective and so long as they
remain effective in the case of registration statements and amendments thereto),
or will not at the time they are filed (at the time they became effective and so
long as they remain effective in the case of registration statements and
amendments thereto), contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statement therein, in the light of the circumstances under which they
were made, not misleading.
SECTION 3.16. Environmental and Other Permits and Licenses; Related
Matters. To the Seller's Special Knowledge except as set forth in Section 3.10
or 3.16 of the Disclosure Schedule:
(a) The Seller, the Company and the Subsidiary currently hold all the
permits, licenses, authorizations, certificates, consents, exemptions and
approvals required under any Law (collectively, "Permits"), including, without
limitation, Environmental Permits, necessary for the ownership, use, occupancy
and operation of each Asset of the Company and the Subsidiary and the conduct of
the Business, and all such Permits are in full force and effect, except where
the failure to hold any such Permit is not reasonably likely to have a Material
Adverse Effect.
(b) (i) Each tenant and occupant of the Real Property holds all Permits,
including, without limitation, Environmental Permits, necessary for the use,
occupancy and operation of the Real Property by such tenant or occupant, and all
such Permits are in full force and effect, except where the failure to hold any
such Permit is not reasonably likely to have a Material Adverse Effect; (ii)
there is no existing practice, action or activity of any tenant or occupant of
the Real Property, or of any owner, tenant or occupant of any real property in
which the Company or a Subsidiary or with respect to the Business, the Seller
currently holds a security interest (the "Secured Real Property") which will
give rise to any criminal liability or civil Liability under, or violate or
prevent compliance with, any applicable Law, including, without limitation, any
applicable Environmental Law; (iii) no tenant or occupant of the Real Property
has received any notice from any Governmental Authority revoking, cancelling,
rescinding, materially modifying or refusing to renew any Permit or providing
written notice of violations under any Law, including, without limitation, any
applicable Environmental Law; (iv) each tenant and occupant of the Real Property
is in all respects in compliance with its Permits, including, without
limitation, Environmental Permits, except where the failure to be in compliance
with such Permits is not reasonably likely to have a Material Adverse Effect;
(v) there is no existing practice, action or activity of the Company or the
Subsidiary or, with respect to any portion of the Business, the Seller and no
existing condition of the Assets of the Company or the Subsidiary or the
Business which has given (except to the extent already resolved) or will give
rise to any criminal liability or civil Liability under, or violate or prevent
compliance with, any applicable Law, including, without limitation, any
applicable Environmental Law; (vi) none of the Seller, the Company nor the
Subsidiary has received any notice from any Governmental Authority revoking,
cancelling, rescinding, materially modifying or refusing to renew any Permit;
and (vii) the
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Company and the Subsidiary are in all respects in compliance with the Permits,
including, without limitation, Environmental Permits, except where the failure
to be in compliance with such Permits is not reasonably likely to have a
Material Adverse Effect. Section 3.16(a) of the Disclosure Schedule identifies
all Permits, including, without limitation, Environmental Permits and indicates
by asterisk those that will require the consent of any Governmental Authority in
the event of the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement.
(c) (i) Neither the Company nor the Subsidiary nor, with respect to any
portion of the Business, the Seller has violated or is violating any applicable
Environmental Law except for any such violation which is not reasonably likely
to have a Material Adverse Effect; (ii) no tenant or occupant of the Real
Property or owner, tenant or occupant of the Secured Real Property is violating
any applicable Environmental Law in connection with the ownership, use,
occupancy or operation of the Real Property or the Secured Real Property except
for any such violation which is not reasonably likely to have a Material Adverse
Effect; (iii) there has been no Release of Hazardous Materials at, to, from, or
under any real property currently or formerly owned, leased, or operated by the
Company or the Subsidiary, or, with respect to any portion of the Business, the
Seller, or at, to, from or under any Secured Real Property, except (x) Releases
which individually or collectively do not exceed the applicable reportable
quantity established pursuant to CERCLA, or (y) Releases of petroleum or its
derivatives which individually or collectively do not exceed ten gallons; (iv)
none of the Company or the Subsidiary or, with respect to any portion of the
Business, the Seller, has generated, transported or arranged for the transport
of, or disposed of any Hazardous Materials at any location, other than amounts
and types of Hazardous Materials normally present in ordinary office trash or
household waste; (v) no tenant or occupant of the Real Property has generated at
such Real Property any Hazardous Material, other than amounts and types of
Hazardous Materials normally present in ordinary office trash or household
waste; (vi) none of the Company or the Subsidiary, or, with respect to any
portion of the Business, the Seller, has any Liabilities in connection with the
Release of any Hazardous Material at any location; (vii) except as set forth in
Section 3.16 of the Disclosure Schedule, there is not present at any of the Real
Property any underground storage tanks or sumps, asbestos, or polychlorinated
biphenyls; (viii) no Environmental Lien has attached to any of the Real Property
or the Secured Real Property; and (ix) there are no past (except to the extent
already resolved), pending or threatened Environmental Claims against the
Company or the Subsidiary or, with respect to the Business, the Seller, nor are
there any circumstances that may form the basis of any such Environmental Claim.
SECTION 3.17. Material Contracts. (a) Section 3.17 of the Disclosure
Schedule lists each of the following contracts and agreements (including,
without limitation, oral agreements) of the Company and the Subsidiary (such
contracts and agreements, together with all contracts, agreements and Leases
concerning the management or operation of any Real Property (including, without
limitation, brokerage contracts) listed or otherwise disclosed in Section
3.19(a) or 3.19(b) of the Disclosure Schedule to which the Company or the
Subsidiary is a party and all agreements relating to Intellectual Property set
forth in Section 3.18(a) of the Disclosure Schedule, being "Material
Contracts"):
(i) each contract and agreement for the purchase of materials or
personal property with any supplier or for the furnishing of services to
the Company, the Subsidiary or otherwise related to the Business under the
terms of which the Company or the Subsidiary: (A) is likely to pay or
otherwise give consideration of more than $50,000 individually and $250,000
in the aggregate during the calendar year ending December 31, 1995, (B) is
likely to pay or otherwise give consideration of more than $100,000 in the
aggregate over the remaining term of such contract or (C) cannot be
cancelled by the Company or the Subsidiary without penalty or further
payment in an amount more than $50,000 individually and $250,000 in the
aggregate and without more than 90 days' notice;
(ii) each contract and agreement for the sale of personal property or
for the furnishing of services by the Company or the Subsidiary, other than
the insurance policies and annuity contracts sold in the ordinary course of
business Consistent With Past Practice, which: (A) is likely to involve
consideration of more than $50,000 in the aggregate during the calendar
year ending December 31, 1995, (B) is likely to involve consideration of
more than $100,000 in the aggregate over the remaining term of the contract
or (C) cannot be cancelled by the Company or the Subsidiary without penalty
or further payment in an
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amount more than $50,000 individually and $250,000 in the aggregate and
without more than 90 days' notice;
(iii) all broker, distributor, agency, sales promotion, market
research, marketing consulting and advertising contracts and agreements to
which the Company or the Subsidiary is a party pursuant to which services
were being provided on the Balance Sheet Date in an amount more than
$500,000 in the aggregate;
(iv) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the Company
or the Subsidiary is a party and which are not cancelable without penalty
or further payment in an amount more than $50,000 individually and $250,000
in the aggregate and without more than 90 days' notice;
(v) all contracts and agreements relating to Indebtedness of the
Company or the Subsidiary including any commitments of the Company for
mortgage loans, other than policy loans, in an amount more than $50,000
individually and $250,000 in the aggregate;
(vi) all contracts and agreements with any Governmental Authority to
which the Company or the Subsidiary is a party;
(vii) all contracts and agreements that limit or purport to limit the
ability of the Company or the Subsidiary to compete in any line of business
or with any Person or in any geographic area or during any period of time;
(viii) all Inter-Company Arrangements;
(ix) all reinsurance, coinsurance or other similar agreements, and all
trust agreements or other security agreements related thereto, to which the
Company is a party that remain in force;
(x) all other contracts and agreements (other than fixed or variable
annuity, life contracts or other insurance policies issued by the Company
or the Subsidiary) whether or not made in the ordinary course of business,
which are material to the Company, the Subsidiary or the conduct of the
Business or the absence of which would have a Material Adverse Effect; and
(xi) all obligations to pay any amounts or to perform any obligations
owing to, or to indemnify, the Seller or otherwise hold the Seller harmless
pursuant to any agreement or other arrangement entered into prior to
Closing between the Seller or any Affiliate (other than the Company and the
Subsidiary) and the Company or the Subsidiary.
(b) Each Material Contract is legal, valid, binding, enforceable against
the other party(ies) thereto and in full force and effect, and will not cease to
be in full force and effect on terms identical to those currently in effect as a
result of the consummation of the transactions contemplated by this Agreement,
except, in either case, as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
rights of creditors of insurance companies, rights of creditors generally or by
general principles of equity, nor will the consummation of the transactions
contemplated by this Agreement constitute a breach or default under such
Material Contract. Neither the Company nor the Subsidiary is in breach of, or
default under, any Material Contract.
(c) To the best knowledge of the Seller, no other party to any Material
Contract is in breach thereof or default thereunder.
(d) There is no contract, agreement or other arrangement granting any
Person any preferential right to purchase, other than as contemplated hereby and
in the ordinary course of business Consistent With Past Practice, any of the
properties or assets of the Company or the Subsidiary.
SECTION 3.18. Intellectual Property. (a) Section 3.18(a)(i) of the
Disclosure Schedule sets forth a true and complete list and a brief description
of the Owned Intellectual Property consisting of trademarks, service marks,
corporate and assumed names, trade names and copyrights and pending
registrations therefor and Section 3.18(a)(ii) of the Disclosure Schedule sets
forth a true and complete list and a brief description,
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including, without limitation, a description of any license or sublicense
thereof, of all Licensed Intellectual Property. In each case where a
registration or application for registration listed in Section 3.18(a)(i) of the
Disclosure Schedule is held by assignment, the assignment has been duly recorded
with the United States Patent and Trademark Office. To Seller's Special
Knowledge, the rights of the Company or the Subsidiary, as the case may be, in
or to such Intellectual Property do not conflict with or infringe on the rights
of any other Person, except where such conflict or infringement is not
reasonably likely to have a Material Adverse Effect, and none of the Seller, the
Company or the Subsidiary has received any claim or written notice of
infringement or conflict in respect of any Intellectual Property.
(b) (i) all the Owned Intellectual Property is owned by either the Company
or the Subsidiary, as the case may be, free and clear of any Encumbrance other
than Permitted Encumbrances, (ii) the Company or the Subsidiary has the right,
pursuant to valid and enforceable licenses, to use the Licensed Intellectual
Property in the manner in which the Licensed Intellectual Property is currently
being used and (iii) no Actions have been made or asserted or are pending (nor,
to the best knowledge of the Seller, has any such Action been threatened)
against the Company or the Subsidiary either (A) based upon or challenging or
seeking to deny or restrict the use by the Company or the Subsidiary of any of
the Intellectual Property or (B) alleging that any services provided or products
sold by the Company or the Subsidiary are being provided or sold in violation of
any trademarks, or any other rights of any Person except such Actions which, if
adversely determined, are not reasonably likely to have a Material Adverse
Effect. To the best knowledge of the Seller, no Person is using any trademarks,
service marks, trade names or similar property that are confusingly similar to
the Owned Intellectual Property or that infringe upon the Owned Intellectual
Property or upon the rights of the Company or the Subsidiary therein. None of
the Seller, the Company nor the Subsidiary has granted any license or other
right to any other Person with respect to the Owned Intellectual Property. The
consummation of the transactions contemplated by this Agreement will not result
in the termination or impairment of any of the Owned Intellectual Property or
any of the rights of the Company or the Subsidiary in any of the Licensed
Intellectual Property.
(c) The Intellectual Property described in Sections 3.18(a)(i) and
3.18(a)(ii) of the Disclosure Schedule constitutes all of the Intellectual
Property used or held or intended to be used by the Company or the Subsidiary or
forming a part of all such Intellectual Property necessary and material in the
conduct of the Business and there are no other items of Intellectual Property
that are material to the Company, the Subsidiary or the Business.
SECTION 3.19. Real Property. (a) Section 3.19(a) of the Disclosure Schedule
lists: (i) the street address of each parcel of Owned Real Property, (ii) the
date on which each parcel of Owned Real Property was acquired, (iii) the current
owner of each such parcel of Owned Real Property, (iv) information relating to
the recordation of the deed pursuant to which each such parcel of Owned Real
Property was acquired and (v) the current use of each such parcel of Owned Real
Property.
(b) Section 3.19(b) of the Disclosure Schedule lists: (i) the street
address of each parcel of Leased Real Property, (ii) the identity of the lessor,
lessee and current occupant (if different from lessee) of each such parcel of
Leased Real Property and (iii) the current use of each such parcel of Leased
Real Property.
(c) The Seller has, or has caused to be, delivered to the Purchaser true
and complete copies of all Leases listed in Section 3.19(b) of the Disclosure
Schedule. Each such Lease is legal, valid, binding, enforceable and in full
force and effect with respect to the Company or the Subsidiary, as applicable,
and, to Seller's knowledge, each such Lease is legal, valid, binding,
enforceable and in full force and effect with respect to the lessor thereof.
Except as set forth in Section 3.19 of the Disclosure Schedule, each such Lease
will not cease to be in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, except, in either case, as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting rights of creditors of insurance companies, rights of
creditors generally or by general principles of equity, nor will the
consummation of the transactions contemplated by this Agreement constitute a
breach or default under such Lease or otherwise give the landlord a right to
terminate such Lease in accordance with the terms thereof.
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(d) There are no condemnation proceedings or eminent domain proceedings of
any kind pending or, to the best knowledge of the Seller, threatened against the
Real Property.
(e) The rental set forth in each Lease of the Leased Real Property is the
actual rental being paid, and there are no separate agreements or understandings
with respect to the same.
SECTION 3.20. Tangible Personal Property. (a) Section 3.20 of the
Disclosure Schedule lists each group of equipment, supplies, furniture,
fixtures, personalty, vehicles and other tangible personal property (the
"Tangible Personal Property") used in the Business or owned or Leased by the
Company or the Subsidiary with a value reasonably estimated by the Seller for
each group to exceed $100,000.
(b) The Seller has, or has caused to be, delivered to the Purchaser true
and complete copies of all Leases for Tangible Personal Property providing for
annual rentals in excess of $50,000 and any and all material ancillary documents
pertaining thereto. Each such Lease is legal, valid, binding, enforceable and in
full force and effect with respect to the Company or the Subsidiary, as
applicable, and, to Seller's knowledge, each such Lease is legal, valid,
binding, enforceable and in full force and effect with respect to the lessor
thereof. Except as set forth in Section 3.20 of the Disclosure Schedule, each
such Lease will not cease to be legal, valid, binding, enforceable and in full
force and effect on terms identical to those currently in effect as a result of
the consummation of the transactions contemplated by this Agreement except, in
either case, as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting rights of
creditors of insurance companies, rights of creditors generally or by general
principles of equity, nor will the consummation of the transactions contemplated
by this Agreement constitute a breach or default under such Lease or otherwise
give the lessor a right to terminate such Lease in accordance with the terms
thereof.
SECTION 3.21. Assets. (a) Either the Company or the Subsidiary, as the case
may be, owns, leases or has the legal right to use all the properties and
assets, including, without limitation, the Owned Intellectual Property, the
Licensed Intellectual Property, the Real Property and the Tangible Personal
Property, used in the conduct of the Business or otherwise owned, leased or used
by the Company or the Subsidiary and, with respect to contract rights, is a
party to and enjoys the right to the benefits of all material contracts,
agreements and other arrangements used by the Company or the Subsidiary or in or
relating to the conduct of the Business (all such properties, assets and
contract rights being the "Assets"). Either the Company or the Subsidiary, as
the case may be, has good and marketable title to, or, in the case of leased or
subleased Assets, valid and subsisting leasehold interests in, all the Assets,
free and clear of all Encumbrances, except for Permitted Encumbrances.
(b) All the Assets are in such operating condition and repair as is
Consistent With Past Practice.
(c) Immediately following the Closing, either the Company or the
Subsidiary, as the case may be, will continue to own, pursuant to good and
marketable title, or lease, under valid and subsisting leases, or otherwise
retain its respective interest in the Assets (except the Excluded Assets)
without incurring any material penalty or other materially adverse consequence,
including, without limitation, any increase in rentals, royalties, or licenses
or other fees imposed as a result of, or arising from, the consummation of the
transactions contemplated by this Agreement. Immediately following the Closing,
either the Company or the Subsidiary, as the case may be, shall own and possess
all presently existing documents, books, records, agreements and financial data
of any sort used by the Company or such Subsidiary in the conduct of the
Business or otherwise. The Company owns assets that qualify as legal reserve
assets under applicable insurance Laws in an amount equal to its Reserve
Liabilities.
SECTION 3.22. Insurance Issued. (a) Except as set forth in Section 3.22 of
the Disclosure Schedule, with respect to all insurance issued:
(i) All insurance policy and annuity contract benefits payable by the
Company and, to the best knowledge of the Seller, by any other Person that
is a party to or bound by any reinsurance, coinsurance or other similar
agreement with the Company, have in all material respects been paid in
accordance with the terms of the insurance policies, annuity contracts and
other contracts under which they arose, except for such benefits for which
there is a reasonable basis to contest payment.
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(ii) Except as set forth in Section 3.22 of the Disclosure Schedule,
no outstanding insurance policy or annuity contract issued or assumed by
the Company entitles the holder thereof or any other Person to receive
dividends, distributions or other benefits based on the revenues or
earnings of the Company or any other Person.
(iii) The Company has not received any information which would
reasonably cause it to believe that the financial condition of any other
party to any reinsurance, coinsurance or other similar agreement with the
Company is so impaired as to result in a default thereunder.
(iv) Except as set forth in Section 3.22 of the Disclosure Schedule,
all advertising, promotional and sales materials and other marketing
practices used by the Company or any agent of the Company have complied and
are currently in compliance with applicable Laws.
(v) Each insurance agent, at the time such agent wrote, sold or
produced business for the Company since January 1, 1991 was duly licensed
as an insurance agent (for the type of business written, sold or produced
by such insurance agent) in the particular jurisdiction in which such agent
wrote, sold or produced such business.
(vi) The tax treatment under the Code of all insurance or annuity
policies, plans or contracts; all financial products, employee benefit
plans (other than the Plans), individual retirement accounts or annuities;
or any similar or related policy, contract, plan, or product, whether
individual, group, or otherwise, if any, issued or sold by the Company or
the Subsidiary on or before the Closing Date is and at all times has been
in all material respects the same or more favorable to the purchaser,
policyholder or intended beneficiaries thereof as the tax treatment under
the Code for which such contracts qualified or purported to qualify at the
time of their issuance or purchase, except for changes resulting from
changes to the Code which do not apply to such issuance or purchase due to
their effective date and except as set forth in Section 3.22 of the
Disclosure Schedule. For purposes of this Section 3.22(a)(vi), the
provisions of the Code relating to the tax treatment of such contracts
shall include, but not be limited to, Sections 72, 79, 101, 104, 105, 106,
125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505, 817,
818, 7702 and 7702A. In addition, except as set forth in Section 3.22 of
the Disclosure Schedule, each annuity contract issued by the Company
qualifies as an annuity contract under Section 72 of the Code. Each life
insurance policy issued by the Company qualifies as a life insurance
contract for federal income tax purposes and any such policy which is a
modified endowment contract under Section 7702A of the Code, (each, a
"MEC") has been marketed as such at all relevant times or the policyholder
otherwise has consented to such MEC status.
(vii) Except as set forth in Section 3.22 of the Disclosure Schedule,
each of the employee benefit plans issued or sold by the Company qualifies
under Section 401(a), 403(b) or 457, as applicable, of the Code.
