STOCK PURCHASE AGREEMENT
among
THE CONTINENTAL CORPORATION,
THE CONTINENTAL INSURANCE COMPANY,
CONTINENTAL REINSURANCE CORPORATION
and
MELLON BANK CORPORATION
AFCO CREDIT CORPORATION
CAFO INC.
Dated as of June 30, 1993
TABLE OF CONTENTS
Section Page
ARTICLE I
SALE AND PURCHASE
1.1 Sale and Purchase of the Shares 1
1.2 Closing 1
1.3 Certain Contingent Payments 2
1.4 Allocation of Purchase Price 6
1.5 Canadian Tax Matters 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
2.1 Corporate Status and Authority 7
2.2 No Conflicts, etc. 8
2.3 Corporate Status of the Companies 8
2.4 The Shares 8
2.5 Subsidiaries 9
2.6 Financial Statements 9
2.7 Absence of Undisclosed Liabilities 10
2.8 Properties, etc. 10
2.9 Contracts 11
2.10 Employee Benefits 11
2.10.1 Employment Agreements and Plan 11
2.10.2 Liabilities, Encumbrances and Tax Treatment 12
2.10.3 Compliance with Plan Provisions and
Applicable Laws 12
2.10.4 Retiree Welfare Benefits 12
2.10.5 Severance Pay; Accelerated Benefits 12
2.10.6 Plan Amendment or Termination 13
2.10.7 Labor Matters 13
2.10.8 Nonqualified Arrangements 13
2.10.9 CAFO Plans 13
2.11 Insurance 13
2.12 Governmental Authorizations; Compliance
with Laws 13
2.13 Litigation 14
2.14 Tax Matters 14
2.15 Absence of Changes 16
2.16 Brokers 16
2.17 Environmental Matters 17
2.18 Accurate and Complete Disclosure 17
2.19 Intellectual Property 17
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES
OF CONTINENTAL
2.20 Corporate Status and Authority 18
2.21 No Conflicts, etc. 18
2.22 Litigation 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
3.1 Corporate Status and Authority 19
3.2 No Conflicts 19
3.3 Litigation 20
3.4 Purchase for Investment 20
3.5 Brokers 20
ARTICLE IV
CERTAIN COVENANTS
4.1 Obligations of the Parties 20
4.2 Conduct of Business, etc. 20
4.3 Access and Information 21
4.4 Payment of Certain Taxes; Filing of Certain
Tax Returns 21
4.5 Solicitation of Employees 21
4.6 Tax Sharing Agreements; Tax Attributes 22
4.6.1 Termination of Existing
Agreements 22
4.6.2 Tax Attributes 22
4.7 Taxes 23
4.7.1 Payment of Tax Liabilities 23
4.7.2 Filing of Tax Returns 23
4.7.3 Bridge Period 23
4.7.4 Audits and Other Proceedings 24
4.7.5 Conduct of Business, Section 338 Election 25
4.7.6 Tax Refunds 26
4.7.7 Cooperation 27
4.8 Certain Pre-Closing Transactions 27
4.8.1 Pre-Closing Dividend 27
4.8.2 Intercompany Indebtedness 28
4.8.3 Resignation of Directors 28
4.8.4 Credit Support Arrangements 28
4.8.5 Transfer of Certain Property 28
4.9 Publicity 28
4.10 Covenant not to Compete 29
4.11 Transitional Matters 29
ARTICLE V
EMPLOYEE MATTERS
5.1 Employee Matters 29
5.2 Retirement Plan 30
5.3 Savings Plan 31
5.4 Welfare Plans 31
5.5 Executive Compensation and Benefits 34
5.6 Cessation of Participation 34
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Preamble 34
6.2 Conditions to Obligations of both
Parties 35
6.2.1 Consents and Approvals 35
6.2.2 No Injunction 35
6.3 Conditions to Obligations of the
Sellers 35
6.3.1 Representations and Warranties of
the Purchaser 35
6.3.2 Officer's Certificate 36
6.3.3 Opinion of Counsel 36
6.3.4 Release From Credit Support
and Other Arrangements 36
6.3.5 Third Party Consents 36
6.3.6 Real Property Transfer Tax
Filings 36
6.4 Conditions to Obligations of the Purchaser 36
6.4.1 Representations and Warranties of
the Sellers 36
6.4.2 Officer's Certificate 36
6.4.3 Opinion of Counsel 37
6.4.4 Third Party Consents 37
6.4.5 Real Property Transfer Tax
Filings 37
6.4.6 Combined Shareholders' Equity 37
ARTICLE VII
INDEMNIFICATION
7.1 Survival of Representations and
Warranties 37
7.2 Indemnification 37
7.2.1 By the Sellers 37
7.2.2 By the Purchaser 38
7.2.3 Indemnification Procedures 39
7.3 Continental Guaranty 40
ARTICLE VIII
DISPUTE RESOLUTION 41
ARTICLE IX
DEFINITIONS 42
ARTICLE X
GENERAL PROVISIONS
10.1 Modification; Waiver 46
10.2 Entire Agreement 46
10.3 Termination 46
10.4 Expenses 46
10.5 Further Actions 46
10.6 Post-Closing Access 46
10.7 Notices 47
10.8 Assignment 48
10.9 Counterparts 48
10.10 Headings 48
10.11 Governing Law 49
Exhibit A Form of Opinion of the Purchaser's Counsel
Exhibit B Form of Opinion of the Sellers' U.S. Counsel
Exhibit C Form of Opinion of the Sellers' General
Counsel
Exhibit D Form of Opinion of Sellers' Canadian Counsel
STOCK PURCHASE AGREEMENT, dated as of June 30, 1993,
among THE CONTINENTAL CORPORATION, a New York corporation
("Continental"), THE CONTINENTAL INSURANCE COMPANY, a New Hampshire
insurance corporation ("Continental Insurance"), CONTINENTAL
REINSURANCE CORPORATION, a California insurance corporation
("Continental Reinsurance", and together with Continental
Insurance, the "Sellers"), and MELLON BANK CORPORATION, a
Pennsylvania corporation (the "Purchaser"). Capitalized terms not
otherwise defined are defined in Article IX hereof.
ARTICLE I
Sale and Purchase
Section 1.1. Sale and Purchase of the Shares. Subject
to the terms and conditions of this Agreement and in reliance upon
the representations, warranties and covenants contained herein, at
the Closing, (i) Continental Insurance will sell, transfer and
deliver to the Purchaser or its nominee all the outstanding capital
stock (the "AFCO Shares") of AFCO Credit Corporation, a New York
corporation ("AFCO"), and (ii) Continental Reinsurance will sell,
transfer and deliver to the Purchaser or its nominee all the
outstanding capital stock (the "CAFO Shares", and together with the
AFCO Shares, the "Shares") of CAFO Inc., a corporation incorporated
under the federal laws of Canada ("CAFO", and together with AFCO,
the "Companies"), and the Purchaser will deliver to the Sellers the
Closing Date Purchase Price in accordance with the provisions of
Section 1.2.
Section 1.2. Closing. The closing of the purchase and
sale of the Shares (the "Closing") will take place at the offices
of Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022
at 10:00 a.m., New York time on the first business day of the month
following satisfaction of all conditions set forth in Section 6.2.1
hereof, or at such other date and time as the parties shall have
agreed to in writing (the "Closing Date"). At the Closing:
(a) each of Continental Insurance and Continental Reinsurance
will deliver to the Purchaser or its nominee(s) the AFCO Shares and
the CAFO Shares, respectively, free and clear of all liens, charges,
pledges or encumbrances, by delivering the certificates representing
such Shares, endorsed or accompanied by stock powers in favor of the
Purchaser or its nominee(s); and
(b) the Purchaser will pay $100 million (the "Closing Date
Purchase Price") in cash in the amount of (i) $5 million to Continental
Insurance in respect of the covenant not to compete set forth in Section
4.10 hereof, (ii) the book value of the CAFO Shares as of the Closing Date
to Continental Reinsurance in respect of the CAFO Shares, and (iii) the
remainder to Continental Insurance in respect of the AFCO Shares, by, at
each Seller's option, (x) a bank check drawn on the Federal Reserve Bank
of New York, or (y) a wire transfer of immediately available funds to a
bank account designated by such Seller.
Section 1.3. Certain Contingent Payments. In addition to the
Closing Date Purchase Price, the Purchaser shall be obligated to make
contingent cash payments to Continental Insurance or such affiliates of
Continental Insurance as Continental Insurance shall designate (the
"Continental Payee") subject to and in accordance with the following
provisions:
(a) In respect of each twelve month period immediately preceding
the first five anniversaries of the Closing Date (each a "Term Year"),
the Purchaser shall calculate a notional amount (the "Notional Amount")
in accordance with the following formula:
Pn = [O - (V x 1.05n)] x 1.20%
where:
Pn = the Notional Amount for the Term Year in respect of which
such Notional Amount is being calculated;
O = the Origination Volume for the Term Year in respect of
which such Notional Amount is being calculated;
V = the Origination Volume for the twelve month period ending
on the last day of the month immediately preceding the
month in which the Closing Date occurs; and
n = the number of Term Years elapsed since the Closing
Date.
(b) The Purchaser will pay to the Continental Payee cash
in an amount equal to the sum of the Notional Amounts for each of
the five Term Years following the Closing Date (the "Final
Payment") in accordance with the provisions of paragraphs (g) and
(h) of this Section 1.3; provided that, notwithstanding anything
herein to the contrary, the Final Payment shall not be less than
zero or more than $78 million.
(c) Within 10 days of each of the first two
anniversaries of the Closing Date, the Purchaser will pay to the
Continental Payee cash in an amount equal to $2.1 million (each
such payment a "Provisional Interest Payment").
(d) Within 10 days of the third anniversary of the
Closing Date, the Purchaser will pay to the Continental Payee cash
in an amount equal to the excess of (i) the product of (x) 6%,
times (y) the Projected Present Value of the Notional Amounts,
times (z) three (the "Interim Interest Amount"), over (ii) the
aggregate amount of payments made to any Continental Payee pursuant
to subsection (c) above (the "Provisional Payment Amount");
provided, that if the Interim Interest Amount shall be less than
the Provisional Payment Amount, the Continental Payee shall pay to
the Purchaser cash in an amount equal to the difference between the
Provisional Payment Amount and the Interim Interest Amount.
(e) Within 10 days of the fourth anniversary of the
Closing Date, the Purchaser will pay to the Continental Payee cash
in an amount equal to 6% of the Projected Present Value of the
Notional Amounts.
(f) The Purchaser will pay to the Continental Payee cash
in an amount equal to the excess of (i) the product of (x) 6%,
times (y) the Present Value of the Notional Amounts, times (z) five
(the "Final Interest Amount"), over (ii) the aggregate amount of
payments made to any Continental Payee pursuant to subsections (c),
(d) and (e) above (the "Adjusted Payment Amount") in accordance
with the provisions of paragraphs (g) and (h) of this Section 1.3;
provided, that if the Final Interest Amount shall be less than the
Adjusted Payment Amount, the Continental Payee shall pay to the
Purchaser cash in an amount equal to the difference between the
Adjusted Payment Amount and the Final Interest Amount.
(g) Within 30 days of the end of each of the first four
Term Years, the Purchaser will deliver to Continental Insurance a
written notice (an "Interim Notice") setting forth the Purchaser's
calculation of the Notional Amount for such Term Year. Within 30 days
of the end of the Term Year expiring on the fifth anniversary of the
Closing Date, the Purchaser will deliver to Continental Insurance a
written notice (the "Final Notice") setting forth the Purchaser's
calculations of the Notional Amount for such Term Year, the Final
Payment, the Present Value of the Notional Amounts, the Final Interest
Amount and the amount payable by or to the Purchaser pursuant to the
provisions of this Section 1.3. Such Interim Notices and the Final
Notice shall include such financial statements, workpapers and other
supporting documentation as Continental Insurance shall reasonably
request. Continental Insurance and its representatives shall have the
right to review all workpapers and procedures used to prepare the
Interim Notices and Final Notices and shall have the right to perform
any other reasonable procedures to verify the accuracy thereof. In
addition, and without limiting the foregoing, Continental Insurance
shall have the right to request an audit by its independent public
accountants of Purchaser's calculations set forth in the Interim and
Final Notices; provided, that Continental Insurance shall not have the
right to request an audit in respect of any Interim Notice unless, in
its reasonable discretion, it determines that there is a reasonable
basis therefor. In such event, the Purchaser shall provide to
Continental Insurance's independent public accountants such access to
the Purchaser's and its affiliates' (including the Companies and their
Subsidiaries) books, records and personnel as shall be reasonably
required in order for such independent public accountants to verify
the calculations made by the Purchaser pursuant to this Section 1.3.
The costs of any such audit shall be borne equally by the Purchaser
and Continental Insurance.
(h) Continental Insurance may, within 30 days after receipt
of the Final Notice (the "Review Period"), give the Purchaser either
(i) written notice (an "Acceptance Notice") that it accepts the
calculations set forth in the Final Notice, or (ii) written notice (an
"Objection Notice") that it objects to the calculations set forth in
the Final Notice and specifying the reasons therefor. The Final
Notice shall become final and binding on the parties for purposes of
this Agreement upon, and the Purchaser or the Continental Payee, as
the case may be, shall pay to the other party the amount set forth in
the Final Notice within seven days of, the earlier of (x) delivery by
Continental Insurance of an Acceptance Notice, or (y) the expiration
of the Review Period without delivery of an Objection Notice by
Continental Insurance. If the Purchaser and Continental Insurance are
unable to resolve any matter or matters in dispute within 30 days
after an Objection Notice has been given, the dispute shall be
submitted to a nationally recognized public accounting firm mutually
agreed upon by the Purchaser and Continental Insurance. Continental
Insurance and the Purchaser shall, and shall cause the Companies and
the Subsidiaries to, provide full cooperation to such accounting firm.
Such accounting firm shall make a final and binding determination as
to the matter or matters in dispute within 45 days of the submission
of the matter or matters in dispute to such accounting firm. The fees
and expenses of such accounting firm shall be borne equally by the
Purchaser and Continental Insurance. The Purchaser and Continental
Insurance agree to cooperate with each other and with each other's
authorized representatives in order to resolve such dispute as soon as
practicable. Any amounts owing by Purchaser or the Continental Payee,
as the case may be, shall be paid to the other party within seven days
of the resolution of such dispute. Any payments made by the parties
pursuant to this Section 1.3 shall be made in cash at the payee's
option by certified or bank check or by wire transfer in immediately
available funds to a bank account designated by the payee.