(b) Except as set forth in Section 3.22 of the Disclosure Schedule, since
December 31, 1993, no policyholder, contractholder, group of policyholder or
contractholder Affiliates, or Persons writing, selling or producing insurance
business that individually or in the aggregate for each such policyholder,
contractholder, group or Person, accounted for 5% or more of the premium or
annuity income of the Company for the year ended December 31, 1994, has
terminated, is reasonably likely to terminate or, to the best knowledge of the
Seller, has threatened to terminate its business relationship with the Company
as a result of the transactions contemplated by this Agreement or for any other
reason.
SECTION 3.23. Distributors. Listed in Section 3.23 of the Disclosure
Schedule are the names and addresses of the ten most significant distributors
(by premium and annuity income written, sold or produced) of the Company for the
twelve-month period ended December 31, 1994 and the amount of premium and
annuity income which each such distributor wrote, sold or produced during such
period.
SECTION 3.24. Employee Benefit Matters. (a) Plans and Material Documents.
Section 3.24(a) of the Disclosure Schedule lists (i) all employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) and all bonus, stock option, stock
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purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
contracts or agreements, whether legally enforceable or not, covering any
current or former employee, officer or director of the Company or the
Subsidiary, to which the Company or the Subsidiary is a party, with respect to
which the Company or the Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or the Subsidiary, (ii) each employee
benefit plan for which the Company or the Subsidiary could reasonably be
expected to incur liability under Section 4069 of ERISA in the event such plan
has been or were to be terminated, and (iii) any plan in respect of which the
Company or the Subsidiary could reasonably be expected to incur liability under
Section 4212(c) of ERISA (collectively, the "Plans"). The Seller has furnished
the Purchaser with a description of each Plan that is not in writing and, with
respect to each Plan that is in writing, with a complete and accurate copy of
each Plan and a complete and accurate copy of each material document prepared in
connection with each such Plan including, where applicable, without limitation,
(i) a copy of each trust or other funding arrangement, (ii) the most recently
distributed summary plan description and summary of material modifications,
(iii) the most recently filed IRS Form 5500, (iv) the most recently received IRS
determination letter for each such Plan, and (v) the most recently prepared
actuarial report and financial statement in connection with each such Plan.
Except as set forth in Section 3.24(a) of the Disclosure Schedule, neither the
Company nor the Subsidiary has any express or implied commitment (i) to create,
incur liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans is a multiemployer
plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) (a
"Multiemployer Plan") or a single employer pension plan (within the meaning of
Section 4001(a)(15) of ERISA) for which the Company or the Subsidiary could
incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer
Plan"), and no trust maintained or contributed to by the Company or the
Subsidiary is intended to qualify as a voluntary employees' beneficiary
association which is intended to be exempt from taxation pursuant to Section
501(c)(9) of the Code. Except as disclosed in Section 3.24(b) of the Disclosure
Schedule, none of the Plans provides for the payment of separation, severance,
termination or similar-type benefits to any Person or obligates the Company or
the Subsidiary to pay separation, severance, termination or similar-type
benefits solely as a result of any transaction contemplated by this Agreement or
as a result of a "change in control", within the meaning of such term under
Section 280G of the Code. Except as described in Section 3.24(b) of the
Disclosure Schedule, none of the Plans provides for the deferral of compensation
(other than any Plan intended to be qualified under Section 401(a) of the Code)
or for the grant of stock options, restricted stock, stock appreciation rights,
phantom shares or other equity-based awards or contingent compensation. Each of
the Plans is subject only to the laws of the United States or a political
subdivision thereof.
(c) Compliance with Applicable Law. Except as disclosed in Section 3.24(c)
of the Disclosure Schedule, each Plan is now and always has been operated in all
material respects in accordance with the requirements of all applicable Law,
including, without limitation, ERISA and the Code, and to Seller's knowledge all
Plan "fiduciaries" (within the meaning of Section 3(21) of ERISA) have always
acted in accordance with the provisions of all applicable Law, including,
without limitation, ERISA and the Code. Each of the Company and the Subsidiary
has performed all material obligations required to be performed by it under, is
not in any material respect in default under or in violation of, and has no
knowledge of any material default or violation by any party to, any Plan. No
legal action, suit or claim is pending or threatened with respect to any Plan
(other than claims for benefits in the ordinary course) and to Seller's
knowledge no fact or event exists that could reasonably be expected to give rise
to any such action, suit or claim which is reasonably likely to have a Material
Adverse Effect.
(d) Qualification of Certain Plans. Except as disclosed in Section 3.24(d)
of the Disclosure Schedule, each Plan which is intended to be qualified under
Section 401(a) of the Code or Section 401(k) of the Code has received a
favorable determination letter from the IRS that it is so qualified and each
trust established in connection with any Plan which is intended to be exempt
from federal income taxation under Sec-
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tion 501(a) of the Code has received a determination letter from the IRS that it
is so exempt, and no fact or event has occurred since the date of such
determination letter from the IRS which could reasonably be expected to
materially adversely affect the qualified status of any such Plan or the exempt
status of any such trust.
(e) Absence of Certain Liabilities and Events. There has been no non-exempt
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan. Except as set forth in Section
3.24(e) of the Disclosure Schedule, neither the Company nor the Subsidiary has
incurred any liability for any penalty or tax arising under Section 4971, 4972,
4980, 4980B or 6652 of the Code or any liability under Section 502 of ERISA, and
no fact or event exists which could reasonably be expected to give rise to any
such liability. Neither the Company nor the Subsidiary has incurred any
liability under, arising out of or by operation of Title IV of ERISA (other than
liability for premiums to the Pension Benefit Guaranty Corporation arising in
the ordinary course), including, without limitation, any liability in connection
with (i) the termination or reorganization of any employee benefit plan subject
to Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or
Multiple Employer Plan, and no fact or event exists which could reasonably be
expected to give rise to any such liability. Except as set forth in Section
3.24(e) of the Disclosure Schedule, no complete or partial termination has
occurred within the five years preceding the date hereof with respect to any
Plan. No reportable event (within the meaning of Section 4043 of ERISA) for
which the 30 days' notice to the Pension Benefit Guaranty Corporation is not
waived has occurred or is expected to occur with respect to any Plan subject to
Title IV of ERISA. No Plan had an accumulated funding deficiency (within the
meaning of Section 302 of ERISA or Section 412 of the Code), whether or not
waived, as of the most recently ended plan year of such Plan. None of the assets
of the Company or the Subsidiary is the subject of any lien arising under
Section 302(f) of ERISA or Section 412(n) of the Code; neither the Company nor
the Subsidiary has been required to post any security under Section 307 of ERISA
or Section 401(a)(29) of the Code; and no fact or event exists which could
reasonably be expected to give rise to any such lien or requirement to post any
such security.
(f) Plan Contributions and Funding. All contributions, premiums or payments
required to be made with respect to any Plan have been made on or before their
due dates. All such contributions have been fully deducted for income tax
purposes and no such deduction has been challenged or disallowed by any
government entity and no fact or event exists which could reasonably be expected
to give rise to any such challenge or disallowance.
(g) Certain Employee-benefit Assets. Except as disclosed in Section 3.24(g)
of the Disclosure Schedule, each of the guaranteed investment contracts and
other funding contracts with any insurance company that are held by any of the
Plans and any annuity contracts purchased by any of the Plans was issued by an
insurance company which carried the highest rating from each of D&P, S&P, Best
and Moody's Investors Service, Inc., as of the date such contract was issued,
the date hereof and the Closing Date.
(h) Retiree Medical Benefits. No Plan is or includes any plan or
arrangement providing for post-employment health and/or medical benefit coverage
except to the extent required by COBRA.
SECTION 3.25. Labor Matters. (a) Neither the Company nor the Subsidiary is
a part to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or the Subsidiary and currently
there are no known organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which is
reasonably likely to have Material Adverse Effect.
(b) there are no strikes, slowdowns, work stoppages or material labor
relations controversies pending or, to the best knowledge of the Seller,
threatened between the Company or the Subsidiary and any of their respective
employees, and neither the Company nor the Subsidiary has experienced any such
strike, slowdown, work stoppage or material controversy within the past three
years;
(c) the Company and the Subsidiary to the knowledge of Seller are in
compliance, in all material respects with all applicable Laws relating to the
employment of labor, including, without limitation, those related to wages,
hours and the payment and withholding of taxes and other sums as required by the
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appropriate Governmental Authority, and have withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from employees of the
Company or the Subsidiary and are not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing;
(d) the Company and the Subsidiary have paid in full to all their
respective employees, retired employees and contractors or adequately accrued
for in accordance with GAAP or SAP, as the case may be, all wages, salaries,
commissions, bonuses, benefits and other compensation due to or on behalf of
such employees, retired employees and contractors;
(e) Except as set forth in Section 3.25 of the Disclosure Schedule, there
is no claim against the Company or the Subsidiary with respect to payment of
wages, salary or overtime pay that has been asserted or is now pending or, to
the best knowledge of the Seller, threatened before any Governmental Authority
with respect to any Persons currently or formerly employed by the Company or the
Subsidiary;
(f) Except as set forth in Section 3.25 of the Disclosure Schedule, neither
the Company nor the Subsidiary is a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Authority relating to employees or
employment practices;
(g) there is no charge or proceeding with respect to a violation of any
occupational safety or health standards that has been asserted or is now pending
or, to the best knowledge of the Seller, threatened with respect to the Company
or the Subsidiary;
(h) Except as set forth in Section 3.25 of the Disclosure Schedule, there
is no charge against the Company or the Subsidiary of discrimination in
employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or, to the best knowledge of the
Seller, threatened before the United States Equal Employment Opportunity
Commission, or any other Governmental Authority in any jurisdiction in which the
Company or the Subsidiary has employed or currently employs any Person.
SECTION 3.26. Key Employees. Section 3.26 of the Disclosure Schedule lists
the name, place of employment, the current annual salary rates, bonuses,
deferred or contingent compensation, pension, accrued vacation, "golden
parachute" and other like benefits paid or payable (in cash or otherwise) in
1995, 1994, 1993 and 1992, the date of employment and a brief description of
position and job function of each current salaried employee exempt from
overtime, officer or director of the Company or the Subsidiary whose current
base salary exceeded (or, in 1995, is expected to exceed) $100,000.
SECTION 3.27. Risk Management. (a) Section 3.27(a) of the Disclosure
Schedule sets forth the following information with respect to each insurance
policy (including, without limitation, policies providing property, casualty,
liability, workers' compensation, and bond and surety arrangements) under which
the Company or the Subsidiary is an insured, a named insured or otherwise the
principal beneficiary of coverage: (i) the name of the agent or broker; (ii) the
name of the insurer and the names of the principal insured and each named
insured; (iii) the policy number and the period of coverage; (iv) the type,
scope (including an indication of whether the coverage was on a claims made,
occurrence or other basis) and amount of coverage; and (v) the premium charged
for the policy, including, without limitation, a description of any retroactive
premium adjustments or other loss-sharing arrangements.
(b) With respect to each such material insurance policy: (i) to Seller's
knowledge, the policy is in full force and effect; (ii) neither the Company nor
the Subsidiary is in breach or default (including any breach or default with
respect to the payment of premiums or the giving of notice), and, to the best
knowledge of the Seller, no event has occurred which, with the giving of notice
or the lapse of time or both, would constitute such a breach or default or
permit termination or modification, under the policy; (iii) no party to the
policy has repudiated in writing, or given written notice of an intent to
repudiate, any provision thereof; and (iv) to the best knowledge of the Seller,
no insurer on the policy has been declared insolvent or placed in receivership,
conservatorship or liquidation or currently has a rating of "B+" or below from
Best or a claims paying ability rating of "BBB" or below from S&P.
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(c) Section 3.27(c) of the Disclosure Schedule sets forth all risks of the
Company or the Subsidiary which are covered under any material risk retention
program in which the Company or the Subsidiary participates, together with
details for the two years ended December 31, 1994 and the six months ended June
30, 1995 of the Company's and the Subsidiary's loss experience with respect to
such risks.
(d) Since January 1, 1993, the Company and the Subsidiary have been covered
by insurance policies or binders of insurance in such types and covering such
risks deemed reasonable by the Company or the Subsidiary, as the case may be.
(e) Except as set forth in Section 3.27(e) of the Disclosure Schedule, at
no time subsequent to January 1, 1993 has the Company or the Subsidiary (i) been
denied any insurance or indemnity bond coverage which it has requested, (ii)
made any material reduction in the scope or amount of its insurance coverage, or
received notice from any of its insurance carriers that any insurance coverage
listed in Section 3.27(a) of the Disclosure Schedule will not be available in
the future substantially on the same terms as are now in effect or (iii)
suffered any extraordinary increase in premium for renewed coverage. Except as
set forth in Section 3.27 of the Disclosure Schedule, since January 1, 1993, no
insurance carrier has cancelled, failed to renew or materially reduced any
insurance coverage for the Company or the Subsidiary or given any notice or
other indication of its intention to cancel, not renew or reduce any such
coverage.
(f) The Seller is not aware of any facts pertaining to the Company, the
Subsidiary or the Business which are reasonably likely to prevent the Purchaser
from obtaining insurance following the consummation of the transactions
contemplated by this Agreement on terms substantially similar to the terms
currently in effect.
SECTION 3.28. Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney.
Section 3.28 of the Disclosure Schedule is a true and complete list of (a) the
names of each bank, savings and loan association, securities or commodities
broker or other financial institution in which the Company or the Subsidiary has
an account, including, without limitation, cash contribution accounts, and the
names of all persons authorized to draw thereon or have access thereto, (b) the
location of all lockboxes and safe deposit boxes of the Company and the
Subsidiary and the names of all Persons authorized to draw thereon or have
access thereto and (c) the names of all Persons, if any, holding powers of
attorney from the Seller relating to the Company, the Subsidiary or the
Business, or from the Company or the Subsidiary. At the time of the Closing,
without the prior written consent of the Purchaser, neither the Company nor the
Subsidiary shall have any such account, lockbox or safe deposit box other than
those listed in Section 3.28 of the Disclosure Schedule, nor shall any
additional Person have been authorized, from the date of this Agreement, to draw
thereon or have access thereto or to hold any such power of attorney relating to
the Company, the Subsidiary or the Business or from the Company or the
Subsidiary. There are no commingled monies or accounts of the Company or the
Subsidiary with other monies or accounts of the Seller or relating to the other
businesses of the Seller (other than servicing accounts established by Seller's
subsidiary United Companies Lending Corporation in connection with its servicing
activities for home equity and commercial loans, and certain pass-through
certificates issued under the Pooling and Servicing Agreements (as hereinafter
defined) and owned by the Company or the Subsidiary) nor has the Seller
transferred monies or accounts of the Company or the Subsidiary other than to an
account of the Company or such Subsidiary. At the time of the Closing, all
monies and accounts of the Company and the Subsidiary shall be held by, and be
accessible only to, the Company or such Subsidiary. Each of the investment
assets held in the investment account of the Company will be an admissible asset
under the Laws of the State of Louisiana.
SECTION 3.29. Full Disclosure. (a) To Seller's Enhanced Special Knowledge
there are no facts pertaining to the Company, the Subsidiary or the Business
which are reasonably likely to have a Material Adverse Effect and which have not
been disclosed in this Agreement, the Disclosure Schedule, the Financial
Statements or the Statutory Statements.
(b) To the extent limited by Seller's knowledge as provided in this
Agreement, no representation or warranty of the Seller in this Agreement, nor
any statement or certificate furnished or to be furnished by the Seller to the
Purchaser pursuant to this Agreement, or in connection with the transactions
contemplated by this Agreement, contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
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SECTION 3.30. Proxy Statement. The proxy statement to be mailed to the
stockholders of the Seller (the "Proxy Statement") in connection with the
meeting of the stockholders of the Seller called to consider and vote upon the
transactions contemplated hereby (the "Special Meeting", which may be the
Seller's 1996 Annual Meeting of Stockholders) and any amendment thereof or
supplement thereto, when mailed and at the time of the Special Meeting, shall
not contain any untrue statement of material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not false or misleading, and shall comply
as to form in all material respects with all requirements of the Exchange Act.
SECTION 3.31. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement from the Company or the Subsidiary
based upon arrangements made by or on behalf of the Seller, the Company or the
Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as follows:
SECTION 4.01. Organization and Authority of the Purchaser. The Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all necessary power and authority to enter
into this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Purchaser, the performance by the Purchaser of obligations
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all requisite action on the part of the
Purchaser. This Agreement has been duly executed and delivered by the Purchaser,
and (assuming due authorization, execution and delivery by the Seller) upon
receipt of the necessary approvals by Governmental Authorities, this Agreement
will constitute a legal, valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors or by
general principles of equity. Purchaser has engaged in no activity since its
formation other than in connection with the transactions contemplated hereby and
the financing thereof. At the Closing, the Company shall have taken all
requisite action to authorize the Master Loan Sale Agreement, and shall have all
necessary power and authority to enter into the Master Loan Sale Agreement, and
to consummate the transactions contemplated thereby. The Master Loan Sale
Agreement, upon its execution and delivery by the Company and the Seller Master
Loan Sale Parties, will constitute a legal, valid and binding obligation of the
Company enforceable in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting rights of creditors of insurance companies, rights of
creditors generally or by general principles of equity.
SECTION 4.02. No Conflict. Assuming compliance with the notification
requirements of the HSR Act and the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.03, except as may result from any facts or circumstances relating
solely to the Seller, the execution, delivery and performance of this Agreement
do not and will not (a) violate, conflict with or result in the breach of any
provision of the Certificate of Incorporation or By-laws or other organizational
documents, as applicable, of the Purchaser, (b) conflict with or violate any Law
or Governmental Order applicable to the Purchaser which would have a material
adverse effect on the ability of the Purchaser to consummate the transactions
contemplated by this Agreement or (c) conflict with, or result in any breach of,
constitute a default (or event which with the giving of notice or the lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation, or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of the Purchaser pursuant to, any note, bond,
mortgage or indenture, contract, agreement, lease, sublease, license, permit,
franchise or other instrument or arrangement to which the
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Purchaser is a party or by which any of such assets or properties are bound or
affected which would have a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated by this Agreement.
SECTION 4.03. Governmental and Other Authorizations; Notices and Consents.
(a) The execution, delivery and performance of this Agreement do not and will
not require any consent, approval, authorization or other order of, action by,
filing with, or notification to, any Governmental Authority or any other third
party, except (a) as required by the insurance Laws of the State of Louisiana
and any other state in which the Company is doing business, (b) the notification
requirements of the HSR Act and (c) as set forth in Section 3.07 of the
Disclosure Schedule.
(b) The Purchaser does not have knowledge of any facts or circumstances
pertaining to the Purchaser which are reasonably likely to prevent the parties
hereto from obtaining the governmental consents and approvals contemplated by
Section 4.03(a).
SECTION 4.04. Investment Purpose. The Purchaser is acquiring the Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof. The Purchaser is aware and
understands that the Shares have not been registered under the Securities Act of
1933 or under the securities laws of any state, that any transfer of the Shares
by the Purchaser shall be restricted under the provisions of such act and such
state laws, and that the certificates representing the Shares will bear legends
to such effect. The Purchaser possesses such knowledge and experience in
financial and business matters generally and with respect to the Business so as
to enable it to evaluate the risks and merits of its purchase of the Shares.
SECTION 4.05. Litigation. Except as disclosed in a writing given to the
Seller by the Purchaser on a date prior to the execution of this Agreement, no
claim, action, proceeding or investigation is pending or, to the best knowledge
of the Purchaser after due inquiry, threatened, which seeks to delay or prevent
the consummation of, or which could reasonably be expected to materially
adversely affect the Purchaser's ability to consummate, or which could otherwise
affect the legality, validity or enforceability of, the transactions
contemplated by this Agreement.
SECTION 4.06. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Purchaser, except for the fee performance by the Guarantor of
its guarantee obligations under Section 11.01 hereof have been duly authorized
by all requisite action on the part of the Guarantor and such guarantee
constitutes a legal, valid and binding obligation of the Guarantor, enforceable
against the Guarantor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting rights of creditors or by general principles of equity.
SECTION 4.07. Organization and Authority of the Guarantor. Knightsbridge
Capital Fund I, L.P. (the "Guarantor") is a duly formed Delaware limited
partnership and is validly existing in good standing as a limited partnership
under the Delaware Revised Uniform Limited Partnership Act. The Guarantor has
all necessary power and authority to enter into this Agreement for the limited
purpose of carrying out its obligations under Section 11.01 hereof. The
execution and delivery of the Agreement and the performance by the Guarantor of
its guarantee obligations under Section 11.01 hereof have been duly authorized
by all requisite action on the part of the Guarantor and such guarantee
constitutes a legal, valid and binding obligation of the Guarantor, enforceable
against the Guarantor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting rights of creditors or by general principles of equity.
SECTION 4.08. Funding and Assets. (a) The Purchaser has, and will continue
to have at the time of Closing, financing commitments from third parties to the
extent necessary to enable the Purchaser to consummate the transactions
contemplated by this Agreement.
(b) The Guarantor has total gross assets in excess of $68.6 million under
its management and control which are available for commitment hereunder.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. (a) The Seller
covenants and agrees that from the date hereof through the earlier of the
Closing Date or the termination of this Agreement, neither the Company nor the
Subsidiary shall conduct its business other than in the ordinary course and
Consistent With Past Practice. Without limiting the generality of the foregoing,
Seller shall cause the Company and the Subsidiary to (i) continue their
advertising and promotional activities, pricing and purchasing policies,
operations, and business plan implementation, Consistent With Past Practice;
(ii) not materially shorten or lengthen the customary payment cycles for any of
their payables or receivables; (iii) use reasonable efforts to attempt to (A)
keep available to the Purchaser the services of the employees of the Company,
(B) continue in full force and effect without material modification all existing
policies or binders of insurance currently maintained in respect of the Company
and the Business except as required by applicable law and (C) preserve their
current relationships with their employees, distributors, policyholders,
contractholders, regulators, rating agencies and other persons with which they
have significant business relationships; (iv) exercise, but only after notice to
the Purchaser and receipt of the Purchaser's prior written approval, any rights
of renewal pursuant to the terms of any of the leases or subleases set forth in
Section 3.19(b) or Leases for Tangible Personal Property set forth in Section
3.20(a) of the Disclosure Schedule which by their terms would otherwise expire;
(v) maintain all material licenses, qualifications, registrations and
authorizations to do business in each jurisdiction in which they are so
licensed, qualified, registered or authorized; and (vi) not engage in any
practice, take any action, fail to take any action or enter into any
transaction, in each case outside the normal course of business or not
Consistent With Past Practice, which is reasonably likely to cause any
representation or warranty of the Seller to be untrue as of the date made and as
of the Closing Date, other than such representations and warranties as are made
as of another date (in which case to be untrue as of such date), or result in a
breach of any covenant made by the Seller in this Agreement where, in each case,
the consequences thereof are reasonably likely to have a Material Adverse
Effect.
(b) Seller covenants and agrees that, prior to the Closing, except as the
Purchaser may otherwise consent in writing, the Company and the Subsidiary (i)
will conduct their investment activities (including without limitation
commercial real estate loans) only in the ordinary course of business Consistent
With Past Practice and (ii) will not permit the Company to take any of the
actions set forth on Section 5.01 of the Disclosure Schedule.
(c) Seller covenants and agrees that, prior to the Closing, without the
prior written consent of the Purchaser, which consent will not be unreasonably
withheld, neither the Company nor the Subsidiary will make any commitment,
actual or contingent, to make any investment or capital contribution, or
otherwise expend capital, or purchase any securities, or supply funds to any
Person, in each case in excess of $100,000 in the aggregate, except for
purchases and sales of home equity loans, investment assets and the making of
commercial real estate loans in the ordinary course of business Consistent With
Past Practice.
(d) Seller covenants and agrees to, and shall cause the Company to, use
reasonable efforts Consistent With Past Practice to minimize the termination,
withdrawal or nonrenewal of in force insurance policies and annuity contracts
issued by the Company whether as a result of "twisting" or otherwise.
(e) The Seller covenants and agrees to cause (i) all Reserve Liabilities
with respect to insurance policies and annuity contracts established or
reflected in the books and records of the Company to be (A) established and
reflected on a basis consistent with the Reserve Liabilities and reserving
methods followed in the preparation of the 1995 and 1994 Company Annual
Statements unless otherwise required by applicable Law, in which event Seller
shall promptly notify the Purchaser thereof, (B) adequate (under commonly
accepted actuarial principles consistently applied) to cover the total amount of
all reasonably anticipated matured and unmatured benefits, dividends, claims and
other liabilities of the Company under all insurance policies and annuity
contracts under which the Company has or will have any liability (including,
without limitation, any liability arising under or as a result of any
reinsurance, coinsurance or other similar agreement) and (C) in material
compliance with the insurance Laws of Louisiana and in material compliance with
the insurance Laws of all other jurisdictions in which it is licensed to write
life insurance or issue annuities; and (ii) the
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Company to continue to own assets that qualify as legal reserve assets under
applicable insurance Laws in an amount equal to its respective Reserve
Liabilities.
(f) The Seller covenants and agrees to cause all reserve liabilities
calculated in accordance with GAAP, established or reflected in the books and
records of the Company to be established and reflected on a basis consistent
with the reserve liabilities and reserving methods followed in the preparation
of the December 31, 1994 Company GAAP Statement unless otherwise required by
GAAP, in which event Seller shall promptly notify the Purchaser thereof.
SECTION 5.02. Access to Information. (a) From the date hereof until the
earlier of the Closing or the termination of this Agreement, and subject to the
provisions of Section 5.22, upon reasonable prior notice and at mutually
agreeable times and places, the Seller shall and shall cause each of its
officers, employees, agents, representatives, accountants and counsel to: (i)
afford the officers, employees and authorized agents, accountants, counsel,
financing sources, prospective financing sources, equity investors, potential
equity investors and representatives of the Purchaser reasonable access to the
offices, properties, other facilities, books and records of the Company and the
Subsidiary and to those officers, employees, agents, accountants and counsel of
the Seller who have any knowledge relating to, and to the books and records of
the Seller and its subsidiaries relating to, the Company, the Subsidiary or the
Business, (ii) furnish to the Purchaser monthly financial and management
statements of the Company and the Subsidiary as prepared in the ordinary course
of business and (iii) furnish to the officers, employees and authorized agents,
accountants, counsel, financing sources, prospective financing sources and
representatives of the Purchaser such additional financial and operating data
and other information regarding the assets, properties and good will of the
Company, the Subsidiary and the Business (or legible copies thereof) as the
Purchaser or any of its officers, employees, authorized agents, accountants,
counsel, financing sources, prospective financing sources or representatives may
from time to time reasonably request.
(b) Subject to Section 7.09, in order to facilitate the resolution of any
claims made by or against or incurred by the Seller prior to the Closing and
claims which are the subject of Article IX hereof, for a period of seven years
after the Closing, or for such longer period as may be required so as to extend
to the end of the applicable statute of limitations, the Purchaser shall (i)
retain or cause to be retained the books and records (or copies thereof) of the
Company and the Subsidiary relating to periods prior to the Closing in a manner
reasonably Consistent With Past Practice and (ii) upon reasonable notice, afford
or cause to be afforded the officers, employees and authorized agents and
representatives of the Seller reasonable access (including, without limitation,
the right to make, at the Seller's expense, photocopies), during normal business
hours, to such books and records.
(c) Subject to Section 7.09, in order to facilitate the resolution of any
claims made by or against or incurred by the Purchaser and claims which are the
subject of Article IX hereof, any Affiliate of the Purchaser, the Company or the
Subsidiary after the Closing, for a period of seven years following the Closing,
or for such longer period as may be required so as to extend to the end of the
applicable statute of limitations, the Seller shall (i) retain the books and
records (or copies thereof) of the Seller which relate to the Company and the
Subsidiary and their operations for periods prior to the Closing and which shall
not otherwise have been delivered to the Purchaser, the Company or the
Subsidiary and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of the Purchaser, any Affiliate of the
Purchaser, the Company or the Subsidiary reasonable access (including, without
limitation, the right to make photocopies, at the expense of the Purchaser, such
Affiliate of the Purchaser, the Company or such Subsidiary), during normal
business hours, to such books and records.
(d) The Seller covenants and agrees to provide to the Purchaser the
quarterly and annual statements of the Company filed with or submitted to the
Louisiana Department for each calendar quarter ending between the date hereof
and the Closing Date and for the year ended December 31, 1995, together with all
related notes, exhibits and schedules thereto, prior to the filing or submission
thereof and to consult with the Purchaser in respect thereof prior to such
filing or submission.
SECTION 5.03. Confidentiality by Seller. The Seller agrees to, and shall
instruct its agents, representatives, employees, officers and directors to: (i)
treat and hold as confidential all non-public information relating
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to trade secrets, trademark applications, product development, price,
distributor, policyholder and contract holder lists, pricing and marketing
plans, policies and strategies, details of client and consultant contracts,
operations methods, product development techniques, business acquisition plans,
new personnel acquisition plans and all other confidential information with
respect to the Business, the Company and its Subsidiary, except as Seller
reasonably believes, based on the advice of counsel, is otherwise required to be
disclosed by applicable Law, in which event the Seller agrees to, and shall
instruct its agents, representatives, employees, officers and directors to,
furnish only that portion of such confidential information which the Seller
reasonably believes is legally required to be provided and exercise its
reasonable efforts to obtain assurances that confidential treatment will be
accorded such information, and (ii) in the event that the Seller or any such
agent, representative, employee, officer or director is served with a subpoena,
order or other legal process to disclose any such information, provide the
Purchaser with reasonably prompt written notice of such requirement so that the
Purchaser, the Company or the Subsidiary may, at the expense of the Purchaser,
seek a protective order or other remedy. This Section 5.03 shall not apply to
any information that, at the time of disclosure, is available publicly or was
not disclosed in breach of this Agreement by the Seller or its agents,
representatives, Affiliates, employees, officers or directors. This Section 5.03
shall also not apply to any of the foregoing non-public information heretofore
or hereafter provided by the Seller, in accordance with Section 5.06, prior to
the Closing, to third parties who have expressed an interest in acquiring the
Company and who have signed a confidentiality agreement satisfactory to the
Seller. The provisions of this Section 5.03 shall not survive the termination of
this Agreement. The Seller agrees and acknowledges that remedies at law for any
breach of its obligations under this Section 5.03 are inadequate and that in
addition thereto the Purchaser shall be entitled to seek equitable relief,
including injunction and specific performance, in the event of any such breach.
Seller shall assure compliance with the provisions of this Section by all of its
officers, employees and authorized agents, accountants, counsel and
representatives and shall be responsible for any breach hereof by any of them.
The provisions of this Section 5.03 do not supersede that certain
Confidentiality Agreement dated August 14, 1995 between an Affiliate of the
Purchaser and Seller which shall remain in full force and effect.
SECTION 5.04. Governmental and Other Authorizations; Notices and Consents.
(a) Each of the Seller and the Purchaser shall use all reasonable efforts to
obtain (or cause the Company and the Subsidiary to obtain) all authorizations,
consents, orders and approvals of all Governmental Authorities and officials
that are or become necessary for their execution and delivery of, and the
performance of their obligations pursuant to, this Agreement, including, without
limitation, any required approvals of the Louisiana Department, and will
cooperate fully with each other in promptly seeking to obtain all such
authorizations, consents, orders and approvals. Each party hereto agrees to make
an appropriate filing, if necessary, pursuant to the HSR Act with respect to the
transactions contemplated by this Agreement within twenty Business Days of the
date hereof and to supply as promptly as practicable to the appropriate
Governmental Authorities any additional information and documentary material
that may be requested pursuant to the HSR Act.
(b) The Seller shall cause the Company and the Subsidiary to give promptly
such notices to third parties and use all reasonable efforts to obtain such
third party consents and estoppel certificates as are set forth on Section 3.07
of the Disclosure Schedule and noted with an asterisk (*) thereon in connection
with the transactions contemplated by this Agreement.
(c) The Purchaser shall cooperate and use all reasonable efforts to assist
the Seller in giving such notices and obtaining such consents and estoppel
certificates; provided, however, that neither the Seller nor the Purchaser shall
have any obligation to give any guarantee or other consideration of any nature
in connection with any such notice, consent or estoppel certificate or to
consent to any change in the terms of any agreement or arrangement which would
be adverse to the interests of the Seller, the Purchaser, the Company, the
Subsidiary or the Business.
(d) The Seller and the Purchaser agree that, in the event any such consent,
approval or authorization is not obtained prior to the Closing, the Seller will,
subsequent to the Closing, cooperate with the Purchaser and the Company in
attempting to obtain such consent, approval or authorization as promptly
thereafter as practicable and, in the case of contracts and agreements, so as to
provide for the Purchaser the benefits under such contracts and agreements;
provided, however, that the Seller has no obligation to give any guarantee or
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other consideration of any nature in connection with any such consent, approval
or authorization or to consent to any change in terms of any agreement which
would be materially adverse to the interests of the Seller.
(e) The Seller's obligations under this Section 5.04 shall terminate upon
termination of this Agreement.
SECTION 5.05. Notice of Developments. (a) Prior to the earlier of the
Closing or termination of this Agreement, the Seller shall notify promptly, and
in any event within five Business Days, the Purchaser in writing, to the extent
of the best knowledge of the Seller, of (i) all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement which are
reasonably likely to result in any breach of a representation or warranty or
covenant of the Seller in this Agreement or which are reasonably likely to have
the effect of making any representation or warranty of the Seller in this
Agreement untrue or incorrect in any respect and (ii) all other material
developments, other than general economic or market changes and changes in tax
Law or the life insurance industry as a whole, affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
distributor, policyholder, contractholder or employee relations or prospects of
the Company, the Subsidiary or the Business.
(b) Prior to the earlier of the Closing or termination of this Agreement,
the Purchaser shall promptly, and in any event within five Business Days, notify
the Seller in writing, to the extent of the best knowledge of the Purchaser, of
all events, circumstances, facts and occurrences arising subsequent to the date
of this Agreement which are reasonably likely to result in any breach of a
representation or warranty or covenant of the Purchaser in this Agreement or
which are reasonably likely to have the effect of making any representation or
warranty of the Purchaser in this Agreement untrue or incorrect in any respect.
SECTION 5.06. Acquisition Proposals. (a) The Seller and the Company and
their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal except to
the extent permitted hereby. Until the earlier of the Closing or the termination
of this Agreement, neither the Seller, the Company, nor their respective
officers, directors, employees or investment bankers, attorneys, accountants or
other agents retained by either of them will (i) initiate or solicit, directly
or indirectly, any inquiries regarding the making of any Acquisition Proposal,
or (ii) except as permitted below, engage in negotiations or discussions with,
or furnish any information or data (other than publicly available information or
data) to any third party relating to an Acquisition Proposal (other than the
transactions contemplated hereby). Notwithstanding anything to the contrary
contained in this Section, or in any other provision of this Agreement, the
Seller, its Board of Directors and its officers, representatives and agents may
furnish information to, and participate in discussions or negotiations
(including, without limitation, as a part thereof, making any counterproposals)
with, any third party (the "Third Party") which submits a written Acquisition
Proposal if the Seller's Board of Directors or the executive committee thereof
determines in good faith, after consulting with legal counsel, that such
furnishing of information and participating in discussions are required in the
exercise of the Board's fiduciary duties under applicable law. The Seller and
the Company shall promptly advise the Purchaser when they determine that they
will have (or when they continue to have, in the case of Third Parties with whom
discussions are currently ongoing) negotiations with a Third Party, including
providing to the Purchaser such information concerning the Third Party as shall
be not inconsistent with the terms of any agreement with the Third Party with
respect to the subject of discussions or negotiations. To the extent this
Agreement has not otherwise been terminated, the Seller and the Company shall be
entitled to execute a definitive agreement with a Third Party relating to the
Acquisition Proposal of such Third Party so long as the Board of Directors of
Seller exercises, prior to or concurrently with such execution, the right under
Section 10.01(b)(v) to terminate this Agreement, and pays the fee contemplated
by Section 10.02(b)(iii)(B).
(b) For purposes of this Agreement, the term "Acquisition Proposal" shall
mean any good faith purchase offer made by a third party and which was not
directly or indirectly solicited after the date of this Agreement by the Seller,
the Company or any of their respective affiliates to acquire (i) beneficial
ownership (as defined pursuant to Section 13(d) of the Exchange Act) of a
majority or greater equity interest in the Company or the Assets or Business
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock or similar transaction involving the Company, including,
without limitation, any single
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or multi-step transaction or series of related transactions which is structured
in good faith to permit such third party to acquire beneficial ownership of a
majority or greater equity interest in the Company or the Assets or Business or
(ii) all or substantially all of the business or assets of the Company or the
Business (other than the transactions contemplated by this Agreement).
SECTION 5.07. Use of Names and Intellectual Property. (a) The Seller
covenants and agrees that following the Closing, the Purchaser shall have the
exclusive (as provided in subclause (D) below and to the extent Seller can so
grant), and royalty-free right to use the name "United" (the "Name") in
connection with the Business; provided, however, that (A) (i) the Purchaser
shall, in conjunction with use of the Name, use the words "Life Insurance
Company" and at least one additional word other than "Companies" or "Title"
between the Name and the words "Life Insurance Company"; (ii) the Purchaser will
not be permitted any use of the logo of the Seller which was used by the Company
or the Subsidiary prior to the Closing and which is attached hereto as Exhibit
5.07 (except as provided in subclause (B) below) and (iii) the Purchaser will,
in connection with the permitted use of the Name, add a descriptive indication
of the Company's affiliation with Knightsbridge Management, L.L.C.; (B) the
Purchaser may continue to utilize the Company's existing name or the logo,
including but not limited to, on stationery, invoices, purchase orders or other
clerical or similar supplies until March 31, 1997 or such later date as the
Seller may agree; (C) any such use of the Name or logo shall not be reasonably
likely to cause confusion, mistake or deception as to the affiliation,
connection or association between Seller, on the one hand, and Purchaser or its
Affiliates (including, without limitation, the Company and the Subsidiary after
the acquisition thereof pursuant to this Agreement), on the other hand, or as to
the origin, sponsorship or approval of the Purchaser's or its Affiliates'
(including, without limitation, the Company and the Subsidiary after the
acquisition thereof pursuant to this Agreement) goods or services and (D)
Purchaser's exclusive rights described in this Section 5.07(a) shall not limit
the right of the Seller and its Affiliates to use the Name in connection with
its business as conducted following the Closing.
(b) From and after the Closing and except as contemplated hereof, neither
the Seller nor any of its Affiliates shall use any of the Owned Intellectual
Property or any of the Licensed Intellectual Property to the extent and for the
period that the Company or the Subsidiary have exclusive rights (as determined
pursuant to Section 5.07(a)(D)).
SECTION 5.08. Non-Competition. (a) For a period of two years following the
Closing, the Seller shall not, and shall not permit any of its Affiliates to
engage in any annuity business, whether directly or indirectly, nor hold any
interest in any entity that engages in any such annuity business, except that
Seller and its Affiliates may, collectively, (i) acquire and hold such amount
that is not a substantial portion, on a fully diluted basis, of the issued and
outstanding shares of equity voting securities of such an entity or (ii) acquire
and hold any or all of the outstanding capital stock of such entity so long as
the revenue and net income of such entity from its annuity business does not
constitute a substantial portion of the total consolidated revenues and net
income of the Seller and its Affiliates (at the time of the acquisition or at
any time thereafter) as reflected on any regularly prepared financial statement
of the Seller and its Affiliates; provided, however, that Sections 5.08(a) and
(c) shall not apply to the acquisition of any or all of the outstanding capital
stock, assets or businesses of Seller or any of its subsidiaries by any entity
that engages, directly or through subsidiaries or Affiliates, in the annuity
business or the merger, consolidation or other business combination of the
Seller or any of its subsidiaries with or into any such entity.