(i) The Purchaser's obligations to make the contingent cash
payments set forth in this Section 1.3 may be assigned to and assumed
by another person in connection with any subsequent sale of all or a
substantial portion of the Business to such person; provided that
prior to fulfillment of the Purchaser's obligations under this Section
1.3, the Purchaser shall consult with Continental Insurance on a
confidential basis with respect to the identity of any potential
purchaser or list of potential purchasers of the Business; and
provided, further, that any such assignment and assumption shall be
subject to Continental Insurance's prior written consent, which
consent shall not be unreasonably withheld.
(j) If prior to the fulfillment of the Purchaser's
obligations under this Section 1.3 the Business or a substantial
portion of the Business is discontinued or sold by the Purchaser to an
unaffiliated third party without Continental Insurance's prior written
consent to the assignment and assumption of the Purchaser's
obligations under this Section 1.3 to such person, Continental
Insurance may, at its option, notify the Purchaser in writing that it
wishes to accelerate the payment of the Final Payment (the date of
such notice being hereafter referred to as the "Acceleration Date").
Within 30 days of receipt of such notice, the Purchaser shall deliver
to Continental Insurance a written notice setting forth the
information required to be provided by the Purchaser to Continental
Insurance pursuant to the second sentence of paragraph (g) above;
provided, that for purposes of calculating the Present Value of the
Notional Amounts and the Final Payment, the Notional Amount for the
Term Year in which such notice is given and for the remaining Term
Years prior to the fifth anniversary of the Closing Date shall be
calculated based on the assumption that Origination Volume grew over
each such Term Year at a rate equal to the greater of (x) the average
rate of growth in the Origination Volume for each of the Term Years
ending prior to the date of such acceleration, or (y) 6.0%; and
provided, further, that the Final Interest Amount shall be equal to
(A) 6%, times (B) the Present Value of the Notional Amounts
(calculated in accordance with the foregoing proviso), times (C) the
number of whole or partial Term Years elapsed from the Closing Date to
the Acceleration Date (including such portion of the current Term
Year, expressed in decimal form, as shall be applicable). Upon
delivery of such notice, the provisions of the third through seventh
sentences of paragraph (g) and paragraph (h) shall thereafter apply as
if the Final Payment made pursuant to this paragraph (j) were the
Final Payment made pursuant to paragraph (b).
(k) In the event that the Purchaser or any of its
affiliates shall, at any time prior to the fulfillment of the
Purchaser's obligations under this Section 1.3:
(i) acquire any business entity or assets engaged in the
premium finance business;
(ii) engage in the premium finance business through any
affiliate other than the Companies or the Subsidiaries;
or
(iii) withdraw or materially curtail the amount of
financing available to the Companies and their
subsidiaries as a result of a material deterioration in
the credit standing of the Purchaser;
and such event results in a Material Change to the Business (as
such term is defined below), then, at either party's election by
delivery of a written notice to the other party (an "Adjustment
Notice"), the Purchaser and Continental Insurance shall negotiate
in good faith an equitable adjustment to the calculation of
Origination Volume to account for any direct or indirect loss or
gain in the business opportunities available to the Companies and
the Subsidiaries resulting therefrom; provided, that if the parties
are unable to reach agreement on such an equitable adjustment
within 45 days of the delivery of an Adjustment Notice, either
party may elect at any time thereafter to submit such matter to
binding arbitration in accordance with the provisions of Article
VIII hereof, and provided, further, that in no event shall any such
adjustment increase the amount of the Final Payment to more than
$78 million or decrease the amount of the Final Payment to less
than zero. For purposes of this Section 1.3(k), a "Material Change
to the Business" shall mean a change in the Business that causes a
material change in the growth rate of the Origination Volume of the
Business from the growth rate in effect immediately prior to the
event which causes such material change.
(l) Within 45 days of the end of each fiscal quarter and
60 days of the end of each fiscal year, the Purchaser shall deliver
to Continental Insurance copies of unaudited consolidated interim
and annual financial statements, as the case may be, for each of
the Companies, which financial statements shall include a balance
sheet, statement of income and retained earnings and a statement of
cash flows, all prepared in accordance with generally accepted
accounting principles applied on a consistent basis; provided,
however, that the Purchaser's obligation to deliver such financial
statements shall immediately terminate if at any time Continental
or any of its affiliates directly or indirectly engages, or has any
ownership interest in any firm, corporation, partnership or other
business entity (except as a passive investor holding a less than
5% equity interest in such business entity) that engages, in the
activities constituting the Business at such time in the United
States and Canada (other than as permitted in Section 4.10 hereof).
Section 1.4. Allocation of Purchase Price. The
Purchaser and the Sellers agree to allocate (i) the fixed
consideration under Section 1.2 hereof in accordance with the
payments made pursuant to Section 1.2(b) and (ii) the contingent
consideration under Section 1.3 hereof to the AFCO Shares. The
Purchaser and the Sellers each agree to file all Tax Returns in
accordance with such allocations and will not, without the consent
of the others, take any contrary position with any government or
taxing authority.
Section 1.5. Canadian Tax Matters. (a) If a certificate
issued by the Minister of Revenue Canada pursuant to Section 116(2)
of the Income Tax Act (Canada) is not delivered to the Purchaser by
Continental Reinsurance at or before the Closing Date, the
Purchaser shall be entitled to withhold from the portion of the
Closing Date Purchase Price payable in respect of the CAFO Shares
the amount required to be withheld pursuant to section 116 of the
Income Tax Act (Canada) with respect to the Closing Date Purchase
Price (the "Withheld Amount").
(b) If Continental Reinsurance delivers to the Purchaser
prior to the 30th day after the end of the month in which the
Closing Date occurs, a certificate issued by the Minister of
National Revenue under Section 116(4) of the Income Tax Act
(Canada), the Purchaser shall promptly pay to Continental
Reinsurance the Withheld Amount.
(c) If Continental Reinsurance does not deliver to the
Purchaser within the specified time a certificate described in
paragraph (a) or (b) above and the Purchaser has withheld the
Withheld Amount, the Purchaser shall (i) remit to the Receiver
General the amount required to be remitted pursuant to section 116
of the Income Tax Act (Canada) and the amount so remitted shall be
credited to the Purchaser as a payment to the Purchaser on account
of the Closing Date, and (ii) pay the remaining portion of the
Withheld Amount, if any, to Continental Reinsurance.
(d) All references in this Agreement to the Income Tax
Act (Canada) and to amounts to be withheld pursuant thereto shall
be deemed to be made to the Income Tax Act (Canada), as now enacted
or as it may from time to time be amended, reenacted or replaced,
and in the case of any such amendment, reenactment or replacement,
any references herein to the Income Tax Act (Canada) and to amounts
to be withheld pursuant thereto shall be read as referring to such
amended, reenacted or replaced provisions.
ARTICLE II
Representations and Warranties of the Sellers
Each of the Sellers represents and warrants to the
Purchaser as follows:
Section 2.1. Corporate Status and Authority. Continental
Insurance is an insurance corporation duly incorporated and validly
existing under the laws of the State of New Hampshire and has the
corporate power to own the AFCO Shares, and Continental Reinsurance
is an insurance corporation duly incorporated and validly existing
under the laws of the State of California and has the corporate
power to own the CAFO Shares. Each of the Sellers has the corporate
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and the execution, delivery and
performance of this Agreement by each Seller have been duly
authorized by its Board of Directors, which constitutes all
necessary corporate action on the part of such Seller for such
authorization. This Agreement constitutes the valid and legally
binding obligation of each Seller, enforceable against such Seller
in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and to general
principles of equity, regardless of whether enforcement is sought
in a proceeding in equity or at law.
Section 2.2. No Conflicts, etc. (a) Except as
otherwise set forth in this Agreement or in the Sellers' Disclosure
Schedule, the execution, delivery and performance of this Agreement
by the Sellers will not result in (i) any conflict with the charter
documents or by-laws of any of the Sellers, the Companies or the
Subsidiaries, (ii) any material breach or violation of or default
under any statute, regulation, judgment, order or any mortgage,
agreement, deed of trust, indenture or any other instrument to
which any of the Sellers, the Companies or the Subsidiaries is a
party or by which any of them or any of their respective properties
or assets are bound, except for such breaches, violations or
defaults which would not, individually or in the aggregate, have a
Material Adverse Effect, or (iii) the creation or imposition of any
lien, charge or encumbrance thereon, except for such liens,
charges, pledges or encumbrances which would not, individually or
in the aggregate, have a Material Adverse Effect.
(b) No consent, approval or authorization of or filing
with any governmental authority is required on the part of any of
the Sellers, the Companies or the Subsidiaries in connection with
the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby, except (i) filings required
with respect to the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), (ii) as otherwise set forth in the Sellers'
Disclosure Schedule, and (iii) filings, consents or approvals,
which, if not made or obtained would not, individually or in the
aggregate, have a Material Adverse Effect.
Section 2.3. Corporate Status of the Companies. AFCO is
a corporation duly incorporated and validly existing under the laws
of the State of New York; and CAFO is a corporation existing and
not dissolved under the federal laws of Canada. Each of the
Companies has full corporate power and authority to conduct its
business and to own or lease its properties, as now conducted,
owned or leased. Each of the Companies is duly qualified to
transact business in each jurisdiction in which the failure to be
so qualified would have a Material Adverse Effect.
Section 2.4. The Shares. (a) The authorized capital
stock of AFCO consists of 2000 shares of common stock, no par
value, all of which are issued and outstanding and owned by
Continental Insurance, free and clear of any liens, charges or
encumbrances. The authorized capital stock of CAFO consists of an
unlimited number of shares of common stock, no par value, 2000 of
which are issued and outstanding and owned by Continental
Reinsurance, free and clear of any liens, charges or encumbrances.
Subject to any Canadian governmental approvals or consents that
must be obtained by the Purchaser in connection with the transfer
of the CAFO Shares pursuant hereto, upon consummation of the
transactions contemplated hereby, the Purchaser or its nominee(s)
will acquire good title to the Shares, free and clear of all
pledges, security interests, liens, charges, encumbrances,
equities, claims, options or rights of others of whatever nature.
(b) All the Shares have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth
in the Sellers' Disclosure Schedule, there are no outstanding
options, warrants, conversion or other rights or other agreements
of any kind (other than this Agreement) for the purchase or
acquisition from, or the sale or issuance by, any of the Sellers or
the Companies of any shares of capital stock of any of the
Companies, and no authorization therefor has been given.
Section 2.5. Subsidiaries. (a) The Sellers' Disclosure
Schedule lists all of the subsidiaries of the Companies (each a
"Subsidiary" and collectively the "Subsidiaries") and shows for
each: its name; the jurisdiction of its incorporation; its
authorized and outstanding shares of capital stock of each class;
the shareholders thereof; and the total number of shares owned by
each shareholder. Except as otherwise set forth in the Sellers'
Disclosure Schedule, all of such outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable, are owned by the
shareholder or shareholders indicated in the Sellers' Disclosure
Schedule, and are owned free and clear of any liens, charges or
encumbrances. Except as set forth in the Sellers' Disclosure
Schedule, there are no outstanding options, warrants, conversion or
other rights or other agreements of any kind (other than this
Agreement or any shareholders' preemptive rights, if any) for the
purchase or acquisition from, or the sale or issuance by, any of
the Sellers, the Companies or the Subsidiaries of any shares of
capital stock of any Subsidiary, and no authorization therefor has
been given.
(b) Each Subsidiary is a corporation duly incorporated
and validly existing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct
its business and to own or lease its properties as now conducted,
owned or leased. Each Subsidiary is duly qualified to do business
in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect.
Section 2.6. Financial Statements. There have been
delivered to the Purchaser the Companies' Financial Statements.
Except as otherwise set forth in the Sellers' Disclosure Schedule,
the AFCO Financial Statements and the CAFO Financial Statements
each present fairly the financial condition and results of
operations of AFCO and CAFO, respectively, as of the dates and for
the periods indicated (subject in the case of the Companies'
Interim Statements to normal year-end adjustments consistent with
those made in the AFCO Financial Statements and the CAFO Financial
Statements, respectively) and have been prepared in accordance with
generally accepted accounting principles, except as noted therein.
Section 2.7. Absence of Undisclosed Liabilities. Except
for liabilities reflected or reserved against in the Companies'
Financial Statements, or reflected in the Sellers' Disclosure
Schedule, and except with respect to Taxes (which are provided for
in Section 2.14), the Companies and the Subsidiaries have no
liabilities or obligations, except for liabilities incurred in the
ordinary course of business.
Section 2.8. Properties, etc. The Sellers' Disclosure
Schedule lists all items of real property owned or leased by any of
the Companies or the Subsidiaries. Except as otherwise set forth
in the Sellers' Disclosure Schedule, a Company or a Subsidiary has
(a) good and valid title to the real property listed in the
Sellers' Disclosure Schedule as owned by it, (b) valid and
subsisting leasehold estates in the real property listed in the
Sellers' Disclosure Schedule as leased by it, and (c) good and
valid title to all of its tangible personal property (except for
properties disposed of since the date hereof in the ordinary course
of business), in each case subject to no mortgage, lien, charge,
easement or encumbrance, except (i) mortgages, liens, charges,
easements and other encumbrances reflected in the Companies' Finan-
cial Statements, (ii) liens for taxes and assessments not due and
payable or which are being contested in good faith by appropriate
proceedings, (iii) as shown in title reports or other writings
which have been made available to the Purchaser for review and (iv)
charges, easements and other encumbrances which do not materially
interfere with the current use of the properties affected thereby.
Section 2.9. Contracts. The Sellers' Disclosure
Schedule lists all agreements, contracts and commitments of the
following types to which any of the Companies or the Subsidiaries
is a party or by which any of the Companies or the Subsidiaries or
any of their respective properties is bound as of the date hereof
(other than real property leases and labor or employment-related
agreements, which are provided for in Sections 2.8 and 2.10,
respectively, or agreements with respect to Taxes which are
provided for in Section 2.14): (a) joint venture, general and
limited partnership agreements, (b) mortgages, indentures, loan or
credit agreements, security agreements and other agreements and
instruments relating to the borrowing of money or extension of
credit in any case in excess of $500,000, (c) contracts containing
any covenant not to compete or any covenant relating to the
disclosure by the Company or the Subsidiaries of proprietary
information, (d) contracts relating to the acquisition or
disposition of assets (other than in the ordinary course of
business), (e) material contracts or other arrangements with
brokers and agents, (f) contracts with respect to services provided
by the Sellers or any affiliate of the Sellers to the Companies or
any Subsidiary, and (g) other agreements, contracts and commitments
which in any case require payment by a Company or any Subsidiary
within any fiscal year ending after the date hereof of more than
$500,000. Complete and correct copies of all such agreements have
been made available to the Purchaser for review.