(b) For a period of two years following the Closing, the Seller shall not,
and shall not permit any of its Affiliates to, solicit or induce or attempt to
induce any entities or persons, including, without limitation, customers,
employees, agents, suppliers and financial institutions that conducted business
with or were employed by the Company or the Subsidiary on or prior to the
Closing Date, to purchase annuities from any Person other than the Company or
terminate employment by the Company or the Subsidiary at any time following the
Closing Date.
(c) The Seller acknowledges that the Purchaser has informed it that the
covenants of the Seller set forth in Section 5.08 are an essential element of
this Agreement and that, but for the agreement of the Seller to comply with
these covenants, the Purchaser represents to the Seller that it would not have
entered into this Agreement.
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SECTION 5.09. Release of Indemnity and other Obligations. The Seller
covenants and agrees, on or prior to the Closing, to execute and deliver to the
Purchaser, for the benefit of the Company and the Subsidiary, a general release
and discharge, in form and substance reasonably satisfactory to the Purchaser,
releasing and discharging the Company and the Subsidiary from any and all
obligations accruing on or after the Closing Date to pay any amounts to or
perform any obligations owing to, or indemnify, the Seller or otherwise hold the
Seller harmless pursuant to the agreements listed in Section 3.14 and Section
3.17 of the Disclosure Schedule which are noted with an asterisk (*).
SECTION 5.10. Further Action. (a) Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable Law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.
SECTION 5.11. Release of Liens on Assets. The Seller covenants and agrees
to cause all Encumbrances on the Assets except the Excluded Assets (other than
Permitted Encumbrances), to be removed at or prior to the Closing. The Purchaser
shall cooperate and use all reasonable efforts to assist the Seller in obtaining
the removal of such Encumbrances; provided, however, that the Purchaser shall
have no obligation to give any guarantee or other consideration of any nature in
connection with the removal of any such Encumbrance. The parties hereto agree
that, in the event the Seller is unable to cause the removal of any Encumbrance
on any such Asset (other than Permitted Encumbrances) prior to the Closing, the
Seller shall, following the Closing, use reasonable efforts to cooperate with
the Purchaser and the Company in attempting to remove such Encumbrance as
promptly as practicable.
SECTION 5.12. Excluded Assets. (a) At the Closing, the Seller shall cause
the following assets of the Company or the Subsidiary (the "Excluded Assets"),
if not previously sold or transferred, to be distributed from the Company to the
Seller:
(i) The Company's real property described on Section 5.12(a)(i) of the
Disclosure Schedule plus any additional real estate acquired by the Company
(by foreclosure or otherwise) on or prior to the Closing Date; and
(ii) The Company's interest in the Cigna Partnership (the parties
hereby agreeing that the Company will retain its interest in and ownership
of CIGNA Mezzanine Partners II, L.P.).
(b) Section 5.12 of the Disclosure Schedule shall set forth the methodology
used for determining the fair market value of each of the categories of Excluded
Assets as of the time immediately prior to the Closing. Purchaser and Seller
shall jointly compute, using such methodology, the aggregate of the fair market
values of the Excluded Assets, which aggregate as so agreed is herein referred
to as the "Excluded Assets Value Amount."
(c) The Excluded Assets will be transferred pursuant to conveyance
instruments reasonably acceptable to the Seller and the Purchaser and shall
include all of the Company's and the Subsidiary's right, title and interest
therein, all leases and related agreements, with full subrogation and
substitution against all prior owners.
SECTION 5.13. Services. In order to allow for an orderly transition of the
business following the Closing:
(a) The Purchaser covenants and agrees to cause the Company to provide
post-Closing transitional services for an interim period of time, commencing at
the Closing Date and continuing until December 31, 1996 or such other date as is
mutually agreed by Purchaser and Seller, to the Seller or an affiliate of
Seller, as appropriate, at the same level and type as such Services have
historically been provided to Seller and its Affiliates (the "Company Services,"
which services shall be those set forth on Exhibit 5.13(a) hereto; provided,
however, that the Company shall not be required to provide any Company Services
to the extent that the performance of such Company Services becomes more
expensive for the Company as a result of organizational or operational change by
Seller. The Company shall be required to provide Company Services
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only as reasonably appropriate to conduct Seller's business and shall not be
required to provide a level of service which is higher than that provided
immediately prior to the date hereof, including normal fluctuations.
(b) The Purchaser covenants and agrees to reimburse the Seller for all
actual costs incurred by the Seller in connection with providing the required
Seller Services to the Company pursuant to Section 5.13(c). The Purchaser
further covenants to use its best efforts to obtain a replacement source to
provide such services as promptly as practicable following the Closing Date.
(c) The Seller covenants and agrees to provide certain post-Closing
transitional services for an interim period of time commencing at the Closing
Date and continuing until December 31, 1996 or such other date as is mutually
agreed by Purchaser and Seller to the Company or an affiliate of the Company, at
the same level and type as such services have historically been provided to the
Company and the Subsidiary (the "Seller Services," which services shall be those
set forth on Exhibit 5.13(c) hereto; provided, however, that the Seller shall
not be required to provide any Seller Services to the extent that the
performance of such Seller Services becomes more expensive for the Seller as a
result of an organizational or operational change by the Company. The Seller
shall be required to provide Seller Services only as reasonably appropriate to
conduct the Company's business and shall not be required to provide a level of
service which is higher than that provided immediately prior to the date hereof,
including normal fluctuations.
(d) The Seller covenants and agrees to reimburse the Company or Purchaser
for all actual costs incurred by the Company or the Purchaser in connection with
providing the required Company Services to the Seller pursuant to Section
5.13(a). Seller further covenants to use its best efforts to obtain a
replacement source to provide such services as promptly as practicable following
the Closing Date.
SECTION 5.14. Termination of Inter-Company Arrangements. At or prior to the
Closing, the Seller shall cause the Inter-Company Arrangements identified with
two asterisks (**) on Section 3.14 and Section 3.17 of the Disclosure Schedule
to be terminated or amended on terms reasonably satisfactory to the Purchaser
and the Seller.
SECTION 5.15. Commercial Real Estate Group. On or prior to the Closing, the
Seller will transfer to the Company Seller's commercial real estate servicing
business (the "Commercial Real Estate Group") including (i) the transfer of all
employees of the Commercial Real Estate Group on the date of transfer, (ii) the
purchase and sale of the fixed assets used solely by such Commercial Real Estate
Group and (iii) the assignment of the real property leases for the space
occupied by the Commercial Real Estate Group, all on terms and conditions
mutually acceptable to Purchaser and Seller. At the Closing, the Seller will
appoint the Company as agent to service the commercial mortgage pass-through
certificates, Series 1990-1 and 1990-2, issued pursuant to the Pooling and
Servicing Agreements dated as of March 1, 1990, and December 1, 1990,
respectively, each among the Company (as seller), the Seller (as servicer), and
Security Pacific National Bank (now Bank of America), as trustee (the "Pooling
and Servicing Agreements") in accordance with the terms and provisions of the
related Pooling and Servicing Agreements as in existence as of the date hereof,
and the Purchaser shall cause the Company to accept such appointment. By
accepting such appointment as agent, the Company shall assume all obligations of
the Seller under the Pooling and Servicing Agreements and shall defend,
indemnify and hold harmless the Seller from its failure to perform any such
obligations. At the Closing, the Seller shall cause the servicing of the
commercial mortgage loans owned by the Company to be transferred from the United
Companies Lending Corporation to the Company. In connection with the servicing
of the foregoing commercial mortgage pass-through certificates and commercial
mortgage loans, the Company shall pay monthly to the Seller, on the tenth day of
each month, a dollar amount equal to the product of (i) the aggregate principal
amount (measured as of the first day of the preceding month) of such commercial
mortgage pass-through certificates in existence on the Closing Date (the parties
hereto acknowledging that no fee shall be paid with respect to any such
commercial mortgage pass-through certificates coming into existence after the
Closing Date), times (ii) one-twelfth of one-eighth per cent.
SECTION 5.16. Master Loan Sale Agreement. On or prior to the Closing, the
Purchaser agrees to cause the Company and/or other Affiliates of the Purchaser
reasonably acceptable to the Seller, and the Seller agrees to cause the Seller
Master Loan Sale Parties, which shall be the Seller's mortgage lender
subsidiaries
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existing on the date hereof, to enter into a Master Loan Sale Agreement and
Servicing Agreement, substantially in the form of Exhibit 5.16 (the "Master Loan
Sale Agreement").
SECTION 5.17. Proxy Statement. Promptly after the date hereof, the Seller
shall prepare the Proxy Statement. Seller shall send Purchaser and its attorneys
drafts of the Proxy Statement, and afford them reasonable opportunity to comment
thereon. Seller shall file the Proxy Statement with the Commission. In
connection with the foregoing, (a) the Seller will comply with the requirements
of the Exchange Act and the rules and regulations of the Commission thereunder
applicable to the solicitation of proxies for the Special Meeting (including any
requirement to amend or supplement the Proxy Statement) and (b) each of Seller
and Purchaser shall furnish such information for inclusion in the Proxy
Statement relating to it and its Affiliates and the transactions contemplated by
this Agreement and such further and supplemental information as may be necessary
to ensure that the statements regarding each of Seller and Purchaser and their
respective Affiliates, as applicable, and such transactions contained in the
Proxy Statement (as it may be amended or supplemented) will not on the date such
Proxy Statement is mailed or on the date of the Special Meeting or on the
Closing Date, contain any untrue statement of material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. The Proxy Statement shall
include the recommendation of the Seller's Board of Directors in favor of the
sale and purchase of the Shares and the transactions provided for herein, unless
otherwise required by the fiduciary duties of the directors under applicable law
as determined by the Seller's Board of Directors and in accordance with the
procedures for termination set forth in Section 10.01(b)(v) hereof.
SECTION 5.18. Meeting of the Stockholders. The Seller shall take all action
necessary in accordance with applicable law and its articles of incorporation
and by-laws to convene the Special Meeting as promptly as practicable to
consider and vote upon the approval and adoption of this Agreement and to
consider and vote upon such other matters as may be necessary to effectuate the
transactions provided for herein. The Board of Directors of the Seller has
resolved to recommend, and, subject only to the final sentence of Section 5.17,
the Board of Directors of the Seller shall continue to recommend, and shall take
all lawful action to solicit proxies for and otherwise obtain, such approval and
adoption.
SECTION 5.19. Appraisal Rights. (a) The Seller covenants and agrees to
comply with LA. REV. STAT. ANN. Section 12:121B which provides that notice of
the Special Meeting shall specifically state that the purpose of the Special
Meeting is to approve consummation of the transactions contemplated herein, and
shall also contain the following statement: "Dissenting shareholders who comply
with the procedural requirements of the Business Corporation Law of Louisiana
will be entitled to receive payment of the fair cash value of their shares if
the transaction to be considered is effected upon approval by less than eighty
per cent of the corporation's total voting power."
(b) The Seller covenants and agrees to comply with the rights of dissenting
shareholders at set forth in LA. REV. STAT. ANN. Section 12:131 (WEST 1994).
SECTION 5.20. Location. The Purchaser agrees that it will use commercially
reasonable efforts to cause the Company to maintain a presence substantially
comparable to that presently maintained by the Company in Baton Rouge, Louisiana
for not less than 2 years from the Closing Date. On or prior to the Closing, the
Seller agrees to cause that certain lease for the premises located at Three
United Plaza, Baton Rouge, Louisiana 70809, by and among United Companies Realty
and Development Company, Inc., as lessor, and the Company, as lessee, dated June
15, 1995 (the "Louisiana Lease"), to be amended such that the Louisiana Lease
shall provide for a termination date 2 1/2 years from the Closing Date, with
such renewal rights as are provided in the existing lease.
SECTION 5.21. Rating Agencies. Until the earlier of the Closing or the
termination of this Agreement, each party shall keep the other informed on a
current basis of any and all discussions with or review by any rating agency
relating to the Company.
SECTION 5.22. Confidentiality by Purchaser. The Purchaser agrees that any
information regarding the Seller, the Company, the Subsidiary or any other
subsidiary of the Seller heretofore obtained from the Seller, the Company, the
Subsidiary or their representatives or agents, obtained by the Purchaser by
virtue of the
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execution and delivery of this Agreement, or obtained by the Purchaser pursuant
to Section 5.02 and Section 7.03 hereof, shall be used and held by the Purchaser
in accordance with the Confidentiality Agreement, except to the extent that the
Purchaser is served with a subpoena, order or other legal process to disclose
any such information. In the event that the Purchaser or any such agent,
representative, employee, officer or director is served with a subpoena, order
or other legal process, to disclose any such information, the Purchaser shall
provide the Seller with reasonably prompt written notice of such requirement so
that the Seller may, at the expense of the Seller, seek a protective order or
other remedy. This Section 5.22 shall not apply to any information that, at the
time of disclosure, is available publicly or was not disclosed in breach of this
Agreement by the Purchaser or its agents, representative, Affiliates, employees,
officers or directors. The Purchaser shall instruct all officers, employees and
authorized agents, accountants, counsel, financing sources, prospective
financing sources and representatives of the Purchaser who are provided access
to such information as to the provisions of this Section and shall assure their
compliance therewith and shall be responsible for any breach thereof by any of
them.
SECTION 5.23. New Director and Officer Slates. The Purchaser shall cause
directors and officers of the Company to be elected at the Closing so that the
Company shall be authorized to execute and deliver the agreements described in
Sections 5.15 and 5.16.
SECTION 5.24. Section 338(h)(10) Election. As soon as practicable following
the Closing Date, Seller shall make a timely, effective and irrevocable Section
338(h)(10) Election as set forth in Section 7.02.
SECTION 5.25. Cash Dividend. Immediately prior to the Closing, the Seller
shall cause the Company to distribute to the Seller a $10,000,000 dividend (the
"Cash Dividend") by wire transfer in immediately available funds to one or more
accounts as designated by the Seller; provided, however, that if on or prior to
the Closing Seller shall have not obtained all requisite regulatory approvals,
consents and the like from all applicable Governmental Authorities for the
payment of the Cash Dividend, no payment thereof shall be made and in such event
all references in Article II to such Cash Dividend shall be deemed to be
deleted.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. 401(k) Plan and ESOP. (a) Effective as of the Closing Date,
all employees of the Company and the Subsidiary shall cease to participate in
the Seller's 401(k) savings plan and employee stock ownership plan (the "401(k)
and ESOP Plans") except to the extent former employees of the Company and the
Subsidiary are otherwise permitted to participate in the 401(k) and ESOP Plans.
On or before the Closing Date, the Seller shall take all actions necessary to
cause the Company to cease to be a participating employer in the 401(k) Plan as
of the Closing Date.
(b) From and after the Closing Date, the Seller shall indemnify and hold
the Purchaser, the Company and the Subsidiary harmless against any claims of
participants, beneficiaries or governmental agencies made against them in
connection with the 401(k) and ESOP Plans including any claims, penalties,
losses, fees, expenses or other costs or liabilities incurred by them as a
consequence of, or in order to avoid, a failure by either of the plans to
qualify under Section 401(a) of the Code for any period prior to Closing.
SECTION 6.02. Supplemental Pension Benefits. From and after the Closing
Date, the Company and the Subsidiary shall be responsible for, and shall
indemnify and hold the Seller harmless from, the payment of all supplemental
retirement benefits or other nonqualified deferred compensation, to the extent
related to periods prior to the Closing Date and accrued or reflected on the
Closing Balance Sheet.
SECTION 6.03. Other Benefits; Qualified Plans. (a) From and after the
Closing Date, the Seller shall indemnify and hold the Purchaser, the Company and
the Subsidiary harmless against any claims made against them by employees or
former employees of the Company or the Subsidiary (i) for severance pay relating
to any termination of employment which occurred prior to the Closing, (ii) for
nonqualified deferred compensation or incentive or contingent compensation
relating to any Plan as in effect, or commitment made, prior to the Closing Date
(to the extent related to periods prior to the Closing Date), except to the
extent described in
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Section 6.02 or (iii) for health, medical, disability or Workman's Compensation
claims incurred prior to the Closing Date, regardless of whether such claims are
reported prior to the Closing Date or are not so reported.
(b) As of the Closing Date, Seller shall "vest" employees of the Company
and the Subsidiary, as well as Seller's employees who are part of the Commercial
Real Estate Group and who are transferred to the Company pursuant to Section
5.15 hereof, who have been granted stock options under the Seller's 1993 Stock
Incentive Plan but who have not yet exercised such options. For purposes of this
Section, "vest" shall mean granting the right to exercise such stock options
during the 90 day period beginning July 22, 1996, or such earlier date on or
after the Closing Date that the employment by the Company or the Subsidiary of
the employee is terminated by death, retirement, disability or involuntary
severance by the Company or the Subsidiary.
(c) From and after the Closing Date, the Purchaser, the Company and the
Subsidiary shall indemnify and hold the Seller harmless against any claims or
liability relating to any termination of employment of any employee of the
Company or the Subsidiary, if such termination occurs on or after the Closing.
SECTION 6.04. No Third Party Beneficiary Rights or Rights to Continued
Employment. Nothing contained herein, express or implied, is intended to or
shall confer upon any employee or former employee of the Company or the
Subsidiary any right or remedy of any nature or kind whatsoever under or by
reason of this Agreement, including any rights of continued employment for any
period.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Representations and Warranties. The Seller hereby represents
and warrants as follows:
(i) The Seller is the parent corporation of an affiliated group of
corporations, as defined in Section 1504(a) of the Code, that files
consolidated federal income tax returns (the "Seller Group"). Since [1982]
the Company has been included in consolidated federal non-life/life income
tax returns filed by the Seller Group ("Seller Group Consolidated
Returns"), and will continue to be included in the Seller Group
Consolidated Returns for 1995 and the taxable year of the Seller Group
ending on or after the Closing Date, which taxable year shall include the
Closing Date.
(ii) Except as set forth in Section 7.01 of the Disclosure Schedule,
(A) all material returns and reports in respect of Taxes ("Tax Returns" or
"Returns") required to be filed with respect to the Company and the
Subsidiary (including the Seller Group Consolidated Returns and state
income or franchise Tax Returns that include the Company or the Subsidiary
on a consolidated, combined, or unitary basis) have been timely filed
except where the failure to file involved would not have a Material Adverse
Effect; (B) all Taxes shown to be payable on such Returns and all
assessments of Tax made against the Company and the Subsidiary with respect
to such Returns have been paid or adequately provided for; (C) all such
Returns are true, correct, and complete in all material respects; and (D)
no adjustment relating to such Returns has been proposed formally or
informally by any Tax authority.
(iii) Except as set forth in Section 7.01 of the Disclosure Schedule,
there are no pending or to the best knowledge of Seller threatened actions
or proceedings for the assessment or collection of Taxes against the
Company or the Subsidiary.
(iv) Except as set forth in Section 7.01 of the Disclosure Schedule,
there are no Tax liens on any assets of the Company or the Subsidiary,
except liens for Taxes that are not yet due and payable.
(v) Except as set forth in Section 7.01 of the Disclosure Schedule,
neither the Company nor the Subsidiary is or has been doing business in, is
or has been engaged in a trade or business, or has business in force in any
jurisdiction in which it has not filed all required material income,
franchise, or gross premium tax returns or other applicable Returns.
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(vi) Except as set forth in Section 7.01 of the Disclosure Schedule,
there are no outstanding waivers or agreements extending the statute of
limitations for any tax period with respect to any Tax to which the Company
or the Subsidiary may be subject.
(vii) Except as set forth in Section 7.01 of the Disclosure Schedule,
there are no outstanding written requests for information made by a taxing
authority to the Company or the Subsidiary.
(viii) Except as set forth in Section 7.01 of the Disclosure Schedule,
neither the Company nor the Subsidiary is obligated under any agreement
with respect to industrial development bonds or other obligations, with
respect to which, the excludability from gross income of the holder for
federal income tax purposes could be affected by the transactions
contemplated hereunder.
(ix) Except as set forth in Section 7.01 of the Disclosure Schedule,
no power of attorney is currently in force with respect to any matter
relating to Taxes that could affect the Company or the Subsidiary.
(x) Except as set forth in Section 7.01 of the Disclosure Schedule,
neither the Company nor the Subsidiary has been a member of any partnership
or joint venture or the holder of a beneficial interest in any trust for
any period for which the statute of limitations for any Tax has not
expired.
(xi) Each reserve item with respect to the Company or the Subsidiary
set forth in the 1994 Seller Group Consolidated Return was determined in
accordance with Sections 807 and 846 of the code, or other applicable Code
sections, and has been consistently applied with respect to the filing of
the Seller Group Consolidated Returns for the years ended December 31, 1991
through December 31, 1994, and will be consistently applied with respect to
the Company or the Subsidiary in the 1995 and 1996 Seller Group
Consolidated Returns when such Returns are filed.
(xii) There have not been any changes in the $5,239,860 balance in the
policyholder surplus account reported in the 1994 Seller Group Consolidated
Return for the Company. The computation and maintenance of those account
balances for the tax years subsequent to 1958 have been in accordance with
Section 815 of the Code and the regulations thereunder. There will be no
subtraction from the Company's policyholder surplus account under Section
815 of the Code from December 31, 1994 up to and including the Closing
Date, exclusive of any effect of the Section 338 Election and the transfer
of the Excluded Assets.
(xiii) For 1995 and for the taxable year including the Closing Date,
the Company will qualify as a "life insurance company" within the meaning
of Section 816(a) of the Code and the Treasury Regulations thereunder
except for any change in such qualification resulting from the Section 338
Election.
SECTION 7.02. Section 338(h)(10) Election. (a) Seller will join with the
Purchaser in making an election under Section 338(g) and Section 338(h)(10) of
the Code (and, to the extent requested by purchaser any comparable election
under state, local, or foreign tax law) (collectively, the "Section 338(h)(10)
Election") with respect to the purchase and sale of the stock of the Company
and, if requested by Purchaser, the indirect purchase of the stock of Subsidiary
hereunder. Any liability for Taxes, including Phase III taxes, for the taxable
year that includes the Section 338(h)(10) Election is the liability of Seller.
Any liability for Taxes related to the distribution of the Excluded Assets is
the liability of the Seller.
(b) Seller and the Purchaser will cooperate with one another and with their
respective representatives with regard to the timely preparation and filing of a
Section 338(h)(10) Election under the laws of each appropriate jurisdiction for
which such election is to be made. In particular, and without limiting the
generality of the foregoing, (i) no later than thirty (30) calendar days prior
to the Closing Date, the Purchaser shall notify Seller of any request to make a
Section 338(h)(10) Election under the laws of any state or local jurisdiction in
which election is not automatic if an election is made for federal income tax
purposes, and of whether to make such an election with respect to the Subsidiary
for federal income tax purposes; and (ii) the Seller shall deliver to Purchaser
a duly executed and completed Internal Revenue Service Form 8023A and any
similar state or local form to be filed, as well as drafts of any required
attachments (collectively, the "Section 338 Forms") no later than ninety (90)
calendar days prior to the date each such form is required to
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be filed. In the event of any dispute with regard to the content of any Section
338 Form, the parties shall diligently attempt to resolve such dispute; but if
the parties have been unable to resolve such dispute by the sixtieth day prior
to the date any such return is to be filed, such dispute shall be resolved in a
manner consistent with Section 2.06(f). Once finalized, each party shall
promptly cause such Section 338 Forms to be executed by an authorized person,
and (subject to the receipt of the other party's signature) the party
responsible for filing such forms with its returns will duly and timely do so,
providing written evidence to the other party that it has done so.
SECTION 7.03. Access to Information. Subject to Section 5.22, from the date
hereof until the Closing, Seller shall and shall cause the Company and the
Subsidiary to make available to the Purchaser: (i) all federal, state, and
foreign income, franchise, gross premium, and similar Tax Returns for such
taxable periods as Purchaser shall reasonably request and any examination
reports and statements of deficiencies assessed against, proposed to be assessed
against, or agreed to by the Company or the Company or the Subsidiary for such
taxable periods and (ii) any pro forma federal income Tax Returns of the Company
or the Subsidiary, together with any schedule reconciling the items in the pro
forma Tax Return to the items as included in the consolidated Tax Return, for
all taxable years ended after December 31, 1994.
SECTION 7.04. Returns and Payments. (a) Seller shall prepare and file in
proper form with the appropriate governmental authority (or cause to be prepared
and filed in a timely manner (with extensions) (i) all Tax Returns of the
Company or the Subsidiary that are required to be filed on or before the Closing
Date, taking into account all available extensions, and (ii) all Returns in
which the Company or the Subsidiary joins with Seller or any of its Affiliates
(including, without limitation, any Seller Group Consolidated Return and any
state or local consolidated or combined income tax return), and shall pay the
Taxes required to be paid with such Returns (subject to any right of
reimbursement or indemnification hereunder). All other Returns of the Company or
the Subsidiary shall be timely filed by or at the instruction of the Purchaser,
which shall pay any Taxes required to be paid with such Returns (subject to any
right of reimbursement or indemnification hereunder). In order to assist the
Seller in the preparation of all Returns that Seller is required to prepare
hereunder, Purchaser shall act in good faith to provide Seller with the
information within the knowledge or control of Purchaser, the Company, or the
Subsidiary which may be necessary or appropriate for the preparation of each
such Return within a reasonable period after request therefor and prior to the
date for filing such Return (taking into account available extensions).
(b) Returns of the Company and the Subsidiary for any taxable period that
begins before the Closing Date shall be prepared in a manner Consistent With
Past Practices (except to the extent counsel for the Seller or the Company
renders a legal opinion that there is no reasonable basis in law therefor or
determines that a Return cannot be so prepared and filed without being subject
to penalties). With respect to any Return required to be filed by a party with
respect to the Company and the Subsidiary and as to which an amount of Tax is
allocable to another party under Section 7.05, the preparer of such return shall
provide the other party with a copy of such completed Return and a statement
certifying the amount of Tax shown on such Return that is allocable to such
other party pursuant to Section 7.05(b), together with appropriate supporting
information and schedules at least 20 Business Days prior to the due date
(including any extension thereof) for the filing of such Return, and such other
party shall have the right to review and comment on such Return and statement
prior to the filing of such Return. Such other party shall have the right to
dispute the amount of Taxes allocated to such party by the filing party, and any
dispute that cannot be resolved between the parties shall be resolved in
accordance with the principles set forth in Section 2.06(f).
SECTION 7.05. Indemnity. (a) Subject to Section (b) of this Section 7.05,
the Seller agrees to indemnify and hold the Purchaser, the Company, and the
Subsidiary harmless against any breach of a representation, warranty or covenant
contained in this Article VII and the following Taxes and, except as otherwise
provided in Section 7.06, against any loss, damage, liability, or expense,
including reasonable fees for attorneys and consultants, incurred in contesting
or otherwise in connection with any such Taxes, but only to the extent such
Taxes or other costs have not been adequately provided for by reserve for
current taxes on the Company's books on a balance sheet provided to the
Purchaser and prepared in the ordinary course of business for the period for
which liability for such Tax was incurred or a later period: (i) Taxes imposed
on the Company or the Subsidiary with respect to taxable periods of such
corporation ending on or before the Closing Date;
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(ii) with respect to taxable periods beginning before the Closing Date and
ending after the Closing Date, (A) Taxes imposed on the Company or the
Subsidiary which are allocable, pursuant to Section 7.05(b), to the portion of
such period ending on the Closing Date, and (B) Taxes imposed on the Company or
the Subsidiary by reason of such corporation's distributive share of income or
loss from, or otherwise in respect of, any partnership in which the Company or
the Subsidiary was a member on or prior to the Closing Date that are allocable,
pursuant to Section 7.05(b), to the portion of such period ending on the Closing
Date; (iii) Taxes imposed on the Company or the Subsidiary by reason of being a
member of any affiliated group (other than any group for which the Company was
the common parent) with which any of the Company and the Subsidiary file or have
filed a Return on a consolidated or combined basis for a taxable period ending
on or before the Closing Date and; (iv) Taxes imposed on the Purchaser or the
Company or the Subsidiary as a result of any breach of warranty or
misrepresentation under Section 7.01.
(b) In the case of Taxes that are payable with respect to a taxable period
that begins before the Closing Date and ends after the Closing Date, the portion
of any such Tax that is allocable to the portion of the period ending on the
Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or related to
income or receipts, or (y) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or
intangible) (other than conveyances pursuant to this Agreement, as provided
under Section 7.11), deemed equal to the amount which would be payable if
the taxable year ended with the Closing Date (except that, solely for
purposes of determining the marginal tax rate applicable to income or
receipts during such period in a jurisdiction in which such tax rate
depends upon the level of income or receipts, annualized income or receipts
may be taken into account if appropriate for an equitable sharing of such
Taxes); and
(ii) in the case of Taxes not described in subparagraph (i) that are
imposed on a periodic basis and measured by the level of any item, deemed
to be the amount of such Taxes for the entire period (or, in the case of
such Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period) multiplied by a fraction the numerator of
which is the number of calendar days in the period ending on the Closing
Date and the denominator of which is the number of calendar days in the
entire period.
For purposes of this Section 7.05, the Taxes attributable to the Company or the
Subsidiary by reason of such corporation's distributive share of income, gain,
or loss from, or otherwise in respect of, any partnership in which the Company
or the Subsidiary is a member on the Closing Date shall be determined as if such
partnership's taxable year ended on the Closing Date.
(c) The Purchaser shall indemnify and hold harmless Seller and its
Affiliates from and against (i) all Taxes for which the Company or the
Subsidiary may be liable for periods beginning after the Closing Date, (ii) all
Taxes for periods beginning before the Closing Date to the extent the Seller or
its Affiliates are not responsible for such Taxes under Section 7.05(a) and are
not indemnifying the Purchaser or the Company under other provisions of this
Agreement, and (iii) all costs and expenses (including reasonable attorneys' and
accountants' fees) attributable to any contest or dispute involving the
foregoing.
SECTION 7.06. Contests. (a) After the Closing, the Purchaser shall promptly
notify the Seller in writing by telecopier of any notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding of the
Purchaser or the Company or the Subsidiary which, if determined adversely to the
taxpayer, would be grounds for indemnification under this Article VII; provided,
however, that a failure to give such notice will not affect the Purchasers'
rights to indemnification under this Article VII except that (i) if notice is
not timely given, Seller shall not be liable for any legal or accounting costs
incurred before such notice is actually given, or any interest or similar charge
accruing between the time notice should have been given and the time notice is
actually given, and (ii) Seller shall not be liable to the extent that, but for
such failure, the Seller could have avoided all or a portion of the taxes or
other costs indemnifiable hereunder in question.
(b) In the case of an audit or administrative or judicial proceeding that
relates to periods ending on or before the Closing Date, the Seller shall have
the right at its expense to participate in and control the conduct of such audit
or proceeding but only to the extent that such audit or proceeding relates
solely to a potential
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adjustment for which the Seller may have liability. The Purchaser shall also
have the right at its expense to participate in such audit or proceeding, but
the Purchaser shall have no right to control any portion of such audit or
proceeding permitted to be controlled by the Seller under the immediately
preceding sentence. If the Seller assumes the defense of any such audit or
proceeding, and the Seller and the relevant taxing authority are thereafter
willing to settle such audit or proceeding for the payment by the Seller of a
fixed amount of Tax but the Purchaser rejects such settlement, then the Seller's
liability under this sentence for Taxes with respect to such audit or proceeding
shall be limited to the aggregate amount of the proposed settlement and the
Seller shall not be liable for any expenses incurred by the Purchaser with
respect to such audit or proceeding. If the Seller does not assume the defense
of any such audit or proceeding, the Purchaser may defend the same at the
reasonable expense of the Seller in such manner as it may deem appropriate,
including, but not limited to, settling such audit or proceeding with the
consent of the Seller, which consent shall not be unreasonably withheld. In the
event that issues relating to a potential adjustment for which the Seller has
acknowledged its liability are required to be dealt with in the same proceeding
as separate issues relating to a potential adjustment for which the Purchaser
would be liable, the Seller shall have the right, at its expense, to control the
audit or proceeding with respect to the issues for which it is liable and the
Purchaser shall have the right, at its expense, to control the audit or
proceeding with respect to the issues for which it is liable.
(c) With respect to issues relating to a potential adjustment for which the
Seller, on the one hand, and the Purchaser or the Company or the Subsidiary, on
the other hand, could be liable, or which recur for any period ending after the
Closing Date, (i) each party (either the Seller, on the one hand, or the
Purchaser, the Company, or the Subsidiary, on the other hand) may participate at
its own expense in the audit or proceeding, and (ii) the audit or proceeding
with respect to such issues shall be controlled by that party which would bear
the burden of the greater portion of the present value of the Tax attributable
to the adjustments and any corresponding adjustments that may reasonably be
anticipated for future Tax periods. The principle set forth in the immediately
preceding sentence shall govern also for purposes of deciding any issue that
must be decided jointly (including, without limitation, choice of judicial
forum) in situations in which separate issues are otherwise controlled under
this Article VII by the Purchaser, on the one hand, and the Seller, on the other
hand.
(d) Except as provided in Section 7.06(b) above, neither the Purchaser nor
the Seller shall enter into any compromise or agree to settle any claim pursuant
to any Tax audit or proceeding which would adversely affect the other parties
for such year or a subsequent year without the written consent of the other
parties, which consent may not be unreasonably withheld. The Purchaser and the
Seller agree to cooperate, and the Purchaser agrees to cause the Company and the
Subsidiary to cooperate, in the defense against or compromise of any claim in
any audit or proceeding.
SECTION 7.07. Time of Payment. Payment by the Seller of any amounts due
under this Article VII in respect of Taxes shall be made as follows:
(a) at least three Business Days before the due date of any Return
required to be filed by the Purchaser on which are required to be reported
income for a period ending after the Closing Date for which the Seller is
responsible under Sections 7.05(a) and 7.05(b) without regard to whether
the Returns shows overall net income or loss for such period;
(b) within ten Business Days following an agreement between the Seller
and the Purchaser that an indemnity amount is payable; and
(c) within five Business Days before the due date for the payment of
any Tax pursuant to an assessment of such Tax by either a taxing authority
or a "determination" as defined in Section 1313(a) of the Code.
If liability under this Article VII is in respect of costs or expenses other
than Taxes, payment by the Seller or the Purchaser of any amounts due under this
Article VII shall be made within twenty Business Days after the date when the
party required to make such payment has been notified by the party entitled to
receive such payment that such party has a liability for a determinable amount
under this Article VII and is provided with calculations or other materials
supporting such liability.
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SECTION 7.08. Cooperation and Exchange of Information. After the Closing,
pursuant to the terms set forth in Section 5.02 of this Agreement, the Seller,
on the one hand, and the Purchaser, the Company and the Subsidiary, on the other
hand, will provide or cause to be provided to the other parties such cooperation
and information as any of them reasonably may request of the others in filing
any Return, amended Return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes, participating in or conducting any audit
or other proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of relevant Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or
other determinations by Tax authorities. Each party shall make its employees
available, or cause employees to be made available, to another party on a basis
mutually convenient to provide explanations of any documents or information
provided hereunder. All costs and expenses reasonably incurred by a party in
responding to a request for information or assistance, including the costs
incurred by the Seller in connection with the cooperation described in the
preceding sentence, pursuant to this Section 7.08 shall be paid by the party
requesting such information or assistance.
SECTION 7.09. Retention of Tax Returns and Records. Each of the Seller, the
Purchaser, the Company, and the Subsidiary shall retain or cause to be retained
all Returns, schedules and work papers, records and other documents in its
possession relating to Tax matters of the Company and the Subsidiary for each
taxable period first ending after the Closing Date and for all prior taxable
periods until the later of (i) the expiration of the statute of limitations of
the taxable periods to which such Returns and other documents relate, without
regard to extensions except to the extent notified by the other party in writing
of such extensions for the respective Tax periods, or (ii) six years following
the due date (without extension) for such Returns; provided, however, that
Returns, schedules, work papers, records and other documents relating to the
determination of the basis of any asset or the tax classification of any
insurance policy, plan or contract shall be retained for six years following the
disposition of such asset or payment or cancellation of such insurance policy,
plan or contract, respectively; and provided, further, that the Seller shall not
dispose of any such documents without first notifying the Purchaser and
providing the Purchaser a reasonable period of time in which to assume
possession of such documents. Any information obtained under this Section 7.09
shall be kept confidential except as may be otherwise necessary in connection
with the filing of Returns or claims for refund or in conducting an audit or
other proceeding.
SECTION 7.10. Conveyance Taxes. Any real property transfer or gains, sales,
use, transfer, value added, stock transfer, stamp, recording, registration, and
any similar Tax or fee that becomes payable in connection with the transactions
contemplated by this Agreement (other than the transfer of the Excluded Assets)
shall be shared equally by the Seller and Purchaser. Any such Tax or fee that
becomes payable in connection with the transfer of the Excluded Assets shall be
paid by Seller. Seller shall file such applications and documents as shall
permit any such Tax to be assessed and paid on or prior to the Closing Date in
accordance with any available pre-sale filing procedure. Each party hereto shall
execute and deliver all instruments and certificates necessary to enable the
other to comply with the foregoing.
SECTION 7.11. Miscellaneous. (a) The Seller and the Purchaser agree to
treat all payments made by any of them to or for the benefit of the other
(including any payments to the Company or the Subsidiary) under this Article
VII, under other indemnity provisions of this Agreement and for any
misrepresentations or breaches of warranties or covenants as adjustments to the
Purchase Price or as capital contributions for Tax purposes and that such
treatment shall govern for purposes hereof except to the extent that the laws of
a particular jurisdiction provide otherwise, in which case such payments shall
be made in an amount sufficient to indemnify the relevant party on an after-Tax
basis.
(b) Within a reasonable period after Closing and prior to the time required
by relevant Tax laws, Purchaser and Seller will act in good faith to agree upon
an allocation of the Purchase Price in the manner and with the degree of detail
required by such Tax laws. If Purchaser and Seller cannot so agree, such
allocation shall be determined in a manner consistent with the approach of
Section 2.06(f). None of the Seller, the Company or the Purchaser shall file any
Return, or take a position with a Tax authority, that is inconsistent with the
Purchase Price allocation thus determined.
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(c) Except as otherwise specifically provided in Sections 7.05 and 7.06,
each party shall bear its own expenses, including expenses for attorneys and
other outside consultants, in contesting any Tax for which such party is liable
under this Article VII.
(d) This Agreement represents and subsumes any prior agreement between the
Company and the Seller relating to liability for Taxes and any agreement or
arrangement between the Company or the Subsidiary and any other person shall be
or have been terminated on or prior to the Closing, and no payments shall be
permitted or required to be made thereunder by the Seller, the Company, or the
Subsidiary before or after the Closing except to the extent that such amount is
shown as a proper current tax liability of the Company for accrued but unpaid
Taxes on the Company's statutory statements for 1995 and/or on actual or pro
forma statutory statements for the short period ending on the Closing Date to be
prepared by the Company; provided, however, that no payment shall be permitted
or required in any event for any Taxes resulting from the Section 338(h)(10)
Election or relating to any net gain arising from the disposition of the
Excluded Assets pursuant to this Agreement.
(e) The obligations of the Seller to indemnify and hold harmless the
Purchaser, the Company and the Subsidiary pursuant to this Article VII, and the
representations and warranties contained in Section 7.01, shall terminate at the
close of business on the 30th day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question, giving
effect to any waiver, mitigation or extension thereof.
(f) From and after the date hereof, neither the Company nor the Subsidiary
shall, and the Seller shall not permit the Company or the Subsidiary to, make or
revoke, or cause or permit to be made or revoked, any Tax election, or adopt or
change any method of accounting, that would have a Material Adverse Effect for
any taxable year ending after the Closing Date without the prior written consent
of the Purchaser, which consent shall not be unreasonably withheld.