Section 2.10. Employee Benefits.
2.10.1. Employment Agreements and Plans. The Sellers'
Disclosure Schedule lists all agreements, contracts and commitments
of the following types which are maintained by any of the Sellers,
the Companies or the Subsidiaries or to which any of the Sellers,
Companies or the Subsidiaries is a party and which provides
benefits or compensation to employees of the Companies or the
Subsidiaries: (a) employment and consulting agreements (excluding
any employment or consulting agreement pursuant to which less than
$100,000 or CDN $127,000 was paid in 1992 or to which less than
$100,000 or CDN $127,000 is payable in 1993 or in any year
thereafter), (b) collective bargaining agreements, (c) profit-
sharing, pension, retirement, deferred compensation, or other
plans, including each "employee pension benefit plan" within the
meaning of Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (the "Pension Plans"), and (d)
bonus, incentive compensation, stock option, severance, vacation,
tuition assistance or reimbursement, legal services, salary
continuation, medical insurance or benefits, life insurance or
death benefits, travel or accident insurance or benefits,
disability insurance or benefits, unemployment benefits, or other
plans, including each "employee welfare benefit plan" within the
meaning of Section 3(3) of ERISA. The agreements, contracts and
commitments referenced in (a) through (d) are sometimes hereinafter
collectively referred to as the "Plans". None of the Plans is a
"multiemployer pension plan" within the meaning of Section 3(37) of
ERISA or a "multiple employer plan" within the meaning of Section
413(c) of the Code. The Seller has provided the Purchaser true and
complete copies of all written Plans; descriptions of all unwritten
Plans; all related trust agreements or other funding arrangements;
all summary plan descriptions, employee handbooks and material
employee communications; the most recent actuarial and trust
reports prepared for any such Plan; the most recent schedules
attached thereto; and the most recent determination letter issued
in respect of each such Plan.
2.10.2. Liabilities, Encumbrances and Tax Treatment. No
event has occurred with respect to any of the Companies or the
Subsidiaries, and there exists no condition or set of circumstances
with respect to the Companies or the Subsidiaries, in connection
with which the Companies or the Subsidiaries are directly or
indirectly, through any other trade or business (whether or not
incorporated) which together with the Companies or the Subsidiaries
would be deemed to be part of a "controlled group" within the
meaning of Section 4001 of ERISA (an "ERISA Affiliate"), subject to
any liability, lien or encumbrance or loss of tax deduction with
respect to any Plan (other than any Plan described in Section
2.10.9) under ERISA or the Code, or any other law, regulation or
governmental order including, without limitation, ERISA
Sections 409, 502(i), 502(l), Part 6 of Title I, 4062 or 4069 or
Code Sections 401(a)(29), 4971, 4972, 4975, 4976, 4977, 4978,
4978B, 4979, 4980 or 4980B or under any agreement, instrument,
statute, rule of law or regulation pursuant to or under which any
of the Companies or the Subsidiaries has indemnified or is required
to indemnify any person against any such liability which would have
a Material Adverse Effect. No material liability (other than
annual premiums, all of which premiums due to date have been paid)
to the Pension Benefit Guaranty Corporation has been incurred by
the Companies or the Subsidiaries with respect to any Pension Plan
subject to Title IV of ERISA.
2.10.3. Compliance With Plan Provisions and Applicable
Laws. With respect to each Plan (other than any Plan described in
Section 2.10.9 hereof): (a) Each of the Companies and the
Subsidiaries, as the case may be, have made and/or accrued all
payments due from them with respect to periods ending on or prior
to the date hereof; (b) no such Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA has incurred any "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or
Section 412 of the Code, whether or not waived; (c) each such Plan
is in material compliance with all applicable laws and regulations,
including, but not limited to ERISA and the Code; (d) each such
Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter and nothing has
occurred since the date of such letter that would adversely affect
such qualification; and (e) there is no contract or arrangement
with respect to which any of the Companies or the Subsidiaries is
directly or indirectly liable that would result in the payment of
any amount that would not, by operation of Code Section 280G, be
deductible.
2.10.4. Retiree Welfare Benefits. No employee welfare
benefit plan (as defined in Section 3(1) of ERISA) maintained or
sponsored by the Companies or the Subsidiaries provides medical or
death benefits (whether or not insured) with respect to Retained
Employees beyond their date of retirement or other termination of
service (other than coverage mandated by Section 601 of ERISA, the
cost of which is fully paid by the Retained Employee or his or her
dependents).
2.10.5. Severance Pay; Accelerated Benefits. The
consummation of the transactions contemplated by this Agreement
will not obligate any of the Companies or the Subsidiaries to
provide any Retained Employees (other than Canadian Retained
Employees) with severance pay, unemployment compensation or any
similar payment, nor accelerate the time of payment or vesting, or
increase any compensation due to any such Retained Employee under
any Plan.
2.10.6. Plan Amendment or Termination. None of the
Sellers, the Companies or any Subsidiary has taken any action which
would commit any of the Companies or any Subsidiary to continue any
Plan for any Retained Employees, nor have the Sellers, any Company
or any Subsidiary taken any action which would prevent any Company
or any Subsidiary from changing or terminating the Plans at any
time.
2.10.7. Labor Matters. No Company or any Subsidiary has
experienced any work stoppage or other material labor difficulty,
and none is presently pending or threatened against any Company or
any Subsidiary which Sellers reasonably believe will have a
Material Adverse Effect. No Company or Subsidiary is represented
by a labor organization or collective bargaining agent and no
activities by any such organization or agent to organize or
represent any Company or any Subsidiary are pending or threatened.
2.10.8. Nonqualified Arrangements. Other than
Michael M. Nisbet, no Retained Employee, as of the date hereof,
participates in any Plan which is an excess benefit plan as defined
in Section 3(36) of ERISA, supplemental pension or retirement plan
or similar pension, retirement or deferred compensation
arrangement.
2.10.9. CAFO Plans. (a) All of the Plans established,
maintained or contributed to by CAFO (the "CAFO Plans") are duly
registered where required by, and are in good standing under, all
applicable Canadian legislation, (b) all required contributions by
CAFO have been made to the CAFO Plans, (c) the CAFO Plans are
funded in accordance with the rules under applicable Canadian
legislation and (d) as of the date of the last required actuarial
valuation, no actuarial unfunded liability or solvency deficit
exists under the CAFO Plans. No employees of CAFO are covered by
any Plans other than the CAFO Plans and the Long-Term Incentive
Plan and the Annual Management Incentive Plan of the Continental
Corporation.
Section 2.11. Insurance. The Sellers' Disclosure
Schedule lists all insurance policies owned by any of the Companies
or the Subsidiaries and, except as indicated therein, all premiums
have been paid on such policies, no notice of termination or
threatened termination of any of such policies has been received by
any of the Sellers, the Companies or the Subsidiaries, and, to the
best knowledge of the Sellers, such policies are in full force and
effect.
Section 2.12. Governmental Authorizations; Compliance
with Laws. Except as otherwise set forth in the Sellers'
Disclosure Schedule, the Companies and the Subsidiaries hold all
licenses, permits and other governmental authorizations material to
the Business as presently conducted and none of the Companies and
the Subsidiaries is in violation of any statute, rule, regulation,
judgment, order, decree, permit, concession, franchise or other
governmental authorization or approval applicable to it or to any
of its properties, except for violations which, individually or in
the aggregate, would not have a Material Adverse Effect.
Section 2.13. Litigation. Except as otherwise set forth
in the Sellers' Disclosure Schedule, there are no judicial or
administrative actions, proceedings or investigations (including
without limitation examinations by federal, foreign, state and
local taxing authorities) pending or, to the best knowledge of the
Sellers, threatened against the Sellers, the Companies or the
Subsidiaries, which might reasonably be expected to have a Material
Adverse Effect, or which question the validity or enforceability of
this Agreement or any action taken or to be taken by the Sellers or
the Companies in connection herewith.
Section 2.14. Tax Matters. (a) Except as otherwise set
forth in the Sellers' Disclosure Schedule, or as reflected or reserved
against in the Companies' Financial Statements, (i) the Sellers, the
Companies and the Subsidiaries and all affiliated, combined,
consolidated or unitary tax group of which any of the Companies or the
Subsidiaries is or has been a member have filed all material federal,
foreign, state and local Tax returns, reports and declarations which
are required to include any Tax items relating to the Business having
a filing date (including extensions) prior to the date hereof,
(ii) all Taxes shown as due thereon have been paid, and (iii) no
material claim for the assessment and collection of Taxes is being
asserted in writing against any of the Sellers, the Companies or the
Subsidiaries in respect of the Business, other than assessments for
Taxes neither due nor in default.
(b) Subject to Section 1.5, the Purchaser shall not be
required to deduct and withhold any amount with respect to Taxes upon
the transfer of the Shares to the Purchaser.
(c) The Companies and the Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations
relating to the reporting, payment and withholding of Taxes in
connection with amounts paid to their employees, creditors,
independent contractors or other third parties and have within the
time and in the manner prescribed by law, withheld from such amounts
and timely paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under all applicable
laws.
(d) The periods for the assessment of federal Taxes of the
Companies and the Subsidiaries and any affiliated, combined,
consolidated or unitary tax group of which any of the Companies or the
Subsidiaries is or has been a member are closed either by agreement
with the Internal Revenue Service or by operation of the applicable
statute of limitations for all taxable periods to and including 1984.
Except as set forth in the Sellers' Disclosure Schedule, no agreement
or other document waiving the statute of limitation in respect of any
Tax or extension of time with respect to a Tax assessment or
deficiency has been executed or filed with any taxing authority by or
on behalf of the Companies or any of the Subsidiaries. No power of
attorney has been granted by or on behalf of any of the Companies and
the Subsidiaries.
(e) No claim has been made in writing by an authority in a
jurisdiction where any of the Companies or the Subsidiaries does not
file Tax Returns that such Companies or Subsidiaries are or may be
subject to taxation by that jurisdiction nor, to the best of the
Sellers' knowledge, does such a valid claim exist.
(f) The Companies or, in the case of CAFO, its public
accountants, possess, or will possess at the Closing Date, all
previously filed Tax Returns and related workpapers (federal income
Tax Returns will be pro forma Forms 1120 containing the separate
return information for the Companies and the Subsidiaries only) and
workpapers for all Tax Years beginning with 1982 including a schedule
showing all adjustments made in consolidation or combination of the
Companies, the Subsidiaries and the Sellers.
(g) None of the Companies or the Subsidiaries, or any
predecessor corporation with respect to any of them, has filed or had
filed on its behalf a consent pursuant to Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a Section 341(f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by any of them. None of the
Companies or the Subsidiaries is obligated to make any payments, or is
a party to any agreement that could obligate it to make any payments
that will not be deductible under Code Section 280G. The Sellers'
Disclosure Schedule sets forth all statements under Code Section 6662
or its predecessor that have been filed with respect to such Companies
and Subsidiaries by the consolidated federal income tax group of which
any of the Companies and the Subsidiaries are members. The Sellers'
Disclosure Schedule sets forth all federal income tax elections under
the Code, and all elections or agreements under state tax laws that
will be binding upon any of the Companies or the Subsidiaries after
the Closing Date. There are no deferred intercompany transactions
under Reg. 1.1502-13 or 13T, nor deferred losses under Code Section
267, between any of the Companies or the Subsidiaries and any other
affiliates of the Sellers which would cause a deferred tax asset on
the financial statements to become unrecognizable for Tax purposes or
would impose liability for Taxes on any of the Companies or the
Subsidiaries after the Closing Date. None of the Companies or the
Subsidiaries has adopted a method of tax accounting pursuant to which
items of income received prior to the Closing Date will be recognized
for Tax purposes later than they will be recognized for financial
accounting purposes nor will any of the Companies or the Subsidiaries
change or request permission to change any method of accounting for
Taxable Years preceding the Closing Date that would increase the
income or decrease the deductions or credits of any of the Companies
or the Subsidiaries for Taxable Years ending after the Closing Date.
No property of any of the Companies or the Subsidiaries is or will be
required to be treated as being owned by another person pursuant to
the provisions of Section 168(f)(8) of the Code (as in effect prior to
amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code.
Section 2.15. Absence of Changes. Since December 31, 1992,
except as otherwise set forth in this Agreement or reflected in the
Sellers' Disclosure Schedule delivered to the Purchaser on the date
hereof or the Companies' Financial Statements, the Business has been
conducted in substantially the same manner in which it previously has
been conducted, and none of the Companies or the Subsidiaries has:
(a) purchased or redeemed any shares of their capital stock
or, in the case of the Companies, declared or made any dividend or
other distribution in respect of its capital stock, except as
contemplated by Section 4.9.1 of this Agreement;
(b) incurred any material liabilities or obligations,
except current liabilities and obligations incurred in the ordinary
course of business and advances from affiliates consistent in all
respects, including inter alia, amount and purpose, with past
practice;
(c) mortgaged any of its properties or assets;
(d) pledged or subjected to any lien or security interest
any of its properties or assets except in the ordinary course of
business;
(e) increased the compensation of any officer or employee,
except as consistent with past practice or custom;
(f) disposed or agreed to dispose of any of its properties
or assets, except in the ordinary course of business;
(g) cancelled or forgiven any material debts or claims;
(h) entered into any transaction other than in the ordinary
course of business; or
(i) suffered any material adverse change in its business,
condition (financial or otherwise) or operations.
Section 2.16. Brokers. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried
out without the intervention of any person acting on behalf of the
Sellers or the Companies in such manner as to give rise to any valid
claim against the Purchasers, the Sellers or the Companies for any
brokerage or finder's commission, fee or similar compensation, except
for Lazard Freres & Co. whose fees in respect hereof shall be paid by
Continental.
Section 2.17. Environmental Matters. Except as set forth
in the Sellers' Disclosure Schedule, there are no claims pending or,
to the knowledge of the Sellers, threatened, and neither the Sellers,
nor, to the knowledge of the Sellers, any of the Companies or the
Subsidiaries has received notice, that any of the Companies or the
Subsidiaries is in violation of or noncompliance with any applicable
pollution or environmental control laws, orders or regulations,
including, without limitation, laws, orders or regulations as to
effluent disposal, ambient air quality or solid waste which are
reasonably likely, as to any violation or series of violations or
noncompliance, to have a Material Adverse Effect.