(g) Each of the Purchaser and Seller shall be entitled to recover
professional fees and related costs that each may reasonably incur to enforce
the provisions of this Article VII.
SECTION 7.12. Refunds of Taxes. Purchaser, the Company and the Subsidiary
shall pay or cause to be paid to Seller all refunds or credits of Taxes or
similar benefit (including any interest or similar benefit received from or
credited thereon by the applicable tax authority) received by the Purchaser or
the Company or the Subsidiary (or their respective successors and assigns) after
the Closing to the extent attributable to (i) Taxes paid prior to Closing by the
Seller, the Company, the Subsidiary or their respective Affiliates or (ii) Taxes
for which the Seller has indemnified the Purchaser, the Company or the
Subsidiary pursuant to Section 7.05.
SECTION 7.13. Tax Cooperation by Successors and Assigns. If there is a
disposition of all or part of the Company and/or the Subsidiary, their assets,
or their businesses, Purchaser agrees to use its best efforts to ensure that the
purchaser of or successor to such company, asset or business is contractually
obligated to and in fact does comply with the provisions of this Article VII and
the provisions for access to and retention of records.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller. The obligations of
the Seller to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Purchaser and the Guarantor contained in this Agreement
shall have been true and correct as of the date they were made and shall be
true and correct as of the Closing, with the same force and effect as if
made as of the Closing, except for such changes as are permitted or
contemplated by this Agreement, and other than such representations and
warranties as are made as of another date. The covenants and agreements
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contained in this Agreement to be complied with by the Purchaser on or
before the Closing shall have been complied with, and the Seller shall have
received certificates from the Purchaser and the Guarantor, as applicable,
to such effect signed by duly authorized representatives thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against either the
Seller or the Purchaser, seeking to restrain or materially and adversely
alter the transactions contemplated by this Agreement which is likely to
render it impossible or unlawful to consummate such transactions; provided,
however, that the provisions of this Section 8.01(c) shall not apply if the
Seller has directly or indirectly solicited or encouraged any such Action;
(d) Resolutions. The Seller shall have received a true and complete
copy, certified by the Secretary or an Assistant Secretary of the Purchaser
and the Guarantor, of the resolutions duly and validly adopted by the Board
of Directors of the Purchaser and the Guarantor evidencing its
authorization of the execution and delivery of this Agreement and the other
agreements to be executed by the Purchaser as contemplated hereby and the
consummation of the transactions contemplated hereby;
(e) Incumbency Certificate. The Seller shall have received a
certificate of the Secretary or an Assistant Secretary of the Purchaser and
the Guarantor certifying the names and signatures of the officers of the
Purchaser and the Guarantor authorized to sign this Agreement and the other
documents to be delivered hereunder;
(f) Legal Opinion. The Seller shall have received from Dewey
Ballantine a legal opinion, addressed to the Seller and dated the Closing
Date, substantially in the form of Exhibit 8.01(f);
(g) Consents and Approvals. The Seller and the Purchaser shall have
received (i) all authorizations, consents, orders and approvals listed in
Section 3.07 of the Disclosure Schedule and noted with an asterisk (*)
thereon which, in each case, shall not contain any material conditions or
limitations which are reasonably unacceptable to the Seller, (ii) all
third-party consents and estoppel certificates listed in Section 5.04 of
the Disclosure Schedule and not waived by the Purchaser and (iii) all
authorizations, consents, orders and approvals required in connection with
the transfer of the Excluded Assets;
(h) Master Loan Sale Agreement. The Purchaser, the Company or an
Affiliate(s) of the Purchaser reasonably acceptable to the Seller shall
have executed and delivered the Master Loan Sale Agreement;
(i) Approval and Adoption. This Agreement and all other matters
necessary to effectuate the transactions provided for herein shall have
been approved and adopted at the Special Meeting by the affirmative vote of
at least two-thirds of the voting power present;
(j) Appraisal Rights. On or prior to the Closing Date, the Seller
shall deliver to the Purchaser a list certified by its Secretary or
Assistant Secretary of all stockholders entitled to vote at the Special
Meeting who shall not have voted all their shares in favor of the approval
and adoption of this Agreement and setting forth the number of shares of
Seller's common stock owned by each such stockholder which were not voted
in favor of the approval and adoption of this Agreement. The total number
of such shares of Seller's common stock as to which dissenter's rights may
be exercised pursuant to LA. REV. STAT. ANN. Section 12:131 shall not
exceed 2% of the total number of shares of Seller's common stock
outstanding on the Closing Date;
(k) Closing Items. Seller or the Company, as applicable, shall have
received the items contemplated by Section 2.05 hereof;
(l) Commercial Real Estate Group. The Commercial Real Estate Group
shall have been transferred to the Company;
(m) Excluded Assets. The Company shall have received the Excluded
Assets Value Amount;
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(n) Appraisals. The Seller's Board of Directors shall have received,
no later than March 1, 1996, appraisals or other evaluations that show that
the aggregate fair market value of the Excluded Assets is not materially
different from the Excluded Assets Value Amount, each of which shall be in
form and substance reasonably acceptable to the Seller's Board of
Directors; and
(o) Indemnity Agreement. Seller and PennCorp Financial Group, Inc.
shall have entered into an indemnity agreement in mutually satisfactory
form and content.
SECTION 8.02. Conditions to Obligations of the Purchaser. The obligations
of the Purchaser to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Seller contained in this Agreement shall have been true
and correct as of the date as of which they were made and shall be true and
correct as of the Closing, with the same force and effect as if made as of
the Closing except for such changes as are permitted or contemplated by
this Agreement, other than such representations and warranties as are made
as of another date, in each case without giving any effect to any
Additional Scheduled Information. The covenants and agreements contained in
this Agreement to be complied with by the Seller on or before the Closing
shall have been complied with, and the Purchaser shall have received a
certificate from the Seller to such effect signed by a duly authorized
officer thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against either the
Seller or the Purchaser, seeking to restrain or materially and adversely
alter the transactions contemplated hereby which is likely to render it
impossible or unlawful to consummate the transactions contemplated by this
Agreement or which would have a Material Adverse Effect; provided, however,
that the provisions of this Section 8.02(c) shall not apply if the
Purchaser has directly or indirectly solicited or encouraged any such
Action;
(d) Resolutions of the Seller. The Purchaser shall have received a
true and complete copy, certified by the Secretary or an Assistant
Secretary of the Seller, of the resolutions duly and validly adopted by the
Board of Directors of the Seller evidencing its authorization of the
execution and delivery of this Agreement and the other agreements to be
executed by the Seller as contemplated hereby and the consummation of the
transactions contemplated hereby;
(e) Incumbency Certificate of the Seller. The Purchaser shall have
received a certificate of the Secretary or an Assistant Secretary of the
Seller certifying the names and signatures of the officers of the Seller
authorized to sign this Agreement and the other documents to be delivered
hereunder;
(f) Legal Opinions. The Purchaser shall have received from Kantrow,
Spaht, Weaver & Blitzer (A Professional Law Corporation) a legal opinion,
addressed to the Purchaser and dated the Closing Date, substantially in the
form of Exhibit 8.02(f) (except that the opinion as to enforceability of
this Agreement may be given by the firm of Jones, Day, Reavis & Pogue),
which opinions shall each state that Purchaser's lenders and other
financing sources identified therein may rely upon such opinion as if it
were addressed to them;
(g) Consents and Approvals. The Purchaser and the Seller shall have
received, each in form and substance reasonably satisfactory to the
Purchaser, (i) all authorizations, consents, orders and approvals listed in
Section 3.07 of the Disclosure Schedule and noted with an asterisk (*)
thereon which, in each case, shall not contain any material conditions or
limitations which are reasonably unacceptable to Purchaser and (ii) all
authorizations, consents, orders and approvals required in connection with
the transfer of the Excluded Assets;
(h) Resignations of Directors and Officers. The Purchaser shall have
received the resignations, effective as of the Closing, or evidence of
removal as of the Closing, of all the directors and officers of the Company
and the Subsidiary;
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(i) Organizational Documents. The Purchaser shall have received a copy
of (i) the Articles of Incorporation, as amended (or similar organizational
documents), of the Company and of the Subsidiary, certified by the
Louisiana Department, with respect to the Company, and the secretary of
state of Louisiana with respect to the Subsidiary, as of a date not earlier
than ten Business Days prior to the Closing Date and accompanied by a
certificate of the Secretary or Assistant Secretary of each such entity,
dated as of the Closing Date, stating that no amendments have been made to
such Articles of Incorporation (or similar organizational documents) since
such date and (ii) the By-laws (or similar organizational documents) of the
Company and of the Subsidiary, certified by the Secretary or Assistant
Secretary of each such entity;
(j) Minute Books. The Purchaser shall have received a copy of the
minute books of the Company and the Subsidiary, certified by their
respective Secretaries or Assistant Secretaries as of the Closing Date;
(k) Compliance with FIRPTA. The Company shall have provided the
Purchaser with a statement, in a form reasonably satisfactory to the
Purchaser, pursuant to Section 1.897-2(h) of the Treasury Regulations
certifying that the Common Stock is not a U.S. real property interest
within the meaning of Section 897(c)(1) of the Code and dated not more that
30 days prior to the Closing Date;
(l) Good Standing; Qualification to Do Business. The Purchaser shall
have received good standing certificates or Certificates of Compliance or
Certificates of Existence, as applicable, for the Company and for the
Subsidiary from the secretary of state, the department of insurance or the
applicable Governmental Authority, of (i) the jurisdiction in which each
such entity is incorporated or organized, and (ii) each other jurisdiction
in which each such entity does business requiring it to qualify in such
jurisdiction, in each case dated as of a date not earlier than ten Business
Days prior to the Closing Date and accompanied by bring-down telegrams or
facsimiles (to the extent available in the relevant jurisdictions) dated
the Closing Date;
(m) Release of Indemnity Obligations. The Purchaser shall have
received the general releases and discharges from the Seller referred to in
Section 5.09 in form and substance reasonably satisfactory to the
Purchaser;
(n) Master Loan Sale Agreement. The Seller Master Loan Sale Parties
shall have executed and delivered the Master Loan Sale Agreement;
(o) No Material Adverse Effect. No event or events shall have occurred
which, individually or in the aggregate, have a Material Adverse Effect;
(p) Commercial Real Estate Group. The Commercial Real Estate Group
shall have been transferred to the Company;
(q) No Regulatory Restrictions. Neither the Company nor the Subsidiary
shall be subject to any restriction (whether on its business, operations,
ability to pay dividends or incur indebtedness, or otherwise) imposed or
proposed to be imposed as a result of the transactions contemplated by this
Agreement by any Governmental Authority except restrictions generally
applicable to companies engaging in businesses substantially similar to the
Business and restrictions which result primarily from any action or
inaction of the Purchaser or the fact that the Purchaser is a participant
in the transactions contemplated by this Agreement;
(r) Excluded Assets. The Seller shall have caused to be distributed
from the Company the Excluded Assets;
(s) Inter-Company Arrangements. Seller and the Company or Subsidiary,
as applicable, shall have terminated the Inter-Company Arrangements in
accordance with Section 5.14 and delivered to the Purchaser evidence
thereof which is reasonably acceptable to Purchaser;
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(t) Approval and Adoption. This Agreement and all other matters
necessary to effectuate the transactions provided for herein shall have
been approved and adopted at the Special Meeting by the affirmative vote of
at least two-thirds of the voting power present;
(u) Closing Items. Purchaser shall have received the items
contemplated by Section 2.04 hereof; and
(v) Promissory Note. Seller shall have purchased the promissory note
of an Affiliate of Purchaser, with terms substantially identical to those
set forth on the term sheet included as Exhibit 8.02(v) hereof, pursuant to
a subscription or note purchase agreement mutually agreeable to Purchaser
and Seller (the "Promissory Note").
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.01. Survival of Representations, Warranties and Covenants. (a)
Subject to Section 9.01(b), the representations and warranties contained in this
Agreement, the Exhibits to this Agreement, the Disclosure Schedule and any
certificate, statement or report or other document delivered pursuant to this
Agreement (collectively, the "Acquisition Documents"), shall survive the Closing
until April 30, 1997; provided, however, that all representations and warranties
made by Seller in Section 3.03, 3.16, 3.22(a)(vi), 3.22(a)(vii), 3.30 and 7.01
shall survive until the expiration of the applicable statute of limitations or
any extension thereof. No covenants shall survive after the Closing Date except
for those contained in Sections 5.03, 5.07, 5.08, 5.09, 5.10, 5.11, 5.13, 5.15,
5.19, 5.20, 5.22, 5.24, Article VI, Article VII and such other Sections, if any,
as so expressly provided. Neither the period of survival nor the liability of
the Seller or the Purchaser with respect to the Seller's or the Purchaser's
representations and warranties shall be reduced by any investigation made at any
time by or on behalf of the Purchaser or the Seller, as the case may be, except
as provided in Section 9.01(b). If written notice of a claim has been properly
given in the manner required by Section 9.02(d) prior to the expiration of the
applicable representations and warranties, then the relevant representations and
warranties shall survive as to such claim until such claim has been finally
resolved.
(b) In respect of any inaccuracy in any representation and warranty of the
Seller or any breach of any covenant or agreement of the Seller set forth in
this Agreement with respect to which the Purchaser has Purchaser Knowledge,
whether or not disclosed by the Purchaser to the Seller, the Purchaser shall
have no right, after the Closing, under the terms of this Agreement or
otherwise, to make any claims against the Seller in respect of such inaccuracies
or breaches except for any claims for indemnity by Purchaser pursuant to
Sections 9.02(a)(iii)-(vii) (and Sections 9.02(a)(i) and (ii) insofar as any
Losses arise out of or relate to matters set forth in 9.02(a)(iii) - (vii)).
Nothing in this 9.01(b) limits the effect of the condition contained in Section
8.02(a), or the Purchaser's ability not to consummate the transactions
contemplated herein if such condition is not met.
SECTION 9.02. Indemnification. (a) Subject to Sections 9.01 and 9.03, the
Purchaser and its Affiliates, officers, directors, employees, agents,
consultants, successors and assigns shall be indemnified and held harmless on an
after-tax basis (as defined below) and, in each case, net of any and all amounts
received from insurance, guarantees, indemnification and other contractual and
legal rights, by the Seller for any and all Liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments, damages (including
punitive damages), fines, fees and penalties (including, without limitation,
attorneys', experts and consultants' fees and expenses) (collectively, "Losses")
actually suffered or incurred by them (including, without limitation, any Action
brought or otherwise initiated by any of them), arising out of or resulting
from:
(i) the inaccuracy of any representation or warranty made or deemed to
be made by the Seller contained in this Agreement;
(ii) the breach of any covenant or agreement made or deemed to be made
by the Seller in this Agreement;
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(iii) the inaccuracy of the representation and warranty contained in
the final two sentences of Section 3.22(a)(vi) (without regard to and
notwithstanding, any item set forth on the Disclosure Schedule, and without
regard to any Purchaser Knowledge);
(iv) without regard to, and notwithstanding any item set forth on the
Disclosure Schedule, and without regard to any Purchaser Knowledge,
liabilities of the Company or the Subsidiary, any Affiliate of the Company
or the Subsidiary or, with respect to the Business, the Seller, arising out
of, or related to events occurring or circumstances or conditions existing
at or prior to the Closing in connection with the Excluded Assets as to
which Seller has Enhanced Special Knowledge with respect thereto
(excluding, however, those liabilities contemplated by Section
9.02(a)(vi)(B);
(v) as expressly provided by Articles VI and VII hereof (without
regard to, and notwithstanding, any item set forth on the Disclosure
Schedule, and without regard to any Purchaser Knowledge);
(vi) without regard to, and notwithstanding, any item set forth on the
Disclosure Schedule, and without regard to any Purchaser Knowledge,
liabilities of the Company or the Subsidiary, any Affiliate of the Company
or the Subsidiary or, with respect to the Business, the Seller, as follows:
(A) with respect to the current Assets, operations and Business of
the Company or the Subsidiary, any Affiliate of the Company or the
Subsidiary or, with respect to the Business, the Seller (including,
without limitation, the Secured Real Property), including the Excluded
Assets, (x) as to which the Seller has Special Knowledge and (y) which
arise out of or relate to events occurring or circumstances or
conditions existing at or prior to the Closing concerning any
Environmental Law or Hazardous Materials,
(B) with respect to the Excluded Assets, regardless of whether
Seller has or comes to have knowledge of any kind, which arise out of or
relate to events occurring or circumstances or conditions arising after
the Closing, and
(C) with respect to any former assets, operations or business of
the Company or the Subsidiary or any affiliate of the Company or the
Subsidiary, or any former assets, operations or business of any former
subsidiary or Affiliate of the Company or the Subsidiary, (x) as to
which the Seller has Special Knowledge and which arise out of or relate
to events occurring or circumstances or conditions existing at or prior
to the Closing concerning any Environmental Law or Hazardous Materials,
and (y) regardless of whether Seller has or comes to have knowledge of
any kind, which arise out of or relate to events occurring or
circumstances or conditions arising after the Closing concerning any
Environmental Law or Hazardous Materials; and
(vii) the inaccuracy of the representation and warranty contained in
Section 3.22(a)(vii) (without regard to, and notwithstanding, any item set
forth on the Disclosure Schedule, and without regard to any Purchaser
Knowledge).
(b) Subject to Sections 9.01 and 9.03, the Seller and its Affiliates,
officers, directors, employees, agents, consultants, successors and assigns
shall be indemnified and held harmless on an after-tax basis (as defined below)
and, in each case, net of any and all amounts received from insurance,
guarantees, indemnification and other contractual and legal rights, by the
Purchaser for any and all Losses actually suffered or incurred by any of them
(including, without limitation, any Action brought or otherwise initiated by any
of them), arising out of or resulting from:
(i) the inaccuracy of any representation or warranty made by the
Purchaser contained in this Agreement; and
(ii) the breach of any covenant or agreement made or deemed made by
the Purchaser contained in this Agreement.
(c) To the extent that an Indemnifying Party's undertakings set forth in
this Section 9.02 may be unenforceable, such Indemnifying Party shall contribute
the maximum amount that it is permitted to
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contribute under applicable law to the payment and satisfaction of all Losses
incurred by an Indemnified Party.
(d) All claims for indemnification against the Seller or the Purchaser, as
the case may be (an "Indemnifying Party"), under any provision of this Article
IX shall be asserted and resolved as follows:
(i) In the event of any claim or demand for which an Indemnifying
Party would be liable for Losses to the other party (an "Indemnified
Party") which is asserted against or sought to be collected from such
Indemnified Party by a Person other than the Purchaser or the Seller
("Third Party Claim"), the Indemnified Party shall deliver a Claim Notice
(as defined below) with reasonable promptness to the Indemnifying Party
after the Indemnified Party has actual notice of the Third Party Claim. The
failure by any Indemnified Party to provide the Indemnifying Party with the
Claim Notice required by the preceding sentence shall not impair the
Indemnified Party's rights hereunder except to the extent that an
Indemnifying Party demonstrates that it has been materially prejudiced
thereby. The Indemnifying Party shall notify the Indemnified Party within
thirty (30) days of receipt of the Claim Notice ("Notice Period") whether
the Indemnifying Party desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
(ii) If the Indemnifying Party notifies the Indemnified Party within
the Notice Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.02(d), then the Indemnifying Party shall have the right to
defend, at its sole cost and expense, and, except as provided in the
following sentence, through counsel of its choice reasonably acceptable to
the Indemnified Party such Third party Claim by all appropriate
proceedings, which proceedings shall be diligently defended by the
Indemnifying Party to a final conclusion or shall be settled at the
discretion of the Indemnifying Party (with the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld), so
long as the Indemnified Party is fully released with respect to such Third
Party Claim. If there exists or is reasonably likely to exist a conflict of
interest that would make it inappropriate in the reasonable judgment of the
Indemnified Party for the same counsel to represent both the Indemnified
Party and the Indemnifying Party and the Indemnifying Party does not
provide separate counsel reasonably acceptable to the Indemnified Party,
then the Indemnified Party shall be entitled to retain its own counsel, in
each jurisdiction for which the Indemnified Party reasonably determines
counsel is required, at the expense of the Indemnifying Party. Assumption
by the Indemnifying Party of the defense of such Third Party Claim will not
constitute an admission by the Indemnifying Party that the claim or
litigation is one for which the Indemnifying Party is required to indemnify
the Indemnifying Party under this Article IX. The Indemnifying Party shall
have full control of such defense and proceedings; provided, however, that
the Indemnified Party may at the sole cost and expense of the Indemnifying
Party, file during the Notice Period any motion, answer, or other pleadings
that the Indemnified Party may deem necessary or appropriate to protect its
interests and not irrevocably prejudicial to the Indemnifying Party (it
being understood and agreed that, except as provided in Section
9.02(d)(iii) hereof, if an Indemnified Party takes any such action that is
irrevocably prejudicial and conclusively causes a final adjudication that
is materially adverse to the Indemnifying Party, the Indemnifying Party
will be relieved of its obligations hereunder with respect to the portion
of such Third Party Claim prejudiced by the Indemnified Party's action);
and provided, further, however, that if requested by the Indemnifying
Party, the Indemnified Party agrees, at the sole cost and expense of the
Indemnifying Party, to cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim that the Indemnifying Party
elects to contest, or, if appropriate in the judgment of the Indemnified
Party and related to the Third Party Claim in question, in making any
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any Person (other than the Indemnified Party). The
Indemnified Party may, at its sole cost and expense, participate in, but
not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 9.02(d)(ii).
(iii) If the Indemnifying Party fails to notify the Indemnified Party
within the Notice Period that the Indemnifying Party desires to defend the
Indemnified Party pursuant to Section 9.03(d)(i), or if the Indemnifying
Party gives such notice but fails to defend the Third Party Claim, then the
Indemnified
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Party will have the right (but not the obligation) to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be vigorously defended by
the Indemnified Party or will be settled at the discretion of the
Indemnified Party. The Indemnified Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting,
or, if appropriate and relating to the Third Party Claim in question, in
making any counterclaim against the person asserting the Third Party Claim,
or any cross-complaint against any person (other than the Indemnifying
Party or any of its Affiliates). Notwithstanding the forgoing provisions of
this Section 9.02(d)(iii), if the Indemnifying Party has notified the
Indemnified Party with reasonable promptness that the Indemnifying Party
disputes, or reserves its rights to dispute, its liability to the
Indemnified Party with respect to such Third Party Claim and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying
Party will not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9.02(d)(iii) or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party will reimburse the Indemnifying Party in
full for all costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the Indemnified
Party pursuant to this Section 9.02(d)(iii), but the Indemnifying Party
will bear its own costs and expenses with respect to such participation.
Regardless of whether the Indemnifying Party defends a Third Party Claim on
behalf of the Indemnified Party or participates in the defense thereof, the
Indemnified Party and the Indemnifying Party shall reasonably cooperate
with each other in all material respects in connection with the defense for
such Third Party Claim. Each Indemnified Party shall furnish such
information regarding itself and the Third Party Claim as the Indemnifying
Party may reasonably request in writing and as shall be reasonably required
in connection with the defense thereof. No Third Party Claim may be settled
by the Indemnifying Party without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld),
unless such settlement provides a full and unconditional release of the
Indemnified Party for such claim.
(iv) In the event any Indemnified Party should have a claim for Losses
against any Indemnifying Party hereunder that does not involve a Third
Party Claim being asserted against or sought to be collected from the
Indemnified Party, the Indemnified Party shall deliver an Indemnity Notice
(as defined below) with reasonable promptness to the Indemnifying Party
after the Indemnified Party has actual notice of such claim. The failure by
any Indemnified Party to give the notice referred to in the preceding
sentence shall not impair such party's rights hereunder except to the
extent that an Indemnifying Party demonstrates that it has been irreparably
prejudiced thereby. The Indemnifying Party and the Indemnified Party agree
to proceed in good faith to negotiate a resolution of any dispute relating
to such a claim for Losses within sixty (60) days following receipt of any
Indemnity Notice. If any such claim is not resolved within the foregoing
period, the parties may pursue any available remedies.
(v) The term "Claim Notice" shall mean written notification of a Third
Party Claim by an Indemnified Party to an Indemnifying Party pursuant to
Section 9.02(d)(i), enclosing a copy of all papers served, if any, and
specifying the nature of and alleged basis for such Third Party Claim and,
to the extent then feasible, the alleged amount or the estimated amount of
such Third Party Claim.
(vi) The term "Indemnity Notice" shall mean written notification of a
claim for indemnity (which claim does not involve a Third Party Claim) by
an Indemnified Party to an Indemnifying Party pursuant to Section
9.02(d)(iv) hereof, specifying the nature of and specific basis for such
claim and, to the extent then feasible, the amount or the estimated amount
of such claim.
(vii) Any estimated amount of a claim submitted in a Claim Notice or
an Indemnity Notice shall not be conclusive of the final amount of such
claim.
(viii) Subject to Section 11.15 hereof, except as provided in Section
10.02(b), the terms and conditions set forth in this Article IX shall
constitute the sole rights and remedies of the parties for
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money damages in respect of any inaccuracies of representations or
warranties or any breaches of covenants or agreements contained in this
Agreement. Notwithstanding any other provision hereof, however, any contest
or claim for indemnification under Article VII shall be governed by the
procedure of such Article VII and not by the provisions of this Section
9.02.
(ix) The Indemnifying Party shall be responsible for the fees and
expenses of only one counsel for all Indemnified Parties in each applicable
jurisdiction, such counsel to be selected by Purchaser with respect to it
and its Affiliates which are Indemnified Parties, and by Seller with
respect to it and its Affiliates which are Indemnified Parties.
SECTION 9.03. Limits on Indemnification. (a) No amount shall be payable by
any Indemnifying Party pursuant to Section 9.02(a) or (b) except to the extent
that the aggregate amount of Losses indemnifiable under Section 9.02(a) or (b)
exceeds $2,500,000 and then the Indemnifying Party shall indemnify the
Indemnified Party to the full extent of the aggregate amount of Losses, less
$2,500,000.
(b) The limitations set forth in Section 9.03(a) shall not apply with
respect to any Losses suffered or incurred by the Purchaser in connection with
(i) the representations contained in Sections 3.03 and 3.30, (ii) the covenant
contained in Section 5.19, (iii) indemnity pursuant to Section 9.02(a)(iii),
(iv) the representations, covenants and indemnities contained in Articles VI and
VII hereof (in the case of Article VII hereof, with respect to Claims relating
to federal income taxation only, but not state Tax Claims), and Seller shall
fully indemnify the Purchaser for any such Losses from the first dollar of such
Losses to the full extent of such Losses, subject to compliance by the Purchaser
with and subject to the terms of Section 9.02.
(c) Any Loss which is indemnifiable pursuant to Article VI or VII hereof
which also constitutes a breach of a representation or warranty pursuant to
Article III hereof shall, for purposes of this Article IX, be deemed to be
indemnifiable under Article VI or VII, as applicable, and accordingly the
Purchaser, subject to compliance by the Purchaser with and subject to the terms
of Section 9.02, may demand indemnification for such Losses, and Seller shall
indemnify the Purchaser for such Losses, as such Losses are incurred and the
Purchaser need not wait until such Losses exceed the threshold of $2,500,000
prior to demanding indemnification.
(d) In the event that, notwithstanding the limitations contained in this
Section 9.03, any Indemnifying Party nevertheless becomes liable to any
Indemnified Party hereunder, the Indemnifying Party shall be entitled to a
credit or offset against any such liability of an amount equal to the value of
any net Tax benefit actually realized, and actually used to reduce otherwise
payable Taxes, by the Indemnified Party. For purposes of determining the net Tax
benefit of any payment by Seller, such payment shall be presumed to be a
Purchase Price adjustment rather than constituting taxable income to the Seller,
unless the Purchaser provides to Seller an opinion of Dewey Ballantine or other
nationally recognized tax counsel that such payment should not be so treated for
federal income tax purposes. Any dispute as to the proper adjustment for net Tax
Benefit shall be resolved under procedures similar to those of Section 2.06(f).
No Indemnified Party shall take any action or omit to take any action the
primary purpose of which is to avoid the application of this subsection 9.03(d);
provided, however, that each Indemnified Party shall be permitted to engage in
its own tax planning, notwithstanding that the effect of such tax planning is to
cause this subsection 9.03(d) to be inapplicable.
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. Termination by the Seller or Purchaser. This Agreement may
be terminated at any time prior to the Closing:
(a) by the Purchaser if, between the date hereof and the time
scheduled for the Closing: (i) an event or condition occurs that has
resulted in a Material Adverse Effect, and, in the case of a Material
Adverse Effect reasonably susceptible to cure, shall not have been cured
within 30 calendar days after written notice by the Purchaser specifying
such Material Adverse Effect has been received by the Seller, (ii) any
representation or warranty of the Seller contained in this Agreement shall
not have been true and
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correct when made and, in the case of a breach reasonably susceptible to
cure, shall not have been cured within 30 calendar days after written
notice by the Purchaser specifying such breach has been received by the
Seller, (iii) the Seller shall not have complied with any covenant or
agreement to be complied with by it and contained in this Agreement and, in
the case of a breach reasonably susceptible to cure, shall not have been
cured within 30 calendar days after written notice by the Purchaser
specifying such breach has been received by the Seller, (iv) the Seller,
the Company or the Subsidiary makes a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against, the Seller,
the Company or the Subsidiary seeking to adjudicate any of them a bankrupt
or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts
under any Law relating to bankruptcy, insolvency or reorganization or (v)
the stockholders of the Seller entitled to vote on and approve the
consummation of the transactions contemplated herein at the Special Meeting
do not so approve by the requisite amounts pursuant to applicable law and
the Seller's articles of incorporation and by-laws; or
(b) by the Seller if, between the date hereof and the time scheduled
for the Closing: (i) any representation or warranty of the Purchaser or the
Guarantor contained in this Agreement shall not have been true and correct
when made and, in the case of a breach reasonably susceptible to cure,
shall not have been cured within 30 calendar days after written notice by
the Seller specifying such breach has been received by the Purchaser or the
Guarantor, (ii) the Purchaser or the Guarantor shall not have complied with
any covenant or agreement to be complied with by them and contained in this
Agreement, and, in the case of a breach reasonably susceptible to cure,
shall not have been cured within 30 calendar days after written notice by
the Seller specifying such breach has been received by the Purchaser or the
Guarantor, as applicable, (iii) the Purchaser or the Guarantor makes a
general assignment for the benefit of creditors, or any proceeding shall be
instituted by or against the Purchaser seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts
under any Law relating to bankruptcy, insolvency or reorganization, (iv)
the stockholders of the Seller entitled to vote on and approve the
consummation of the transactions contemplated herein at the Special Meeting
do not so approve by the requisite amounts pursuant to applicable law and
the Seller's articles of incorporation and by-laws, or (v) a Third Party
shall have entered into a definitive agreement with Seller or the Company
with respect to an Acquisition Proposal which the Board of Directors of
Seller in good faith has determined, after receipt by it of a fairness
opinion of a nationally recognized investment bank to the effect that the
Third Party's Acquisition Proposal is more favorable to Seller than the
transactions contemplated herein, [which opinion shall take into account
the financing terms and contingencies of such Acquisition Proposal;
provided, however, that such requirement as to the fairness opinion shall
not in any way limit or restrict the other material facts which such
investment bank shall or shall not take into account in rendering its
opinion] (a "Bona Fide Acquisition Proposal"); provided, however, that
neither Seller nor the Company shall enter into any acquisition agreement
with respect to any Bona Fide Acquisition Proposal except concurrently with
or after the termination of this Agreement; or
(c) by either the Seller or the Purchaser if the Closing shall not
have occurred by May 31, 1996; provided, however, that (i) if the
provisions of Section 8.01(g) have not been satisfied by May 31, 1996, and
the Purchaser are diligently seeking to satisfy such condition, or (ii) if
the provisions of Section 8.02(g) have not been satisfied by May 31, 1996,
and the Seller is diligently seeking to satisfy such condition, then, in
each case (subject to the proviso below) the obligations of the parties to
proceed toward Closing shall be extended until July 31, 1996; and provided,
further, that the right to terminate this Agreement under this Section
10.01(c) shall not be available to any party whose intentional failure to
fulfill any obligation under this Agreement shall have been the cause of,
or shall have resulted in, the failure of the Closing to occur on or prior
to such date; or
(d) by either the Purchaser or the Seller in the event that any
Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement or in the reasonable
determination of the Purchaser or
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the Seller, otherwise render inadvisable the consummation of the
transaction contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable; or
(e) by the mutual written consent of the Seller and the Purchaser.
SECTION 10.02. Effect of Termination. (a) In the event of termination of
this Agreement as provided in Section 10.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except (a) as set forth in Sections 10.02(b) and 11.02 and (b) that nothing
herein shall relieve any party from liability for any willful breach of this
Agreement.
(b) Notwithstanding the foregoing, if the Closing does not occur solely
because of (i) the failure to satisfy the conditions to the Purchaser's
obligation to effect the Closing contained in Sections 8.02(a), (d), (e), (h),
(i) (except insofar as such condition relates to the delivery of documents
required to be obtained from any Governmental Authority), (j), (k), (l), (m),
(n), (p), (r), (s), (t), (u) or (v), then the Seller shall reimburse the
Purchaser for its reasonable costs and expenses, including, without limitation,
reasonable fees and disbursements of counsel, financial advisors, financing
sources and accountants, incurred by the Purchaser in connection with the
preparation, negotiation and performance of this Agreement and the transactions
contemplated hereby up to $1 million (as supported by itemized invoices
delivered to Seller), (ii) the failure to satisfy the conditions to the Seller's
obligation to effect the Closing contained in Sections 8.01(a), (d), (e), (h),
(i), (k), (l) (m) or (o) then the Purchaser shall reimburse the Seller for its
reasonable costs and expenses, including, without limitation, reasonable fees
and disbursements of counsel, financial advisors and accountants, incurred by
the Seller in connection with the negotiation and performance of this Agreement
and the transactions contemplated hereby up to $1 million (as supported by
itemized invoices delivered to the Purchaser) or (iii) (A) the Seller's
termination of this Agreement pursuant to Section 10.01(b)(iv) if the Board of
Directors of the Seller, prior to or simultaneously with the stockholder vote
contemplated in such Section, withdrew its recommendation to the Seller's
stockholders to approve the consummation of the transactions contemplated herein
or (B) the Seller's termination of this Agreement pursuant to Section
10.01(b)(v), then the Seller shall, simultaneously with such termination, pay by
wire transfer to the Purchaser a fee, in cash, equal to $2 million.
SECTION 10.03. Waiver. Any party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other party,
(b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered by the other party pursuant
hereto or (c) waive compliance with any of the agreements or conditions of the
other party contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Guarantee. Subject to the terms and conditions of this
Agreement, the Guarantor will cause the Purchaser (and any assignee of the
Purchaser) to consummate the purchase of the Shares and pay the Purchase Price
and the Adjustment Amount.
SECTION 11.02. Expenses. Except as otherwise specified in Section 10.02(b),
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Closing shall have
occurred.
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SECTION 11.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy (confirmed by telephone within 24 hours
following receipt thereof), or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 11.03):
(a) if to the Seller:
United Companies Financial Corporation
P.O. Box 1591 (70821)
4041 Essen Lane
Baton Rouge, Louisiana 70809
Telephone: (504) 924-6007 (ext. 2282)
Telecopy: (504) 924-4324
Attention: Dale E. Redman
with a copy to:
Kantrow, Spaht, Weaver & Blitzer
(A Professional Law Corporation)
Suite 300, City Plaza
445 North Boulevard
P.O. Box 2997
Baton Rouge, Louisiana 70821-2997
Telephone: (504) 383-4703
Telecopy: (504) 343-0637
Attention: Lee C. Kantrow, Esq.
and:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Telephone: (214) 220-3939
Telecopy: (214) 969-5100
Attention: Richard K. Kneipper, Esq.
(b) if to the Purchaser:
UC Life Holding Corp.
c/o Knightsbridge Management, L.L.C.
745 Fifth Avenue
New York, New York 10151
Telephone: (212) 832-0700
Telecopy: (212) 758-5442
Attention: David J. Stone
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with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Telephone: (212) 259-8000
Telecopy: (212) 259-6333
Attention: Jonathan L. Freedman
and
William W. Rosenblatt
SECTION 11.04. Public Announcements. Except to the extent that Seller or
Purchaser believes on the advice of counsel that public disclosure is required
by Law, no party to this Agreement shall make, or cause to be made, any press
release or public announcement in respect of this Agreement or the transactions
contemplated hereby or otherwise communicate with any news media without prior
notification to the other parties, and the parties shall cooperate as to the
timing and contents of any such press release or public announcement.
SECTION 11.05. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 11.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 11.07. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, between the Seller and the Purchaser with respect to the subject matter
hereof.
SECTION 11.08. Assignment. This Agreement may not be assigned by any party
hereto by operation of law or otherwise without the express written consent of
the other party hereto (which consent may be granted or withheld in the sole
discretion of such other parties); provided, however, that the Purchaser may
assign any or all of its rights under this Agreement, after prior written notice
to the Seller identifying the assignee and including a photocopy of the
assignment agreement, (i) to a direct or indirect wholly-owned subsidiary of the
Purchaser without the consent of the Seller, (ii) at the Closing, to any lender
or other provider of financing to the Purchaser for the Purchase Price as
collateral security without the consent of the Seller and (iii) to any Affiliate
of Purchaser, with the written consent of Seller (which consent shall not be
withheld if Purchaser provides to Seller evidence reasonably satisfactory to
Seller of such Affiliate's financial ability to assume and perform the
Purchaser's obligations hereunder and the acceptability of such Affiliate to
Governmental Authorities where consent is required hereunder); and in no event
shall any such assignment release Purchaser or the Guarantor from their
respective obligations hereunder.
SECTION 11.09. No Third Party Beneficiaries. Except for the provisions of
Article IX relating to Indemnified Parties, this Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 11.10. Amendment. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
hereto or (b) by a waiver in accordance with Section 10.03.
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SECTION 11.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts executed in and to be performed entirely within that state.
SECTION 11.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 11.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 11.14. Further Clarification. The parties hereto acknowledge that
the phrases "Special Knowledge" and "Enhanced Special Knowledge", as defined in
Section 1.01 hereof and as used herein, shall each be deemed to include
knowledge of any facts, circumstances or information which arise out of or are
related to any item listed or described in any manner in (i) those 20 certain
Environmental Audit Reports dated January 19, 1996 of Tampa Bay Engineering,
Inc. or (ii) in any other environmental report, audit or similar work contained
in the books, records, files or other documents of any member of the Seller's
Knowledge Group, including, without limitation, any of such which are so listed
or described in any such work as "Issues", "Findings", "Potential Risks", or
otherwise.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
UNITED COMPANIES FINANCIAL
CORPORATION
By /s/ Dale E. Redman
---------------------------------
Name: Dale E. Redman
Title: Executive Vice President
and Chief Financial
Officer
UC LIFE HOLDING CORP.
By /s/ David J. Stone
---------------------------------
Name: David J. Stone
Title: President
SOLELY WITH RESPECT TO
SECTION 11.01 HEREOF:
KNIGHTSBRIDGE CAPITAL FUND I, L.P.
By: Knightsbridge Capital, L.L.C.
As General Partner
By: /s/ David J. Stone
---------------------------------
David J. Stone
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EXHIBIT B
May 21, 1996
Board of Directors
United Companies Financial Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Gentlemen:
You have requested our opinion as to the fairness to United Companies
Financial Corporation ("United Companies") of the Aggregate Consideration (as
defined below) to be received by United Companies for all the outstanding shares
of Common Stock of United Companies Life Insurance Company (the "Company")
pursuant to the Amended and Restated Stock Purchase Agreement dated as of
January 30, 1996 between UC Life Holding Corp. ("Buyer") and United Companies
(the "Agreement"). Capitalized terms not defined herein are defined in the
Agreement.