Section 2.18. Accurate and Complete Disclosure. All
information contained in the Sellers' Disclosure Schedule is true and
accurate in all material respects as of the date hereof and does not
omit to state any material fact necessary to make such information not
misleading at such time in light of the circumstances in which it was
provided.
Section 2.19. Intellectual Property. Except as set forth
in the Sellers' Disclosure Schedule, no patents, patent applications,
trademarks (whether registered or unregistered), trademark
applications, service marks, names (trade, service, fictitious or
otherwise), copyrights, technology (including but not limited to
computer programs and software), processes, data bases or other rights
(collectively "Intellectual Property"), are owned by or licensed to
the Companies or any Subsidiary or are presently being used by the
Companies or any Subsidiary in the providing or marketing of any
products or services in connection with the Business, except for such
Intellectual Property the absence of which would not have a Material
Adverse Effect. Except as disclosed in the Sellers' Disclosure
Schedule, the Business is not dependent to any material extent on any
Intellectual Property or assignment thereof. The Companies and the
Subsidiaries have the right to use, and after the consummation of the
transactions contemplated hereby will have the right to use, free and
clear of any claims of others, all Intellectual Property necessary to
own and operate its properties and to carry on the Business as
currently conducted, except where such failure to have such rights or
such claims of others would not have a Material Adverse Effect.
ARTICLE IIA
Representations and Warranties of Continental
Continental represents and warrants to the Purchaser as
follows:
Section 2.20. Corporate Status and Authority. Continental
is a corporation duly incorporated and validly existing under the laws
of the State of New York. Continental has the corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder, and the execution, delivery and performance of
this Agreement by Continental has been duly authorized by its Board of
Directors, which constitutes all necessary corporate action on the
part of Continental for such authorization. This Agreement
constitutes the valid and legally binding obligation of Continental,
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the rights of creditors generally and to
general principles of equity, regardless of whether enforcement is
sought in a proceeding in equity or at law.
Section 2.21. No Conflicts, etc. (a) Except as otherwise
set forth in this Agreement or in the Sellers' Disclosure Schedule,
the execution, delivery and performance of this Agreement by
Continental will not result in (i) any conflict with the charter
documents or by-laws of Continental, (ii) any material breach or
violation of or default under any statute, regulation, judgment, order
or any mortgage, agreement, deed of trust, indenture or any other
instrument to which Continental is a party or by which it or any of
its properties or assets are bound, except for such breaches,
violations or defaults which would not, individually or in the
aggregate, have a material adverse effect on the business, condition
(financial or otherwise), or operations of Continental and its
subsidiaries taken as a whole, or (iii) the creation or imposition of
any lien, charge or encumbrance thereon, except for such liens,
charges, pledges or encumbrances which would not, individually or in
the aggregate, have a material adverse effect on the business,
condition (financial or otherwise), or operations of Continental and
its subsidiaries taken as a whole.
(b) No consent, approval or authorization of or filing with
any governmental authority is required on the part of Continental in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby except filings
required with respect to the HSR Act and as otherwise set forth in the
Sellers' Disclosure Schedule.
Section 2.22. Litigation. Except as otherwise set forth in
the Sellers' Disclosure Schedule, there are no judicial or
administrative actions, proceedings or investigations pending or, to
the best knowledge of Continental, threatened, against Continental
which question the validity or enforceability of this Agreement or any
action taken or to be taken by Continental in connection herewith.
ARTICLE III
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to each of the Sellers
as follows:
Section 3.1. Corporate Status and Authority. The Purchaser
is a corporation duly incorporated and validly existing under the laws
of the Commonwealth of Pennsylvania, with the corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. The Purchaser has heretofore delivered to the
Sellers complete and correct copies of its articles of incorporation
and bylaws (or other similar documents) as currently in effect. The
execution, delivery and performance of this Agreement have been duly
authorized by the Purchaser's Board of Directors, which constitutes
all necessary corporate action on the part of the Purchaser for such
authorization. This Agreement constitutes the valid and legally
binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and to general principles
of equity, regardless of whether enforcement is sought in a proceeding
in equity or at law.
Section 3.2. No Conflicts. (a) Except as otherwise set
forth in this Agreement or in the Purchaser's Disclosure Schedule, the
execution, delivery and performance of this Agreement by the Purchaser
will not result in (i) any conflict with the articles of incorporation
or by-laws of the Purchaser, (ii) any material breach or violation of
or default under any statute, regulation, judgment, order or decree or
any mortgage, agreement, deed of trust, indenture or any other
instrument by which the Purchaser or any of its properties or assets
are bound, or (iii) the creation or imposition of any lien, charge,
pledge or encumbrance thereon, except in the case of clauses (ii) and
(iii) for such breaches, violations or defaults and such liens,
charges, pledges or encumbrances which would not, individually or in
the aggregate, have a material adverse effect on the business,
condition (financial or otherwise) or operations of the Purchaser and
its subsidiaries taken as a whole.
(b) No consent, approval or authorization of or filing with
any governmental authority is required on the part of the Purchaser in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except filings
required with respect to the HSR Act, the Bank Act (Canada) in respect
of the acquisition of the CAFO Shares by the Purchaser and as
otherwise set forth in the Purchaser's Disclosure Schedule.
Section 3.3. Litigation. There are no judicial or
administrative actions, proceedings or investigations (including
without limitation examinations by federal, foreign, state and local
taxing authorities) pending or, to the best knowledge of the
Purchaser, threatened, against the Purchaser which question the
validity or enforceability of this Agreement or any action taken or to
be taken by the Purchaser in connection herewith.
Section 3.4. Purchase for Investment. The Purchaser is
acquiring the Shares for investment and not with a view toward any
distribution thereof except in compliance with the Securities Act of
1933, as amended.
Section 3.5. Brokers. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried
out without the intervention of any person acting on behalf of the
Purchaser in such manner as to give rise to any valid claim against
the Purchaser, the Sellers or the Companies for any brokerage or
finder's commission, fee or similar compensation, except for The First
Boston Corporation whose fees in respect hereof shall be paid by the
Purchaser.
ARTICLE IV
Certain Covenants
Section 4.1. Obligations of the Parties. The parties shall
apply for and diligently prosecute all applications for, and shall use
their reasonable efforts promptly to obtain, such consents, approvals
and authorizations from such governmental authorities and other
persons as shall be necessary to permit the consummation of the
transactions contemplated by this Agreement, and shall use their
reasonable efforts to bring about the satisfaction as soon as
practicable of all the conditions contained in Article VI and to
effect the consummation of the transactions contemplated by this
Agreement.
Section 4.2. Conduct of Business, etc. From the date
hereof until the Closing, except as permitted by this Agreement or as
otherwise consented to by the Purchaser in writing, such consent not
to be unreasonably withheld or delayed, the Sellers shall cause each
Company and each Subsidiary to:
(a) carry on its business only in the ordinary course, in
substantially the same manner in which it previously has been
conducted and, to the extent consistent with such business, use
reasonable efforts to preserve intact its present business
organization and to preserve its relationships with brokers, agents,
customers, suppliers and others having business dealings with it; and
(b) maintain its books of account and records in its usual,
regular and ordinary manner, consistent with its past practice and in
accordance with generally accepted accounting principles.
Section 4.3. Access and Information. The Sellers shall
cause the Companies to give to the Purchaser and its representatives
full access at all reasonable times to the books and records of the
Companies and the Subsidiaries and to furnish such information and
documents in their possession relating to the Companies and the
Subsidiaries as the Purchaser may reasonably request. All such
information and documents obtained by the Purchaser pursuant to this
Section shall be subject to the terms of the Confidentiality
Agreement.
Section 4.4. Payment of Certain Taxes; Filing of Certain
Tax Returns. (a) Except as provided below, all excise, sales, use and
transfer Taxes that are payable or that arise as a result of this
Agreement or the consummation of the purchase and sale contemplated by
this Agreement shall be shared equally by the Sellers and the
Purchaser. Any realty transfer tax or realty gain tax imposed as a
result of this Agreement or the transactions contemplated by this
Agreement shall be borne by the Sellers. Realty or real estate Taxes
shall be governed by Section 4.7 of this Agreement.
(b) On or prior to the Closing Date and no later than the
date due for filing, Continental Insurance shall (i) (A) along with
the Purchaser, jointly complete Form TP-584, New York State Combined
Real Property Transfer Gains Tax Affidavit, Real Estate Transfer Tax
Return, and Credit Line Mortgage Certificate with respect to the
transactions contemplated hereby, as required pursuant to the New York
State Real Estate Transfer Tax and the New York State Real Property
Transfer Gains Tax, (B) along with the Purchaser, jointly complete
Form NYC-RPT, New York City Real Property Transfer Tax Return with
respect to the transactions contemplated hereby, as required pursuant
to section 11-2105 of Title 11, Chapter 21 of the New York City
Administrative Code, and (C) complete any other required Tax Returns
in connection with the Taxes referred to in subclauses (A) and (B)
above; (ii) file any such completed Tax Return, together with all
supporting materials required to be filed therewith; and (iii) pay all
Taxes due as shown on any such Tax Return.
Section 4.5. Solicitation of Employees. Neither
Continental nor any of its affiliates shall at any time from the
Closing until the third anniversary of the Closing Date solicit the
employment of or otherwise negotiate in respect of the employment of,
or provision of any services by, any employee of the Companies or the
Subsidiaries at any time such person is employed by the Companies or
the Subsidiaries.
Section 4.6. Tax Sharing Agreements; Tax Attributes.
4.6.1. Termination of Existing Agreements. Any Tax
allocation or sharing agreement or arrangement which, prior to the
Closing Date, may have been entered into between any of the Companies
or the Subsidiaries on the one hand, and any of the Sellers or any
affiliate of the Sellers (other than the Companies and the
Subsidiaries), on the other hand, shall terminate with respect to the
Companies and the Subsidiaries as of the end of the day immediately
preceding the Closing Date. Except as provided in this Section 4.6
and Sections 4.7 and 7.2, the Companies and the Subsidiaries shall
have no claim against any of the Sellers or any affiliate of the
Sellers, and the Sellers and any affiliates of the Sellers shall have
no claim against any of the Companies or the Subsidiaries, for any
amount that might be payable to or by, as the case may be, any of the
Companies and the Subsidiaries with respect to Taxes.
4.6.2. Tax Attributes. On or before June 15, 1994,
Continental will provide to the Purchaser a tentative schedule of the
amount, if any, of the allocable portion of any Tax carryforwards of
losses, Tax credits or other Tax benefits of the consolidated federal
income tax group of which Continental is the common parent (the
"Sellers' Group") that will be available to the Companies and the
Subsidiaries for tax periods beginning after the Closing Date. On or
before August 15, 1994, Continental will provide to the Purchaser a
final schedule of Tax attributes. Such schedule will be for
information purposes and no warranty as to the existence or
availability of such carryforwards shall be given or implied.
Continental will promptly inform the Purchaser in writing of any
adjustments to such carryforwards determined in connection with the
filing of the Sellers' Group's consolidated United States federal
income tax return, which may result from any Internal Revenue Service
audit or other proceeding with respect to Sellers' Group; or which may
be required as a result of a change in law or regulations. The
Sellers shall, and the Purchaser will cause the Companies, the
Subsidiaries, and any consolidated group of which any of the Companies
or Subsidiaries is a member after the Closing to, file their United
States federal income tax returns in a manner consistent with such
schedule, adjusted as described above. If in any period beginning
after the Closing Date, any of the Companies, the Subsidiaries or any
consolidated group of which any Company or Subsidiary is a member,
utilizes such carryforwards, the Purchaser shall pay to Continental an
amount equal to any reduction of the Tax liability of such Company,
Subsidiary or group that is attributable to the use of such
carryforwards. Any payment to Continental under this Section 4.6.2
will be made 30 days after the filing of the Tax Return which gives
rise to the payment; provided that if such reduction in Tax liability
requires the Internal Revenue Service to pay a Tax refund to such
Company, Subsidiary or group, the payment to Continental under this
Section 4.6.2 attributable to such refund shall be paid within 10 days
after receipt of such refund from the Internal Revenue Service.
Thereafter, if, as a result of any adjustment resulting from any
audit, the Tax liability of such Company, Subsidiary or group is
adjusted so as to affect the availability or utilization of any Tax
benefit carryforward which resulted in a payment under this Section
4.6.2., Continental will pay to the Purchaser or the Purchaser will
pay to Continental, as the case may be, within 30 days after the
making of such adjustment, such amount as is necessary to reflect such
adjustment in the computation under this Section 4.6.2, including
(i) any interest actually received by such Company, Subsidiary or
group from the U.S. government in connection with such adjustment and
(ii) to the extent that such adjustment is directly attributable to a
determination that such Tax benefit carryforward was not available as
a carryforward from Sellers' Group, the amount of interest and
penalties imposed on such Company, Subsidiary or group as a result of
such adjustment. With respect to each period following the Closing
Date to which any such carryforward may be carried, the Purchaser will
provide to Continental a true and complete schedule of the utilization
of such carryforwards.
Section 4.7. Taxes.
Section 4.7.1. Payment of Tax Liabilities. Continental
shall pay or cause to be paid all Taxes on or measured by net income,
and all franchise and capital stock Taxes imposed in lieu of Taxes on
or measured by net income, that are payable by or with respect to the
Companies and the Subsidiaries for all periods ending on or prior to
the Closing Date. The Purchaser shall pay or cause to be paid all
other Taxes payable by or with respect to any of the Companies or the
Subsidiaries.
Section 4.7.2. Filing of Tax Returns. Continental and the
Purchaser shall cause the Companies and the Subsidiaries, to the
extent permitted by law, to join, for all taxable periods ending on or
prior to the Closing Date, in the consolidated federal income Tax
Return of the Sellers' Group. Continental shall file, or cause to be
filed, all other Tax Returns relating to the Business required to be
filed by any of the Companies or the Subsidiaries on or before the
Closing Date and shall prepare for filing by the Purchaser all other
Tax Returns relating to the Business for periods ending on or before
the Closing Date. Continental shall forward such prepared Returns to
the Purchaser at least 30 days prior to the due date of such Returns
including any extensions thereof. The Purchaser shall timely file or
cause to be timely filed any Tax Return of the Companies or the
Subsidiaries (including any amendments thereto) due after the Closing
Date. For purposes of preparing all income Tax Returns for periods
including the Closing Date, the income, deductions and credits of the
Companies and the Subsidiaries shall be allocated in a manner
consistent with the method provided in Section 4.7.3.