For purposes hereof, the term Aggregate Consideration shall mean $164.0
million, as adjusted, payable in the form of the Cash Payment (as defined
below), the Cash Dividend, if any, and any distribution of Excluded Assets not
sold or transferred by the Company prior to Closing; the Agreement provides that
$15.0 million in cash will be paid by United Companies at the Closing to an
affiliate of Buyer to purchase the Promissory Note. The Cash Payment will be
$164.0 million minus the Excluded Assets Value Amount plus the Adjustment
Amount. The Agreement also provides that simultaneous with the Closing (i) the
Company and certain subsidiaries of United Companies will enter into a Master
Loan Sale Agreement (the "Master Loan Sale Agreement"), and (ii) the Company and
a subsidiary of United Companies will enter into a Servicing Agreement (together
with the Master Loan Sale Agreement, the "Ancillary Agreements").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Proxy Statement relating to the 1996 Annual Meeting of
Shareholders of United Companies; the Term Sheet for the Promissory Note; the
Ancillary Agreements; audited financial statements for the Company prepared
using generally accepted accounting principles ("GAAP") for the three years
ended December 31, 1995; certain GAAP financial statements for the Company for
the years ended December 31, 1991, and 1992 derived from United Companies' GAAP
audited financial statements; audited statutory financial statements for the
Company prepared using statutory accounting principles for the five years ended
December 31, 1995; an actuarial appraisal as of June 30, 1995 dated November 29,
1995 prepared by Milliman & Robertson, Inc. (the "Actuarial Appraisal"); real
estate appraisals of One United Plaza, Two United Plaza, and Tract UC-11 as of
November 30, 1995 dated December 8, 1995 prepared by members of nationally
recognized appraisal organizations (the "Real Estate Appraisals"); the unaudited
financial statements and related notes thereto for the year ended December 31,
1995 for the CIGNA Mezzanine Partners III, L.P. ("CIGNA Partners"); certain
unaudited financial statements relating to each entity in which CIGNA Partners
is an investor; an unaudited schedule of the commercial real estate owned by the
Company (the "Commercial Real Estate") with the appraised values as of December
31, 1995 prepared by United Companies (the "Real Estate Owned Schedule"); or
schedule prepared by United Companies of the Commercial Real Estate with the
appraised values determined by various independent appraisers certain other
communications from United Companies to its stockholders; and certain internal
financial analyses and forecasts for the Company and the Buyer prepared by their
respective managements. We also have held discussions with members of the senior
management of the Company and Buyer regarding the past and current business
operations, financial condition and future prospects of their respective
companies. We also have spoken to members of management of CIGNA Mezzanine
Partners III, Inc., the General Partner of CIGNA Partners, regarding the current
business operations, financial condition and future prospects of CIGNA Partners.
In addition, we
133
United Companies Financial Corporation
May 21, 1996
have compared certain financial information for the Company with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the life insurance industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or Buyer or
any of their subsidiaries, including the Excluded Assets, and, except for the
Actuarial Appraisal and the Real Estate Appraisals referred to in the fourth
paragraph of this opinion, we have not been furnished with any such evaluation
or appraisal. We were not authorized by you to solicit potential third-party
buyers for the Company and accordingly, we have not engaged in any such
solicitation. We have assumed with your consent that the fair market value of
the following Excluded Assets is not materially different from (i) the market
value amounts of fee simple as set forth in the Real Estate Appraisals for One
United Plaza, Two United Plaza and Tract UC-11; (ii) the carrying value amounts
in the Real Estate Owned Schedule for the Commercial Real Estate; and (iii) the
GAAP book value of the Orlando Building at December 31, 1995. We are expressing
no opinion herein with regard to the Ancillary Agreements.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Aggregate Consideration to be received by United Companies pursuant to the
Agreement is fair to United Companies.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
GOLDMAN, SACHS & CO.
Page Two
134
EXHIBIT C
SECTION 131. RIGHTS OF A SHAREHOLDER DISSENTING FROM CERTAIN CORPORATE ACTIONS
A. Except as provided in subsection B of this section, if a corporation
has, by vote of its shareholders, authorized a sale, lease or exchange of all of
its assets, or has, by vote of its shareholders, become a party to a merger or
consolidation, then, unless such authorization or action shall have been given
or approved by at least eighty per cent of the total voting power, a shareholder
who voted against such corporate action shall have the right to dissent. If a
corporation has become a party to a merger pursuant to R.S. 12:112(H), the
shareholders of any subsidiaries party to the merger shall have the right to
dissent without regard to the proportion of the voting power which approved the
merger and despite the fact that the merger was not approved by vote of the
shareholders of any of the corporations involved.
B. The right to dissent provided by this Section shall not exist in the
case of:
(1) A sale pursuant to an order of a court having jurisdiction in the
premises.
(2) A sale for cash on terms requiring distribution of all or substantially
all of the net proceeds to the shareholders in accordance with their respective
interests within one year after the date of the sale.
(3) Shareholders holding shares of any class of stock which, at the record
date fixed to determine shareholders entitled to receive notice of and to vote
at the meeting of shareholders at which a merger or consolidation was acted on,
were listed on a national securities exchange, or were designated as a national
market system security on an inter-dealer quotation system by the National
Association of Securities Dealers, unless the articles of the corporation
issuing such stock provide otherwise or the shares of such shareholders were not
converted by the merger or consolidation solely into shares of the surviving or
new corporation.
C. Except as provided in the last sentence of this subsection, any
shareholder electing to exercise such right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to such proposed
corporate action, and shall vote his shares against such action. If such
proposed corporate action be taken by the required vote, but by less than eighty
per cent of the total voting power, and the merger, consolidation or sale, lease
or exchange of assets authorized thereby be effected, the corporation shall
promptly thereafter give written notice thereof, by registered mail, to each
shareholder who filed such written objection to, and voted his shares against,
such action, at such shareholder's last address on the corporation's records.
Each such shareholder may, within twenty days after the mailing of such notice
to him, but not thereafter, file with the corporation a demand in writing for
the fair cash value of his shares as of the day before such vote was taken;
provided that he state in such demand the value demanded, and a post office
address to which the reply of the corporation may be sent, and at the same time
deposit in escrow in a chartered bank or trust company located in the parish of
the registered office of the corporation, the certificates representing his
shares, duly endorsed and transferred to the corporation upon the sole condition
that said certificates shall be delivered to the corporation upon payment of the
value of the shares determined in accordance with the provisions of this
section. With his demand the shareholder shall deliver to the corporation, the
written acknowledgement of such bank or trust company that it so holds his
certificates of stock. Unless the objection, demand and acknowledgment aforesaid
be made and delivered by the shareholder within the period above limited, he
shall conclusively be presumed to have acquiesced in the corporate action
proposed or taken. In the case of a merger pursuant to R.S. 12:112(H), the
dissenting shareholder need not file an objection with the corporation nor vote
against the merger, but need only file with the corporation, within twenty days
after a copy of the merger certificate was mailed to him, a demand in writing
for the cash value of his shares as of the day before the certificate was filed
with the secretary of state, state in such demand the value demanded and a post
office address to which the corporation's reply may be sent, deposit the
certificates representing his shares in escrow as hereinabove provided, and
deliver to the corporation with his demand the acknowledgement of the escrow
bank or trust company as hereinabove prescribed.
D. If the corporation does not agree to the value so stated and demanded,
or does not agree that a payment is due, it shall, within twenty days after
receipt of such demand and acknowledgement, notify in
C-1
135
writing the shareholder, at the designated post office address, of its
disagreement, and shall state in such notice the value it will agree to pay if
any payment should be held to be due; otherwise it shall be liable for, and
shall pay to the dissatisfied shareholder, the value demanded by him for his
shares.
E. In case of disagreement as to such fair cash value, or as to whether any
payment is due, after compliance by the parties with the provisions of
subsections C and D of this section, the dissatisfied shareholder, within sixty
days after receipt of notice in writing of the corporation's disagreement, but
not thereafter, may file suit against the corporation, or the merged or
consolidated corporation, as the case may be, in the district court of the
parish in which the corporation or the merged or consolidated corporation, as
the case may be, has its registered office, praying the court to fix and decree
the fair cash value of the dissatisfied shareholder's shares as of the day
before such corporate action complained of was taken, and the court shall, on
such evidence as may be adduced in relation thereto, determine summarily whether
any payment is due, and, if so, such cash value, and render judgment
accordingly. Any shareholder entitled to file such suit may, within such
sixty-day period but not thereafter, intervene as a plaintiff in such suit filed
by another shareholder, and recover therein judgment against the corporation for
the fair cash value of his shares. No order or decree shall be made by the court
staying the proposed corporate action, and any such corporate action may be
carried to completion notwithstanding any such suit. Failure of the shareholder
to bring suit, or to intervene in such a suit, within sixty days after receipt
of notice of disagreement by the corporation shall conclusively bind the
shareholder (1) by the corporation's statement that no payment is due, or (2) if
the corporation does not contend that no payment is due, to accept the value of
his shares as fixed by the corporation in its notice of disagreement.
F. When the fair value of the shares has been agreed upon between the
shareholder and the corporation, or when the corporation has become liable for
the value demanded by the shareholder because of failure to give notice of
disagreement and of the value it will pay, or when the shareholder has become
bound to accept the value the corporation agrees is due because of his failure
to bring suit within sixty days after receipt of notice of the corporation's
disagreement, the action of the shareholder to recover such value must be
brought within five years from the date the value was agreed upon, or the
liability of the corporation became fixed.
G. If the corporation or the merged or consolidated corporation, as the
case may be, shall, in its notice of disagreement, have offered to pay to the
dissatisfied shareholder on demand an amount in cash deemed by it to be the fair
cash value of his shares, and if, on the institution of a suit by the
dissatisfied shareholder claiming an amount in excess of the amount so offered,
the corporation, or the merged or consolidated corporation, as the case may be,
shall deposit in the registry of the court, there to remain until the final
determination of the cause, the amount so offered, then, if the amount finally
awarded such shareholder, exclusive of interest and costs, be more than the
amount offered and deposited as aforesaid, the costs of the proceeding shall be
taxed against the corporation, or the merged or consolidated corporation, as the
case may be; otherwise the costs of the proceeding shall be taxed against such
shareholder.
H. Upon filing a demand for the value of his shares, the shareholder shall
cease to have any of the rights of a shareholder except the rights accorded by
this section. Such a demand may be withdrawn by the shareholder at any time
before the corporation gives notice of disagreement, as provided in subsection D
of this section. After such notice of disagreement is given, withdrawal of a
notice of election shall require the written consent of the corporation. If a
notice of election is withdrawn, or the proposed corporate action is abandoned
or rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares, his share certificates shall be returned to him (and, on his request,
new certificates shall be issued to him in exchange for the old ones endorsed to
the corporation), and he shall be reinstated to all his rights as a shareholder
as of the filing of his demand for value, including any intervening preemptive
rights, and the right to payment of any intervening dividend or other
distribution, or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim.
C-2
136
EXHIBIT D
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
United Companies Financial Corporation:
We have audited the accompanying consolidated balance sheets of United
Companies Financial Corporation and its subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. Our audits also included the financial statement schedules listed in the
Index at Item 14. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of United Companies Financial
Corporation and its subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 1.11 of the Notes to the Consolidated Financial
Statements, in 1995 the Company changed its method of accounting for mortgage
servicing rights to conform with Statement of Financial Accounting Standards No.
122.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
February 29, 1996
D-1
137
UNITED COMPANIES FINANCIAL CORPORATION
THE SOLICITATION OF THIS PROXY IS MADE ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. TERRELL BROWN and DALE E. REDMAN,
and each of them with full power of substitution, the attorney and proxy of
the undersigned to attend the Annual Meeting of Shareholders of UNITED
COMPANIES FINANCIAL CORPORATION to be held at the United Companies
Financial Corporation Executive Office Building, 4041 Essen Lane, Baton
Rouge, Louisiana, at 9:00 a.m. on June 28, 1996, or any postponement or
adjournment thereof, and to vote the stock of the undersigned with all
powers the undersigned would possess if present upon the following
matters and upon any other business that may properly come before the
meeting or any postponement or adjournment thereof.
This proxy when properly executed will be voted as specified herein.
If no specification is made, it is the intention of the proxies to vote FOR
proposals 1, 2 and 3.
INSTRUCTIONS: This proxy, signed and dated, must be returned
for your shares to be represented at the Annual Meeting. To vote, please
mark the appropriate box for each proposal in blue or black ink, date
and sign this proxy exactly as your name appear(s) hereon. If stock is
held jointly, signature should include both names. Executors,
administrators, trustees, guardians and others signing in a
representative capacity should give their full title. The shares
represented by this proxy will be voted as specified by the
shareholder(s). If no choice is specified, the proxy will be voted FOR
proposals 1, 2 and 3. PLEASE return promptly in the enclosed postage
paid envelope.
SEE REVERSE SIDE
138
***************************************************************************
* *
* [ ] To vote for all items AS RECOMMENDED BY THE BOARD OF DIRECTORS, *
* mark this box, sign, date and return this proxy. (NO ADDITIONAL *
* VOTE IS NECESSARY JUST SIGN, DATE AND RETURN.) *
* *
***************************************************************************
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Approval and Adoption of an Amended and Restated Stock Purchase Agreement
dated as of January 30, 1996, which relates to the Proposed Sale by the
Company of 100% of the Outstanding Capital Stock of United Companies Life
Insurance Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Election of three directors to serve until the 1999 Annual Meeting of
Shareholders
FOR WITHHOLD
all nominees listed AUTHORITY
below, except as to vote for all
otherwise indicated nominees listed below
[ ] [ ]
Instruction: If you wish to withhold authority selectively to vote for any
individual nominee, strike a line through the nominee's name below.
The nominees are:
General Robert H. Barrow (Retired), John D. Dienes, O. Miles Pollard, Jr.
3. In their discretion, the Proxies are authorized to Vote Upon Such
Other Business as May Properly Come Before the Meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Signature______________________________________________ Date_______________,1996
Signature______________________________________________ Date_______________,1996
________________________________________________________________________________
Title
NOTE: Please sign this proxy as name(s) appears hereon and return it promptly
in the envelope provided, whether or not you plan to attend the meeting.
139
UNITED COMPANIES FINANCIAL CORPORATION
THE SOLICITATION OF THIS PROXY IS MADE ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the trustee of United Companies Financial
Corporation Employee's Savings Plan (the "401(k) Plan"), with full power of
substitution, the attorney and proxy of the undersigned to attend the Annual
Meeting of Shareholders of UNITED COMPANIES FINANCIAL CORPORATION to be held
at the United Companies Financial Corporation Executive Office Building, 4041
Essen Lane, Baton Rouge, Louisiana, at 9:00 a.m. on June 28, 1996, or any
postponement or adjournment thereof, and to vote the stock allocated to the
account of the undersigned in the 401(k) Plan with all powers the undersigned
would possess if present upon the following matters and upon any other business
that may properly come before the meeting or any postponement or adjournment
thereof.
This proxy when properly executed will be voted as specified herein. If no
specification is made, it is the intention of the proxies to vote FOR proposals
1, 2 and 3.
INSTRUCTIONS: This proxy, signed and dated, must be returned for your
shares to be represented at the Annual Meeting. To vote, please mark the
appropriate box for each proposal in blue or black ink, date and sign this
proxy exactly as your name appear(s) hereon. If stock is held jointly,
signature should include both names. Executors, administrators, trustees,
guardians and others signing in a representative capacity should give their
full title. The shares represented by this proxy will be voted as specified by
the undersigned. If no choice is specified, the proxy will be voted FOR
proposals 1, 2 and 3. PLEASE return promptly in the enclosed postage paid
envelope.
SEE REVERSE SIDE
140
*******************************************************************************
* *
* [ ] To vote for all items AS RECOMMENDED BY THE BOARD OF DIRECTORS, *
* mark this box, sign, date and return this proxy. (NO ADDITIONAL VOTE *
* IS NECESSARY JUST SIGN, DATE AND RETURN.) *
* *
*******************************************************************************
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Approval and Adoption of an Amended and Restated Stock Purchase
Agreement dated as of January 30, 1996, which relates to the Proposed
Sale by the Company of 100% of the Outstanding Capital Stock of United
Companies Life Insurance Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Election of three directors to serve until the 1999 Annual Meeting of
Shareholders
FOR WITHHOLD
all nominees AUTHORITY
listed below, to vote for all
except as nominees listed below
otherwise indicated
[ ] [ ]
Instruction: If you wish to withhold authority selectively to vote for any
individual nominee, strike a line through the nominee's name below.
The nominees are:
General Robert H. Barrow (Retired), John D. Dienes, O. Miles Pollard, Jr.
3. In their discretion, the Proxies are authorized to Vote Upon Such Other
Business as May Properly Come Before the Meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Signature_______________________________________________ Date______________,1996
Signature_______________________________________________ Date______________,1996
________________________________________________________________________________
Title
NOTE: Please sign this proxy as name(s) appears hereon and return it promptly
in the envelope provided, whether or not you plan to attend the meeting.
141
UNITED COMPANIES FINANCIAL CORPORATION
THE SOLICITATION OF THIS PROXY IS MADE ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the trustee of United Companies
Financial Corporation Employee Stock Ownership Plan and Trust (the "ESOP"),
with full power of substitution, the attorney and proxy of the undersigned to
attend the Annual Meeting of Shareholders of UNITED COMPANIES FINANCIAL
CORPORATION to be held at the United Companies Financial Corporation Executive
Office Building, 4041 Essen Lane, Baton Rouge, Louisiana, at 9:00 a.m. on
June 28, 1996, or any postponement or adjournment thereof, and to vote the
stock allocated to the account of the undersigned in the ESOP with all powers
the undersigned would possess if present upon the following matters and upon
any other business that may properly come before the meeting or any
postponement or adjournment thereof.
This proxy when properly executed will be voted as specified herein. If
no specification is made, it is the intention of the proxies to vote FOR
proposals 1, 2 and 3.
INSTRUCTIONS: This proxy, signed and dated, must be returned for your
shares to be represented at the Annual Meeting. To vote, please mark the
appropriate box for each proposal in blue or black ink, date and sign this
proxy exactly as your name appear(s) hereon. If stock is held jointly,
signature should include both names. Executors, administrators, trustees,
guardians and others signing in a representative capacity should give their
full title. The shares represented by this proxy will be voted as specified by
the undersigned. If no choice is specified, the proxy will be voted FOR
proposals 1, 2 and 3. PLEASE return promptly in the enclosed postage paid
envelope.
SEE REVERSE SIDE
142
*******************************************************************************
* *
* [ ] To vote for all items AS RECOMMENDED BY THE BOARD OF DIRECTORS, *
* mark this box, sign, date and return this proxy. (NO ADDITIONAL VOTE *
* IS NECESSARY JUST SIGN, DATE AND RETURN.) *
* *
*******************************************************************************
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Approval and Adoption of an Amended and Restated Stock Purchase Agreement
dated as of January 30, 1996, which relates to the Proposed Sale by the
Company of 100% of the Outstanding Capital Stock of United Companies Life
Insurance Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Election of three directors to serve until the 1999 Annual Meeting of
Shareholders
FOR WITHHOLD
all nominees listed AUTHORITY
below, except as to vote for all
otherwise indicated nominees listed below
[ ] [ ]
Instruction: If you wish to withhold authority selectively to vote for any
individual nominee, strike a line through the nominee's name below.
The nominees are:
General Robert H. Barrow (Retired), John D. Dienes, O. Miles Pollard, Jr.
3. In their discretion, the Proxies are authorized to Vote Upon Such Other
Business as May Properly Come Before the Meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Signature_______________________________________________ Date______________,1996
Signature_______________________________________________ Date______________,1996
________________________________________________________________________________
Title
NOTE: Please sign this proxy as name(s) appears hereon and return it promptly
in the envelope provided, whether or not you plan to attend the meeting.