4.7.3. Bridge Period. If, for any state, local or foreign
tax purpose, a taxable year or taxable period of any of the Companies
or any Subsidiary which begins before the Closing Date and ends after
the Closing Date (a "Bridge Period") does not terminate on the Closing
Date, the parties hereto will, to the extent permitted by applicable
law, elect with the relevant taxing authority to treat the portion of
the Bridge Period on or before the Closing Date ("Seller Period") for
all purposes as a short taxable period ending as of the close of the
Closing Date and such short taxable period shall be treated as a Pre-
Closing Period for purposes of this Agreement. In any case where
applicable law does not permit such an election to be made, for
purposes of (i) calculating the amount of Taxes to be paid by
Continental pursuant to Section 4.7.1 and (ii) determining under
Section 7.2 whether the representation in Section 2.6 has been
satisfied, Taxes for the Bridge Period shall be allocated between the
Seller Period and the portion of the Bridge Period after the Closing
Date using an interim-closing of the books method assuming that the
Sellers' taxable period ended at the end of the Closing Date, except
that (i) exemptions, allowances or deductions that are calculated on
an annual basis (such as the deduction for depreciation) shall be
apportioned on a per diem basis, (ii) real property taxes shall be
allocated in accordance with Section 164(d) of the Code and
(iii) personal property taxes that are calculated on annual basis
shall be apportioned on a per diem basis.
4.7.4. Audits and Other Proceedings. Following the Closing
Date, Continental shall, and shall be furnished by the Purchaser, a
Company or a Subsidiary, as the case may be, with powers of attorney,
or any other document or authorization necessary or appropriate to
enable it to, control the conduct of all stages of any audit or other
administrative or judicial proceeding with respect to Taxes for which
Continental is liable pursuant to Section 4.7.1 and the Purchaser
shall control the conduct of all other audits or administrative or
judicial proceedings with respect to the Tax liability of the
Companies and the Subsidiaries for any tax period or portion thereof.
(i) With respect to any audit or other proceeding that
it controls, Continental (x) shall give prompt notice to the
Purchaser of any Tax adjustment proposed in writing pursuant
to any audit or other proceeding controlled by Continental
with respect to the assets or activities of any of the
Companies or the Subsidiaries, (y) upon the Purchaser's
reasonable request shall discuss with the Purchaser and the
Purchaser's counsel the position that Continental intends to
take regarding any issue concerning such assets or
activities, and (z) shall not, and shall not permit any of
its affiliates to, enter into any settlement or agreement in
compromise of any proposed adjustment which purports to bind
the Purchaser, the Companies or any Subsidiary with respect
to any Tax period ending after the Closing Date without the
express written consent of the Purchaser, which consent
shall not be unreasonably withheld, and
(ii) The Purchaser (x) shall give prompt notice to
Continental of the commencement of any audit or other
proceeding which could give rise to a claim for payment
against Continental under this Agreement; (y) with respect
to any audit or proceeding controlled by the Purchaser,
afford Continental and its counsel a reasonable opportunity
to participate in the conduct of any administrative or
judicial proceeding regarding a proposed adjustment
described in clause (x) above including, without limitation,
the right to participate in conferences with tax authorities
and submit pertinent material in support of Continental's
position, and (z) shall not, and shall not permit any of its
affiliates to, accept any proposed adjustment or enter into
any settlement or agreement in compromise which would result
in a claim for indemnification against Continental pursuant
to this Agreement without Continental's express written
consent, which consent shall not be unreasonably withheld.
Section 4.7.5. Conduct of Business, Section 338
Election. (a) Notwithstanding any other provision of this
Agreement, the Purchaser shall be responsible for and neither
Continental nor any of the Sellers shall bear, (i) any Taxes that
arise due to the failure, following the Closing, of the Purchaser
to cause the Companies and the Subsidiaries to carry on their
business on the Closing Date only in the ordinary course and in
substantially the same manner as heretofore conducted, and
(ii) except as provided in paragraph (b) below, any Taxes that
relate to any actual or deemed election pursuant to section 338 of
the Code or the regulations thereunder or any comparable provision
of state or local law.
(b) Continental and the Purchaser shall cooperate in good
faith to determine the Tax Benefit to the Purchaser and its
affiliates and the Tax Cost to Continental and its affiliates of
making a joint election under section 338(h)(10) of the Code and
any comparable provision of state law in respect of the purchase
and sale of the Shares (a "Section 338(h)(10) Election"). Such
determination shall (i) take into account the Tax consequences to
the Purchaser and its affiliates and to the Sellers and their
affiliates of any payments pursuant to this Section 4.7.5(b) and
(ii) be made as if the Closing Date Purchase Price was $103
million, of which $5 million is allocated to the covenant described
in Section 4.10 hereof. If, based on such determination,
Continental and the Purchaser agree to make a Section 338(h)(10)
Election, the Sellers shall receive the following additional
consideration: (1) an amount equal to the Tax Cost incurred by the
Sellers and their affiliates as a result of the Section 338(h)(10)
Election and (2) an amount equal to 50% of the excess of the Tax
Benefit to the Purchaser and its affiliates over the Tax Cost to
Continental and its affiliates of the Section 338(h)(10) Election,
in each case computed as described in the previous sentence. Any
additional payments under this Section 4.7.5(b) shall be made at
such time and in such manner as shall be agreed upon by the parties
prior to the filing of the Section 338(h)(10) Election; provided
that the time and manner of making such payments shall take into
account the timing of the Tax Benefits and Tax Costs realized by
the parties and their affiliates.
4.7.6. Tax Refunds. The Sellers shall be entitled to
retain, or receive immediate payment from the Purchaser of, any
refunds of Taxes (other than refunds reflected in Companies'
Combined Shareholder's Equity), that were paid by or with respect
to any of the Companies or the Subsidiaries for a period ending on
or before the Closing Date and any Sellers' Period (including,
without limitation, refunds arising by reason of amended returns
filed after the Closing Date and amounts allowable as a credit
against Tax liability, including refunds of overpayments of
estimated Taxes) relating to any of the Companies or the
Subsidiaries, plus any interest thereon actually received from the
applicable taxing authority, except that, to the extent that a
refund of Taxes paid during a pre-Closing Date period relates to
the carryback of a loss, credit, deduction, or other item
attributable to a post-Closing Date period, the Purchaser shall be
entitled to the Tax Benefit of such Refund; provided, that the
Purchaser shall elect, or cause the relevant party to elect, to
forego any such carryback to a consolidated federal income Tax
Return of the Sellers' affiliated group unless (i) such election is
prohibited by law or (ii) as a result of making such election, the
affiliated federal income tax group of which the Company or
Subsidiary is a member following the Closing Date would be required
to forego a carryback to the Purchaser's own consolidated return
year that is more than 150% of the amount that would be carried
back to the Tax Return of the Sellers' affiliated group. The
Purchaser shall cooperate, and shall cause the Companies and the
Subsidiaries to cooperate, with the Sellers with respect to
claiming any refund referred to in this Section 4.7.6, including
notifying Continental of the existence of any state of facts that
would constitute a reasonable basis for claiming such a refund,
providing all relevant information available to Continental with
respect to any such claim, filing and diligently pursuing such
claim (including by litigation, if appropriate), paying over to
Continental any amount received by the Purchaser, the Companies or
the Subsidiaries with respect to such claim, and consulting with
Continental prior to agreement to any disposition of such claim.
The Purchaser shall be entitled to the Tax Benefit of any refund or
credit of federal, state, local, or foreign Taxes (plus any
interest thereon received from the applicable taxing authority)
relating to the Companies or the Subsidiaries that were paid with
respect to a period beginning after the Closing Date and to which
the Sellers are not otherwise entitled under this Section. To the
extent that one party is to enjoy the economic benefit of a refund
under this Section 4.7.6, that party shall bear the expenses of the
other party reasonably incurred in respect of such refund and shall
repay the amount of such refund as may be required to be repaid to
any taxing authority as a result of any adjustment on audit,
together with applicable interest and penalties.
4.7.7. Cooperation. The Purchaser and the Sellers shall
cooperate, and the Purchaser shall cause the Companies and the
Subsidiaries to cooperate with the Sellers with respect to the
preparation and filing of any Tax Return or the conduct of any Tax
audit or other proceeding for which the other is responsible
pursuant to this Section 4.7. Such cooperation shall include,
without limitation, making its employees available for consultation
and making workpapers and other records available during regular
business hours, provided that each shall pay any out-of-pocket
costs incurred by the other in connection with such cooperation.
Such cooperation shall also include Continental's provision to the
Purchaser of a calculation prepared by Continental for its own use
of the Companies' and the Subsidiaries' earnings and profits as of
the Closing Date for federal income tax purposes. All Tax Returns
for which the Purchaser is responsible shall, insofar as they
relate to items for periods that include days on or before the
Closing Date and to the extent permitted by applicable Tax law, be
on a basis consistent with the last previous such Tax Returns filed
in respect of the Companies and Subsidiaries. After the Closing
Date each Tax Return filed by a Company, any Subsidiary or by the
Purchaser with respect to any Company or Subsidiary which relates
to any period that includes days on or before the Closing Date
(including, without limitation, all Tax Returns prepared by
Continental for filing by or with respect to any Company or any
Subsidiary pursuant to Section 4.7.2) shall be subject to pre-
filing approval by Continental and, in the event of any
disagreement between Continental and the Purchaser, a Company or a
Subsidiary, as the case may be, such disagreement shall be resolved
by a firm of public accountants of recognized standing selected by
the Purchaser and Continental, and any such determination by such
accountants shall be final. The fees and expenses of such
accountants shall be borne equally by the Purchaser and
Continental. Unless otherwise agreed to by the parties, Tax
Returns subject to such pre-filing approval shall be submitted by
the Purchaser, the Companies or the Subsidiaries to Continental at
least 45 days prior to the due date (including extensions) of such
Tax Returns and Continental shall either approve or provide written
comments on such Tax Returns within 15 days of receipt of such Tax
Returns.
Section 4.8. Certain Pre-Closing Transactions.
4.8.1. Pre-Closing Dividend. Immediately prior to the
Closing, the Sellers shall cause the Companies to declare and pay
cash dividends to the Sellers in an aggregate amount equal to the
excess of (a) the Companies' Combined Shareholders' Equity as of
the last day of the month immediately preceding the month in which
the Closing Date falls, over (b) $46.3 million.
4.8.2. Intercompany Indebtedness. Immediately prior to the
Closing, any intercompany accounts between any of the Companies or the
Subsidiaries, on the one hand, and any of the Sellers (which term
shall include, for purposes of this Section 4.8, the Sellers'
subsidiaries and affiliates other than the Companies and the
Subsidiaries), on the other hand, as at Closing shall be cancelled as
follows: (a) to the extent that a Company or a Subsidiary is indebted
to a Seller, Continental or any affiliate of Continental, such debt
shall be cancelled and the amount of the debt so cancelled (other than
any write-off by Continental of any indebtedness due from the
Companies or their Subsidiaries in respect of overhead or other
corporate charges for services provided by Continental to the
Companies or the Subsidiaries) shall be deemed a capital contribution
by such party to such Company, provided, that any debt of CAFO to
Continental Reinsurance shall be paid by set-off against amounts owed
by Continental Reinsurance to CAFO to the extent of the amount thereof
and any excess shall be paid by the issuance of common shares of CAFO
having stated capital and fair market value equal to such excess, and
(b) to the extent a Seller, Continental or any affiliate of
Continental, is indebted to a Company or a Subsidiary after any set-
off described in clause (a) above, such debt shall be cancelled and
the amount of the debt so cancelled shall be deemed a dividend from
such Company to such party.
4.8.3. Resignation of Directors. Prior to, but effective
as of, the Closing Date, the Sellers shall procure and deliver to the
Purchaser the resignations of each director of any of the Companies or
the Subsidiaries.
4.8.4. Credit Support Arrangements. Prior to, but
effective as of the Closing Date, the Sellers shall cause all
guarantees, credit support and other arrangements in respect of the
Business by which any of the Sellers or their affiliates (other than
the Companies and the Subsidiaries) is bound to be terminated or
otherwise provided for in a manner reasonably satisfactory to the
parties hereto. The Purchaser shall use its reasonable efforts to
assist the Sellers in connection with the assumption by the Purchaser
of Continental's guaranty obligations in respect of AFCO's medium term
notes on terms reasonably satisfactory to the parties hereto.
4.8.5. Transfer of Certain Property. Prior to the Closing,
the Sellers shall cause AFCO to transfer to Continental or its nominee
all its right, title and interest in and to the trust holding title to
certain property located in Houlton, Maine. In connection therewith,
AFCO shall assign, and Continental or its nominee shall assume, any
and all liabilities and obligations of AFCO with respect thereto.
Section 4.9. Publicity. All press releases, filings and
other publicity concerning the transactions contemplated hereby will
be subject to review and approval by both Continental and the
Purchaser, such approval not to be unreasonably withheld. Such
approval shall not be required if the person issuing such publicity
reasonably believes, upon written advice of counsel, that such
disclosure is necessary to comply with law; provided that the party
issuing such publicity gives the other party as much advance notice of
such publicity (including the content thereof) as practicable.
Section 4.10. Covenant not to Compete. Neither the Sellers
nor any of their subsidiaries shall at any time from the Closing until
the third anniversary of the Closing Date, directly or indirectly,
engage, or have any ownership interest in any firm, corporation,
partnership or other business entity (except as a passive investor
holding a less than 5% equity interest in such business entity) that
engages, in the activities constituting the Business on the Closing
Date in the United States or Canada; provided that, notwithstanding
anything herein to the contrary, neither the Sellers nor any of their
subsidiaries shall be prohibited from financing premiums payable with
respect to insurance policies written by Continental or any of its
affiliates.
Section 4.11. Transitional Matters. The Sellers shall
cooperate with the Purchaser in connection with joint calls on key
brokers and agents and shall use their reasonable efforts to assist in
the orderly transition of the Business. The Purchaser and the Sellers
shall use reasonable efforts to cause the Companies to retain their
senior management officers prior to the Closing. Prior to the Closing
Date, the Purchaser and Continental or its affiliates shall use
reasonable efforts to enter into an Operating Services Agreement on
mutually satisfactory terms, in respect of certain administrative
services to be provided by Continental or its affiliates after the
Closing Date.
ARTICLE V
Employee Matters
Section 5.1. Employee Matters. (a) For purposes of this
Agreement, the term "Retained Employee" shall mean (i) any employee of
any of the Companies or the Subsidiaries who is (1) actively employed
on the Closing Date or (2) on inactive status receiving short or long
term disability benefits, worker's compensation, or other authorized
leave of absence benefits and who returns to active status prior to
the expiration of the 90 day period commencing on the Closing Date,
(ii) any employee of the Sellers and/or their affiliates who performs
substantially all of his services for the Companies or the
Subsidiaries and who is listed on the Sellers' Disclosure Schedule and
who does not retire pursuant to Section 5.1(a)(iii) below; and (iii)
any individual employed by the Companies or the Subsidiaries or any
individual described in Section 5.1(a)(ii) who retires under the early
retirement provisions of The Retirement Plan of The Continental
Corporation on or after the date hereof and before the Closing Date.
The term "Canadian Retained Employee" shall mean any Retained Employee
of CAFO.
(b) The Purchaser shall cause each Company and Subsidiary
to continue the employment on and after the Closing Date of all
Retained Employees described in Section 5.1(a)(i) and to offer
employment on the Closing Date to Retained Employees described in
Section 5.1(a)(ii) and (iii) in accordance with the provisions of this
Article V. Notwithstanding anything in this subsection (b) to the
contrary, any such continued employment or offer of employment shall
not be construed to limit the ability of the Purchaser to terminate
Retained Employees at any time for any reason, or to change their
terms and conditions of employment, including, but not limited to, the
levels of compensation and employee benefits in effect on the Closing
Date and any pension, welfare and/or fringe benefit made available to
such Retained Employees as of the Closing Date.
Section 5.2. Retirement Plan. (a) Effective on the Closing
Date, each participant in The Retirement Plan of the Continental
Corporation or the Retirement Plan of Continental Insurance Management
Ltd. (collectively, the "Sellers' Retirement Plan") who is a Retained
Employee shall cease to be an active participant under such plan.
Effective on the Closing Date, Retained Employees, other than Canadian
Retained Employees, shall commence participation in the Mellon Bank
Retirement Plan (the "Purchaser's Retirement Plan"). The Purchaser's
Retirement Plan shall recognize the service and earnings of each such
Retained Employee described in Section 5.1(a)(i) and 5.1(a)(ii) with
the Companies, the Subsidiaries and any ERISA Affiliate prior to the
Closing Date for all purposes, to the extent credited under the terms
of the Sellers' Retirement Plan. As soon as practicable after the
Closing Date, the Sellers will transfer, or cause to be transferred,
to the Purchaser's Retirement Plan all liabilities for benefits
accrued by Retained Employees, other than Canadian Retained Employees,
under the Sellers' Retirement Plan plus an amount (the "Transferred
Amount"), calculated as of the Closing Date, in cash equal to the
actuarial present value of such accrued benefits, calculated on a
projected benefit obligation ("PBO") basis, as defined in the
Statement of Financial Accounting Standards No. 87, reduced by the
amount of distributions, if any, to such Retained Employees made in
accordance with the terms of the Sellers' Retirement Plan between the
Closing Date and the date of transfer (the "Transfer Date") and
increased by interest on the Transferred Amount between the date which
is 37 days after the date of receipt by the Sellers from the Purchaser
of a notice containing the Purchaser's calculation of the Transferred
Amount and the Transfer Date at the average federal funds rate in
effect between such dates; provided that the Transferred Amount shall
be calculated using the methods and applicable assumptions employed by
the Purchaser's actuary as of January 1, 1993 and set forth in the
Sellers' Disclosure Schedule. Such transfer shall be effected as soon
as practicable after the later of (i) the expiration of a 30-day
period following the date of filing of any required notices with the
Internal Revenue Service by both the Purchaser and the Sellers,
including an actuarial statement of valuation in accordance with the
provisions of section 6058(b) of the Code and notification of the
transfer on Form 5310-A with the Internal Revenue Service and (ii) the
receipt by the Sellers of an opinion of the Purchaser's counsel that
the terms of the Purchaser's Retirement Plan meet the requirements of
section 401(a) of the Code. Notwithstanding any contrary provision in
Section 5.2, in no event shall the Transferred Amount be less than the
amount Sellers' actuary certifies as the minimum amount required to
comply with Section 414(1) of the Code. Retained Employees described
in Section 5.1(a)(iii) shall not receive credit for service with the
Companies, the Subsidiaries or any ERISA Affiliate, except as
otherwise required under ERISA or the Code.
(b) None of the Companies, the Subsidiaries or the
Purchaser shall become responsible for, and the Sellers and the
Sellers' Retirement Plan shall retain, any pension benefit liabilities
or obligations with respect to Canadian Retained Employees under the
Sellers' Retirement Plan or any other pension or retirement plan
maintained or contributed to by the Sellers or CAFO prior to the
Closing Date in respect of service up to and including the Closing
Date. Effective as of the Closing Date, Canadian Retained Employees
shall commence participation in The R-M Trust Company Pension Plan (or
in another pension plan that provides the same pension benefits as
that pension plan) and service of a Canadian Retained Employee that
was recognized at the Closing Date for the purposes of the Sellers'
Retirement Plan shall be recognized for the purposes of determining
eligibility and vesting of any such pension benefits (but shall not be
so recognized for any future accrual or pension benefits except as may
be required by any applicable laws).
Section 5.3. Savings Plan. Effective on the Closing Date,
each participant in The Incentive Savings Plan of the Continental
Corporation or The Continental Insurance Management Ltd. Employee
Savings Plan (collectively, the "Sellers' Savings Plan") who is a
Retained Employee shall cease to be an active participant under such
plan. Retained Employees, other than Canadian Retained Employees,
shall immediately become eligible to participate in the Mellon Bank
Corporation Retirement Savings Plan and Canadian Retained Employees
shall immediately become eligible to participate in, or in a plan that
is substantially the same as, The R-M Trust Group Registered
Retirement Savings Plan (collectively, the "Purchaser's Savings
Plan"). Sellers' Savings Plan shall retain responsibility for all
account balances under the Sellers' Savings Plan with respect to all
employees and former employees of any of the Companies or Subsidiaries
without regard to whether they become Retained Employees and none of
the Companies, the Subsidiaries, the Purchaser or the Purchaser's
Savings Plan shall have any liability under the Sellers' Savings Plan.
No account balances shall be transferred from the Sellers' Savings
Plan to any plan, fund or program established or maintained by the
Purchaser as a result of the transactions contemplated by this
Agreement. The account balances of Retained Employees under the
Sellers' Savings Plan shall become payable to Retained Employees in
accordance with the terms of the Sellers' Savings Plan.
Section 5.4. Welfare Plans. (a) Subject to Section 5.4(b)
and 5.4(c)(iv) below, effective on the Closing Date, the Purchaser
shall, or shall cause the Companies and the Subsidiaries to, assume
and be responsible for, and shall indemnify and hold harmless the
Sellers from and against, any and all direct and indirect damages,
costs, liabilities or other obligations including, without limitation,
any claims, interest, penalties and reasonable attorney's fees,
imposed upon or incurred by Sellers (collectively, the "Losses") in
respect of any Retained Employees, including Canadian Retained
Employees, their beneficiaries and spouses under any welfare benefit
plan within the meaning of Section 3(1) of ERISA and any insurance or
other CAFO Plan similar thereto described on the Sellers' Disclosure
Schedule (the "Welfare Plans"), to the extent such Losses relate to
events, transactions or occurrences occurring on or after the Closing
Date or the date on which the individual became a Retained Employee,
if later. The Sellers shall be responsible for any and all expenses
incurred by any Retained Employee, including any Canadian Retained
Employee, dependent or spouse under the Welfare Plans prior to the
Closing Date or the date on which the individual became a Retained
Employee, if later.
(b) For a period commencing on the Closing Date and ending
on December 31, 1993 (the "Transition Period"), the Sellers agree to
continue to make available coverage (including COBRA continuation
coverage required under Section 601 of ERISA) and claims processing
services in respect of the Retained Employees, including Canadian
Retained Employees, under the Welfare Plans identified on the Sellers'
Disclosure Schedule and which provide for medical, dental and employee
and family life insurance coverage, AD&D coverage, and travel accident
insurance; provided that the Purchaser shall, or shall cause the
Companies or the Subsidiaries to, reimburse the Sellers for the actual
cost of providing such coverages during the Transition Period plus an
administrative fee equal to 2% of such actual cost within 45 days
after the Sellers submit written proof of such cost to the Purchaser,
the Companies or the Subsidiaries except that the Sellers shall be
responsible for, and shall not receive reimbursement from, the
Purchaser, the Companies or the Subsidiaries for any Losses under any
Welfare Plan, without regard to whether it is identified on the
Sellers' Disclosure Schedule, in respect of any inactive employee who
becomes a Retained Employee after the Closing Date, incurred or
accrued prior to the date the inactive employee described in
Section 5.1(a)(i)(2) becomes actively employed by the Purchaser, the
Companies or the Subsidiaries. Notwithstanding anything in this
Section 5.4(b) to the contrary, in no event shall Purchaser be
required to honor any such request for reimbursement presented after
August 31, 1994 or such later date as agreed to by the Sellers and the
Purchasers.
(c) Subject to Sections 5.2 and 5.3, from and after
January 1, 1994, Retained Employees shall be eligible to participate
in the total program of pension, welfare and/or fringe benefits which
are available to similarly situated employees of the Purchaser or, in
the case of Canadian Retained Employees, of the Purchaser's Canadian
subsidiary, The R-M Trust Company ("Purchaser's Benefits") on the same
basis as such benefits are otherwise made available to similarly
situated employees of the Purchaser (or, in the case of Canadian
Retained Employees, of the Purchaser's Canadian subsidiary, The R-M
Trust Company). Notwithstanding anything in this Section 5.4 to the
contrary, (i) at any time of reference, the weeks of vacation provided
by the Purchaser to a Retained Employee with less than 25 years of
service with the Companies and Subsidiaries shall equal the greater of
(A) the weeks of vacation (not in excess of 4) provided to the
employees by the Companies or any Subsidiary on the day before the
Closing Date, and (B) the maximum vacation which may be earned by
similarly situated employees of the Purchaser; (ii) a Retained
Employee with 25 or more years of service with the Companies and the
Subsidiaries shall be entitled to the weeks of vacation to which they
were entitled on the day before the Closing; with such entitlement
continuing through December 31, 1994; (iii) on or after January 1,
1995, a Retained Employee will be entitled to the vacation which may
be earned by similarly situated employees of the Purchaser; provided
that, except as required by applicable laws, in no event shall
Purchaser be required to compensate Retained Employees for unused
weeks of vacation to which they were entitled on the day before the
Closing Date; and (iv) all preexisting illnesses, injuries and
pregnancies of Retained Employees that would have been covered under
Purchaser's Benefits but for their occurrence prior to the Closing
Date, or the date on which the individual became a Retained Employee,
if later, will be covered under the comparable plans of the Purchaser
from and after the Closing Date or the date on which the individual
became a Retained Employee, if later.
(d) Sellers shall indemnify and hold harmless the Purchaser
and, from and after the Closing Date, the Companies and the
Subsidiaries, from and against any and all Losses with respect to any
former employee of the Companies or the Subsidiaries who was a former
employee on the Closing Date and any and all losses with respect to
any Retained Employee described in Section 5.1(a)(iii) under any
Welfare Plan providing retiree medical or life insurance benefits.
(e) Purchaser shall, and shall cause the Companies and the
Subsidiaries to, assume and be responsible for, and shall indemnify
and hold harmless the Sellers from and against, any and all claims for
severance pay, unemployment benefits or any other liabilities, claims,
interest, penalties and reasonable attorney's fees, asserted against,
resulting to, imposed upon or incurred by the Seller, arising from or
relating to claims by any Retained Employee, including any Canadian
Retained Employee, for claims for actual or constructive termination
on or after the Closing Date. For purposes of this Section 5.4(e),
constructive termination shall mean (i) a material decrease in a
Retained Employee's base pay or salary; (ii) a job transfer of a
Retained Employee to a lesser position, or comparable action, or (iii)
a transfer of the Retained Employee's principal workplace to a
location more than 50 miles from the Retained Employee's workplace on
the Closing Date or (iv) a material change in the type or amount of
benefits provided to the Retained Employees under the Sellers' Plans
immediately prior to the Closing Date.
(f) Effective as of the Closing Date, and subject to the
other provisions of this Section 5.4, Retained Employees who are
participants in the Welfare Plans shall cease to be active
participants in such Plans and no further benefits shall accrue under
the Welfare Plans with respect to such Retained Employees.
Section 5.5. Executive Compensation and Benefits. The
Sellers shall retain responsibility for, and shall indemnify and hold
harmless the Purchaser, and from and after the Closing Date, the
Companies and the Subsidiaries, from and against any and all Damages
in respect of any Retained Employee arising from or relating in any
way to the Long-Term Incentive Plan of the Continental Corporation and
any and all Damages in respect of any Retained Employee attributable
to performance periods occurring prior to the Closing Date arising
from or relating in any way to The Annual Management Incentive Plan of
the Continental Corporation (the "Incentive Plan") and the Sellers may
pay the Retained Employees a bonus under the Incentive Plan for the
1993 performance period occurring prior to the Closing Date in an
amount determined in a manner consistent with the Incentive Plan
provisions. Effective on the Closing Date, the Purchaser shall, or
shall cause the Companies and the Subsidiaries to, assume and be
solely responsible for, and shall indemnify and hold harmless the
Sellers from and against any and all Damages in respect of any
Retained Employee attributable to performance periods occurring on or
after the Closing Date, arising from or relating in any way to the
Incentive Plan and, in the event the Sellers determine in accordance
with the terms of the Incentive Plan that a bonus is payable to
Retained Employees under the Incentive Plan for the 1993 performance
period, the Purchaser shall, or shall cause the Companies or the
Subsidiaries to, pay the Retained Employees that portion of such bonus
attributable to the 1993 performance period occurring on and after the
Closing Date.
Section 5.6. Cessation of Participation. Except as
otherwise provided in this Article V, effective as of the Closing
Date, each Canadian Retained Employee who is a participant in any CAFO
Plan shall cease to be an active participant in such CAFO Plan and no
further benefits shall accrue under the CAFO Plan with respect to such
Canadian Retained Employee.
ARTICLE VI
Conditions Precedent
Section 6.1. Preamble. The respective obligations set
forth herein of the Sellers and the Purchaser to consummate the sale
and purchase of the Shares and the transactions to be consummated at
the Closing hereunder shall be subject to the fulfillment, on or
before the Closing Date, in the case of the Sellers, of the conditions
set forth in Section 6.2 and 6.3, and in the case of the Purchaser, of
the conditions set forth in Sections 6.2 and 6.4; provided, that the
Purchaser shall be precluded from asserting that a condition set forth
in this Article VI has not been satisfied by reason of any matter,
fact, failure or circumstance reflected in the Sellers' Disclosure
Schedule, as amended from time to time, except that this proviso shall
not preclude the Purchaser from asserting that the condition set forth
in Section 6.4.1 has not been satisfied due to a breach of the
representation and warranty set forth in Section 2.15 by reason of any
item added to, or amended in, the Sellers' Disclosure Schedule by the
Sellers between the date hereof and the Closing Date.
Section 6.2. Conditions to Obligations of both Parties.
6.2.1. Consents and Approvals. The waiting period under
the HSR Act shall have been terminated or expired, any filing
requirements under the Bank Act (Canada) in connection with the
acquisition of the CAFO Shares by the Purchaser or its nominee shall
have been satisfied, and each of the other governmental consents,
approvals, authorizations or filings set forth in Schedule 2.2 of the
Sellers' Disclosure Schedule and Schedule 3.2 of the Purchaser's
Disclosure Schedule required to be made or obtained prior to Closing
shall have been obtained or made (which may include, for this purpose,
the expiration of any waiting or other time period required to pass
before governmental consent or acquiescence may be assumed or relied
upon).
6.2.2. No Injunction. No court order shall have been
entered that enjoins, restrains or prohibits consummation of the
transactions contemplated by this Agreement or questions the validity
of this Agreement, and there shall not be pending or threatened any
litigation, proceeding or investigation that restrains, prohibits or
prevents or, in the reasonable opinion of the Purchaser's or
Continental's counsel, presents a significant risk of restraining,
prohibiting or preventing, or changing the terms of or obtaining
damages in connection with, the transactions contemplated by this
Agreement or which otherwise would have a Material Adverse Effect.
Section 6.3. Conditions to Obligations of the Sellers.
6.3.1. Representations and Warranties of the Purchaser.
The representations and warranties in Article III shall be true and
correct when made and at and as of the Closing with the same effect as
though made at and as of such time, with such exceptions to the
representations and warranties not qualified by a materiality standard
as are not, individually or in the aggregate, material to the
business, condition (financial or otherwise) or operations of the
Purchaser and its subsidiaries taken as a whole. The Purchaser shall
have duly performed and complied in all material respects with all
agreements contained herein required to be performed or complied with
by it at or before the Closing.
6.3.2. Officer's Certificate. The Purchaser shall have
delivered to the Sellers a certificate, dated the Closing Date and
signed by its Chairman, President or a Vice President, as to the
fulfillment of the conditions set forth in Section 6.3.1.
6.3.3. Opinion of Counsel. The Sellers shall have received
from Reed Smith Shaw & McClay, counsel for the Purchaser, an opinion
in form and substance substantially the same as Exhibit A-1 and from
General Counsel to the Purchaser, an opinion in form and substance
substantially the same as Exhibit A-2.
6.3.4 Release From Credit Support and Other Arrangements.
The Purchaser shall have (i) provided funds, from borrowings by the
Companies secured by the assets of the Companies or otherwise, which,
together with interest resulting from the investment thereof in
appropriate governmental obligations, are sufficient to provide for
the payment when due of the principal amount of the obligations of the
Companies secured by any guarantees or credit support of Continental
or its affiliates (other than the Companies and the Subsidiaries) plus
interest thereon accruing after the Closing Date and until maturity or
(ii) in the case of the medium term notes of AFCO outstanding on the
date hereof, assumed the obligations of Continental with respect
thereto, as contemplated by Section 4.8.4 hereof.
6.3.5. Third Party Consents. The Sellers shall have
received all such third party approvals, consents, authorizations and
waivers set forth in the Sellers' Disclosure Schedule as may be
required to consummate the transactions contemplated hereby.
6.3.6. Real Property Transfer Tax Filings. The Purchaser
shall have satisfied its obligations under Section 4.4(b) required to
be satisfied on or prior to the Closing Date.
Section 6.4. Conditions to Obligations of the Purchaser.
6.4.1. Representations and Warranties of the Sellers. The
representations and warranties in Article II shall be true and correct
when made and at and as of the Closing with the same effect as though
made at and as of such time, with such exceptions to the
representations and warranties not qualified by a materiality standard
as shall not, individually or in the aggregate, have a Material
Adverse Effect. The Sellers shall have duly performed and complied in
all material respects with all agreements contained herein required to
be performed or complied with by it at or before the Closing.
6.4.2. Officer's Certificates. The Sellers shall have
delivered to the Purchaser certificates, dated the Closing Date and
signed by a President or a Vice President of each Seller, as to the
fulfillment of the conditions set forth in Section 6.4.1.
6.4.3. Opinion of Counsel. The Purchaser shall have
received from Debevoise & Plimpton, counsel for the Sellers, from the
General Counsel of Continental, and from Stikeman, Elliott, Canadian
counsel for the Sellers, opinions in form and substance substantially
the same as Exhibits B, C and D, respectively.
6.4.4. Third Party Consents. The Purchaser shall have
received all such third party approvals, consents, authorizations and
waivers set forth in the Purchaser's Disclosure Schedule as may be
required to consummate the transactions contemplated hereby.
6.4.5. Real Property Transfer Tax Filings. Continental
Insurance shall have satisfied its obligations under Section 4.4(b)
required to be satisfied on or prior to the Closing Date.
6.4.6. Combined Shareholders' Equity. The Companies'
Combined Shareholders' Equity shall be not less than $46.3 million.
ARTICLE VII
Indemnification
Section 7.1. Survival of Representations and Warranties.
The representations and warranties contained in Articles II and III of
this Agreement shall survive until the second anniversary of the
Closing Date, except for the provisions of Section 2.14, which shall
survive until the expiration of the applicable statutes of
limitations, including any waivers or extensions thereof. No action
for indemnification under this Article VII may be brought with respect
to such representations and warranties after the dates indicated in
the preceding sentence unless, prior to the date such representations
and warranties expire, the party seeking indemnification has notified
in reasonable detail the party from whom indemnification is sought of
a claim for indemnity hereunder.
Section 7.2. Indemnification.
7.2.1. By the Sellers. Subject to Section 7.1, from and
after the Closing, the Sellers jointly and severally agree to
indemnify the Purchaser and hold the Purchaser harmless from and
against any out-of-pocket loss, liability or damage (including
reasonable attorneys' fees and other costs and expenses)
(collectively, "Damages") incurred or sustained by the Purchaser as a
result of the nonfulfillment of any agreement (including, without
limitation, Section 4.7) or the breach of any representation or
warranty on the part of the Sellers under this Agreement; provided
that there shall not be any duplicative payments or indemnities by any
of the Sellers. The Purchaser's right to indemnity under this Section
7.2.1 shall include, by example and without limitation, any out-of-
pocket loss, liability or damage (including reasonable attorney's fees
and others costs and expenses) incurred or sustained by the Purchaser
with respect to the property described in Section 4.8.5 hereof.
The Purchaser's rights to indemnification under this Article
VII shall be limited as follows:
(a) The amount of any Damages incurred by the Purchaser
shall be reduced by the net amount of the Tax Benefits actually
realized by the Purchaser or the Companies by reason of such loss,
liability or damage.
(b) The amount of any Damages incurred by the Purchaser
shall be reduced by the net amount the Purchaser or any of the
Companies or the Subsidiaries recover (after deducting all attorneys'
fees, expenses, and other costs of recovery) from any insurer or other
party liable for such Damages, and the Purchaser shall use reasonable
efforts to effect any such recovery.
(c) Except for any liability or obligation with respect to
federal, state, local and foreign income Taxes which relate to periods
ending on or prior to the Closing Date, the Purchaser shall be
entitled to indemnification only to the extent that the aggregate
amount of such Damages exceeds an amount equal to (i) $3,500,000 less
(ii) amounts up to $3,500,000 actually paid by the Purchaser, a
Company or any Subsidiary in respect of any matter reflected in any
amendment made to the Sellers' Disclosure Schedule after the date
hereof, and then only to the extent the aggregate amount of such
Damages exceeds such amount.
(d) The Sellers' liability under this Section 7.2.1 shall
not exceed $100 million.
7.2.2. By the Purchaser. Subject to Section 7.1, from and
after the Closing, the Purchaser agrees to, and agrees to cause the
Companies to, indemnify the Sellers and hold them harmless from and
against any Damages incurred or sustained by any of the Sellers as a
result of the nonfulfillment of any agreement (including, without
limitation, Section 4.7) or the breach of any representation or
warranty on the part of the Purchaser under this Agreement; provided
that there shall not be any duplicative payments or indemnities by the
Purchaser.
The Sellers' rights to indemnification under this Article
VII shall be limited as follows:
(a) The amount of any Damages incurred by the Sellers shall
be reduced by the net amount of the tax benefits actually realized by
the Sellers by reason of such loss, liability or damage.
(b) The amount of any Damages incurred by the Sellers shall
be reduced by the net amount the Sellers recover (after deducting all
attorneys' fees, expenses, and other costs of recovery) from any
insurer or other party liable for such loss, liability or damage, and
the Sellers shall use reasonable efforts to effect any such recovery.
(c) The Sellers shall be entitled to indemnification under
this Section 7.2.2 only to the extent that the aggregate amount of
such Damages exceeds $3,500,000, and then only to the extent the
aggregate amount of such Damages exceeds $3,500,000.
(d) The Purchaser's liability under this Section 7.2.2
shall not exceed $100 million.
7.2.3. Indemnification Procedures. A party entitled to
indemnification hereunder shall herein be referred to as an
"Indemnitee." A party obligated to indemnify an Indemnitee hereunder
shall herein be referred to as an "Indemnitor." Promptly after receipt
by an Indemnitee of notice of any claim or the commencement of any
action, or upon discovery of any facts which an Indemnitee believes
may give rise to a claim for indemnification from an Indemnitor
hereunder, such Indemnitee shall, if a claim in respect thereof is to
be made against an Indemnitor under this Article VII, notify such
Indemnitor in writing of the claim or the commencement of such action.
If any such claim shall be brought against such Indemnitee, it shall
notify such Indemnitor thereof, the Indemnitor shall be entitled to
participate therein, and to assume the defense thereof with counsel
reasonably satisfactory to the Indemnitee, and to settle or compromise
any such claim or action; provided that if the Indemnitee has elected
to be represented by separate counsel pursuant to the proviso to the
following sentence, such settlement or compromise shall be effected
only with the consent of the Indemnitee, which consent shall not be
unreasonably withheld. After notice to the Indemnitee of the
Indemnitor's election to assume the defense of such claim or action,
the Indemnitor shall not be liable to the Indemnitee under this
Article VII for any legal or other expenses subsequently incurred by
the Indemnitee in connection with the defense thereof other than
reasonable costs of investigation, provided that the Indemnitee shall
have the right to employ counsel to represent it if, in the
Indemnitee's reasonable judgment, it is advisable for the Indemnitee
to be represented by separate counsel, and in that event the fees and
expenses of such separate counsel shall be paid by the Indemnitee. If
the Indemnitor does not elect to assume the defense of such claim or
action, the Indemnitee shall act reasonably and in accordance with its
good faith business judgment with respect thereto, and shall not
settle or compromise any such claim or action without the consent of
the Indemnitor which consent shall not be unreasonably withheld. The
parties hereto agree to render to each other such assistance as may
reasonably be requested in order in insure the proper and adequate
defense of any such claim or proceeding. This Section 7.2.3 shall not
apply with respect to audits and other proceedings with respect to
Taxes, which shall be governed by Section 4.7.
7.3. Continental Guaranty. (a) Continental hereby
guarantees to the Purchaser the prompt payment in full when due of all
payment obligations of the Sellers to the Purchaser under
Sections 1.3, 4.4, 4.6, 4.7, 5.2, 5.4, 5.5, 5.6 and 7.2 of this
Agreement (the payment obligations guaranteed hereunder being herein
collectively called the "Guaranteed Obligations" and individually a
"Guaranteed Obligation"), in accordance with the terms of this
Agreement. Subject to the proviso set forth in paragraph (b) below,
Continental hereby further agrees that if the Sellers shall fail to
pay in full when due any of the Guaranteed Obligations, Continental
will pay the same, without demand or notice whatsoever.
(b) Continental's obligations under this Agreement are
absolute, unconditional and irrevocable, irrespective of (i) any
modification, amendment or variation in or addition to the terms of
any of the Guaranteed Obligations made in accordance with the terms of
this Agreement, (ii) any extension of time for performance or waiver
of performance of any Guaranteed Obligation, or any failure or
omission to enforce any right with regard to, any of the Guaranteed
Obligations, (iii) any exchange, surrender, release of any other
guaranty of or security for any of the Guaranteed Obligations or (iv)
any other circumstance with regard to any of the Guaranteed
Obligations that may or may not in any manner constitute a legal or
equitable discharge or defense of a surety or a guarantor, it being
the intent hereof that the obligations of Continental shall be
absolute and unconditional under any and all circumstances; provided,
that Continental's obligation shall be subject to, and Continental
shall have the right to raise, any defenses available to the Sellers
other than any such defenses available under any bankruptcy,
insolvency, rehabilitation, conservation, reorganization or other
similar laws applicable to any Seller.
(c) Continental hereby expressly waives diligence,
presentment, demand, protest and all notices whatsoever with regard to
any of the Guaranteed Obligations, any requirement that the Purchaser
exhaust any right, power or remedy or proceed against either Seller
or, subject to Section 7.2.1(b), any other person under this Agreement
and any and all other events and circumstances, whether similar or
dissimilar to any of the above, which might otherwise constitute a
legal or equitable discharge, release or defense of a guarantor or
surety or which might otherwise limit recourse against Continental,
excepting only full, strict and indefeasible payment of the Guaranteed
Obligations.
(d) The guaranty of Continental hereunder shall be
automatically reinstated if and to the extent that for any reason any
payment by or on behalf of the Sellers is rescinded or must be
otherwise restored by the Purchaser, whether as a result of any
proceedings in bankruptcy, reorganization or otherwise.
(e) This guaranty shall continue in full force and effect
and be binding upon Continental and its successors notwithstanding the
liquidation, dissolution, bankruptcy of, or any like event with
respect to, any other party liable upon or in respect of any
Guaranteed Obligation.
ARTICLE VIII
Dispute Resolution
Any controversy or claim arising out of or relating to this
Agreement or any breach thereof shall be settled by arbitration. The
arbitration shall be held in New York, New York and, except to the
extent inconsistent with this Article VIII, shall be conducted in
accordance with the rules of the American Arbitration Association in
effect at the time of the arbitration. The arbitration proceedings,
all documents and all testimony, written or oral, produced in
connection therewith, and the arbitration award shall be confidential.
The arbitration panel shall consist of three arbitrators. The party
initiating arbitration (the "Claimant") shall appoint its arbitrator
in its demand (the "Demand"). The other party (the "Respondent")
shall appoint its arbitrator within 30 days of receipt of the Demand
and shall notify the Claimant of such appointment in writing. If the
Respondent fails to appoint an arbitrator within such 30-day period,
the arbitrator named in the Demand shall decide the controversy or
claim as a sole arbitrator. Otherwise, the two arbitrators appointed
by the parties shall appoint a third arbitrator within 45 days after
the Respondent has notified Claimant of the appointment of the
Respondent's arbitrator. When the arbitrators appointed by the
Claimant and Respondent have appointed a third arbitrator and the
third arbitrator has accepted the appointment, the two arbitrators
shall promptly notify the parties of the appointment of the third
arbitrator. If the two arbitrators appointed by the parties fail or
are unable so to appoint a third arbitrator or so to notify the
parties, either party may request the then President of the American
Arbitration Association to appoint the third arbitrator. The
President of the American Arbitration Association shall appoint the
third arbitrator within 30 days after such request and shall notify
the parties of the appointment. The third arbitrator shall act as
chairman of the tribunal. The arbitral award may grant any relief
deemed by the arbitrators to be just and equitable, including, without
limitation, specific performance; provided that in no event shall an
award for monetary damages, together with all other awards or payments
made hereunder or under Article VII by the Sellers or the Purchaser
exceed $100 million. The arbitral award shall state the reasons for
the award and relief granted, shall be final and binding on the
parties to the arbitration, and may include an award of costs,
including reasonable attorneys' fees and disbursements. Any award
rendered may be confirmed, judgment upon any award rendered may be
entered, and such award of the judgment thereon may be enforced in any
court of any state or country having jurisdiction over the parties
and/or their assets. Both parties shall continue to perform their
obligations under this Agreement during the pendency of any
arbitration provided for by this Section.
ARTICLE IX
Definitions
Certain defined terms used herein are defined in the text of
the sections of this Agreement set forth below:
Defined Term Section
"Adjusted Payment Amount" 1.3(f)
"AFCO" 1.1
"AFCO Shares" 1.1
"Bridge Period" 4.7.3
"CAFO" 1.1
"CAFO Shares" 1.1
"Claimant" Article VIII
"Closing" 1.2
"Closing Date" 1.2
"Closing Date Purchase Price" 1.2(b)
"Companies" 1.1
"Continental" Preamble
"Continental Insurance" Preamble
"Continental Payee" 1.3
"Continental Reinsurance" Preamble
"Damages" 7.2.1
"Demand" Art. VIII
"ERISA" 2.10.1
"ERISA Affiliate" 2.10.2
"Final Interest Amount" 1.3(f)
"Final Payment" 1.3(b)
"Final Notice" 1.3(g)
"HSR Act" 2.2(b)
"Indemnitee" 7.2.3
"Interim Interest Amount" 1.3(d)
"Interim Notice" 1.3(g)
"Notional Amount" 1.3(a)
"Objection Notice" 1.3(h)
"Pension Plans" 2.10.1
"Plans" 2.10.1
"Provisional Interest Payment" 1.3(c)
"Provisional Payment Amount" 1.3(d)
"Purchaser" Preamble
"Respondent" Article VIII
"Retained Employee" 5.1
"Review Period" 1.3(h)
"Sellers" Preamble
"Sellers' Period" 4.7.3
"Shares" 1.1
"Subsidiary" 2.5(a)
"Term Year" 1.3(a)
"Welfare Plans" 5.4(a)
In addition, as used herein, the following terms have the
following meanings:
"AFCO Financial Statements" shall mean the audited
financial statements of AFCO as of December 31, 1991 and 1992 and
for the years then ended, including consolidated balance sheets,
consolidated statements of income and retained earnings, and
consolidated statements of cash flows, together with the notes to
such financial statements and the report thereon of KPMG Peat
Marwick, and the AFCO Interim Statements.
"AFCO Interim Statements" shall mean the unaudited
consolidated balance sheet, consolidated statement of income and
retained earnings and consolidated statement of cash flows of AFCO
as of March 31, 1993 and for the comparable periods for 1992.
"Business" shall mean the business, activities,
interests, assets and properties of the Companies and the
Subsidiaries taken as a whole.
"CAFO Financial Statements" shall mean the audited
financial statements of CAFO as of December 31, 1991 and 1992 and
for the years then ended, including a balance sheet, a statement of
earnings and retained earnings, and a statement of changes in
financial position, together with the notes to such financial
statements and the report thereon of Peat Marwick Thorne, and the
CAFO Interim Statements.
"CAFO Interim Statements" shall mean the unaudited
balance sheet, statement of earnings and retained earnings and
statement of changes in financial position of CAFO as of March 31,
1993 and for the comparable periods for 1992.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Companies' Combined Shareholder's Equity" shall mean, as
of any date of determination, the aggregate combined shareholder's
equity of AFCO and CAFO, after eliminating (i) all intercompany
transactions among the Companies, and (ii) all liabilities and
reserves for Taxes that are required to be borne by Continental
pursuant to Section 4.7.1; provided that the Companies' Combined
Shareholders' Equity shall not be increased by the amount of any
write-off by Continental of receivables or other indebtedness due
from the Companies or their Subsidiaries in respect of overhead and
other corporate charges for services provided by Continental to the
Companies or the Subsidiaries. For purposes of computing
Companies' Combined Shareholder's Equity, the Companies' liability
for Taxes with respect to any Sellers' Period that are not required
to be borne by Continental pursuant to Section 4.7.1, shall be
determined using the method provided in Section 4.7.3.
"Companies' Financial Statements" shall mean the AFCO
Financial Statements and the CAFO Financial Statements.
"Companies' Interim Statements" shall mean the AFCO
Interim Statements and the CAFO Interim Statements.
"Confidential Memorandum" shall mean the Confidential
Memorandum prepared by Lazard, Freres & Co. with respect to the
Companies.
"Confidentiality Agreement" shall mean the letter
agreement, dated February 17, 1993, between Mellon Bank Corporation
and Continental with respect to the confidentiality of the
Confidential Memorandum and certain other information.
"Material Adverse Effect" shall mean a material adverse
effect on the business, condition (financial or otherwise) or
operations of the Companies and their Subsidiaries, taken as a
whole.
"Origination Volume" shall mean, for any period of
determination, the gross amount of insurance premiums payable under
all insurance policies financed by the Companies and the
Subsidiaries during such period of determination. For purposes of
performing this calculation, any premiums payable in Canadian
dollars or other foreign currency shall be converted into U.S.
dollars at an exchange rate equal to an average of the applicable
exchange rates quoted in The Wall Street Journal on the last
business day of each calendar month occurring during such period of
determination.
"Present Value of the Notional Amounts" shall mean the
net present value, discounted at an annual rate of 12% and
calculated as of the Closing Date, of a revenue stream consisting
of the Notional Amounts for each of the five Term Years following
the Closing Date.
"Projected Present Value of the Notional Amounts" shall
mean the net present value, discounted at an annual rate of 12% and
calculated as of the Closing Date, of a hypothetical revenue stream
consisting of the Notional Amounts for each of the five Term Years
following the Closing Date, assuming growth rates in Origination
Volume for each of the Term Years equal to the arithmetical mean of
the actual growth rates in Origination Volume experienced over the
first three Term Years.
"Purchaser's Disclosure Schedule" shall mean the
Disclosure Schedule delivered by the Purchaser on the date hereof.
Section numbers in the Purchaser's Disclosure Schedule refer to the
corresponding section numbers in this Agreement. Matters set forth
in one section of the Purchaser's Disclosure Schedule need not be
set forth in any other section thereof.
"Sellers' Disclosure Schedule" shall mean the Disclosure
Schedule delivered by the Sellers, as amended from time to time in
accordance with Section 6.1 hereof. Section numbers in the Sellers'
Disclosure Schedule refer to the corresponding section numbers in this
Agreement. Matters set forth in one section of the Sellers'
Disclosure Schedule need not be set forth in any other section
thereof.
"Short Taxable Year" shall mean a Taxable Year or taxable
period of any of the Companies or any Subsidiary which begins before
the Closing Date and ends on the Closing Date as a result of the
transactions contemplated in this Agreement.
"Taxes" shall mean all taxes, however denominated, including
any interest, penalties or additions to tax that may become payable in
respect thereof, imposed by any federal, state, local or foreign
government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality
of the foregoing, all income taxes, payroll and employee withholding
taxes, backup withholding taxes, unemployment insurance taxes, social
security taxes, sale and use taxes, excise taxes, franchise taxes,
gross receipts taxes, occupation taxes, real and personal property
taxes, stamp taxes, transfer taxes, workers' compensation taxes,
capital stock taxes, taxes on services, and other obligations of the
same or of a similar nature, whether arising before, on or after the
Closing Date.
"Tax Benefit" or "Tax Cost" shall mean the amount of Tax
savings or cost realized as a result of an item by the Companies or
the Subsidiaries, the Purchaser, the Sellers, or any of their
affiliates as the case may be, equal to the difference between (i) the
actual Taxes of such taxpayer without giving effect to the item at
issue and (ii) the actual Tax liability of such taxpayer after giving
full effect to such Adjustment. A Tax Benefit shall be deemed to be
realized at the earlier of (i) the time that either a refund or a
credit for refund is received as a result of such Tax Benefit or (ii)
the Tax liability of the taxpayer is offset or otherwise reduced and
a Tax Return reflecting such Tax Benefit is filed. A Tax Cost shall
be deemed paid at the earlier of (1) the time that additional taxes
are actually paid as a result of such Tax Cost or (2) the time of the
filing of any Tax Return that reflects such Tax Cost.
"Tax Return" shall mean any return, report, filing,
estimate, declaration, or information statement related to, or
required to be filed in connection with, any Tax pursuant to statutes,
rules and regulations of any federal, state, local or foreign
government taxing authority.
"Taxable Year" shall mean any taxable year or other period
which is treated as a taxable year (including any Short Taxable Year)
with respect to which any Tax may be imposed under any applicable
statute, rule or regulation.
ARTICLE X
General Provisions
Section 10.1. Modification; Waiver. This Agreement may be
modified only by a written instrument executed by the parties hereto.
Any of the terms and conditions of this Agreement may be waived in
writing at any time on or prior to the Closing Date by the party
entitled to the benefits thereof.
Section 10.2. Entire Agreement. This Agreement supersedes
all other prior agreements, understandings, representations and
warranties, oral or written, between the parties hereto in respect of
the subject matter hereof (including, without limitation, the
Confidential Memorandum), except that this Agreement does not
supersede the Confidentiality Agreement, the terms and conditions of
which the parties hereto expressly reaffirm.
Section 10.3. Termination. This Agreement may be
terminated:
(a)at any time prior to the Closing Date by mutual consent of
the Purchaser, Continental and the Sellers; or
(b) by the Purchaser, Continental or the Sellers, if the Closing
shall not have taken place on or before December 31, 1993 or such later
date as the parties shall have agreed to in writing, provided that the non-
occurrence of the Closing is not attributable to a breach of the terms
hereof by the party seeking termination.
Section 10.4. Expenses. Except as expressly provided herein,
whether or not the transactions contemplated herein shall be consummated,
each party shall pay its own expenses incident to the preparation and
performance of this Agreement.
Section 10.5. Further Actions. Each party shall execute and
deliver such certificates, agreements and other documents and take such
other actions as may reasonably be requested by the other party in order
to consummate or implement the transactions contemplated hereby.
Section 10.6. Post-Closing Access. In connection with any
matter relating to any period prior to, or any period ending on, the
Closing, the Purchaser shall, upon the request and at the expense of the
Sellers, permit the Sellers and their representatives full access at all
reasonable times to the books and records of the Companies and the
Subsidiaries which shall have been transferred to the Purchaser and the
Purchaser shall execute (and shall cause the Companies and the Subsidiaries
to execute) such documents as the Sellers may reasonably request to enable
the Sellers to file any required reports relating to the Company. The
Purchaser shall not dispose of such books and records during the seven-year
period beginning with the Closing Date without Continental's prior written
consent, which shall not be unreasonably withheld. Following the
expiration of such seven-year period, the Purchaser may dispose of such
books and records at any time upon giving 60 days prior written notice to
Continental, unless Continental agrees to take possession of such books and
records within 60 days at no expense to the Purchaser.
Section 10.7. Notices. All notices, requests, demands, and
other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered or mailed, registered mail, first-class
postage paid, return receipt requested, or any other delivery service with
proof of delivery;
if to the Sellers:
The Continental Corporation
180 Maiden Lane
New York, NY 10038
Attention: General Counsel
with a copy to:
The Continental Corporation
180 Maiden Lane
New York, NY 10038
Attention: Wayne H. Fisher
if to the Purchaser:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Martin G. McGuinn
with copies to:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Assistant General Counsel
and
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Chief Financial Officer
or to such other address or to such other person as either party
hereto shall have last designated by notice to the other party.
Section 10.8. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but shall not be
assignable, by operation of law or otherwise, by Continental, any
of the Sellers or by the Purchaser, without the prior written
consent of the Purchaser or Continental and the Sellers,
respectively; provided, that no such consent shall be required in
connection with an assignment by the Purchaser to any affiliate
thereof if in connection with such assignment the Purchaser agrees,
on terms reasonably satisfactory to the Sellers, to guaranty or
otherwise remain liable for such affiliate's obligations hereunder.
Section 10.9. Counterparts. This Agreement may be
executed in counterparts, both of which shall constitute one and
the same instrument.
Section 10.10. Headings. The article and section
headings in this Agreement are for convenience of reference only
and shall not be deemed to alter or affect the meaning or
interpretation of any provision hereof.
Section 10.11. Governing Law. This Agreement shall be
construed, performed and enforced in accordance with the laws of
the State of New York, without giving effect to the conflict of
laws rules thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
THE CONTINENTAL CORPORATION
By /s/ Wayne H. Fisher
Title: Executive Vice President
THE CONTINENTAL INSURANCE
COMPANY
By /s/ Wayne H. Fisher
Title: Senior Vice President
CONTINENTAL REINSURANCE
CORPORATION
By /s/ Wayne H. Fisher
Title: Senior Vice President
MELLON BANK CORPORATION
By /s/ Martin G. McGuinn
Title: Vice Chairman