EXECUTION COPY
SHARE PURCHASE AGREEMENT
dated as of August 6, 2001
by and between
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
and
PACIFIC LIFE INSURANCE COMPANY
==============================================================================
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF SHARES.........................................1
1.1. Purchase and Sale of Shares...............................1
ARTICLE II CLOSING 3
2.1. Closing...................................................3
2.2. Seller's Deliverables.....................................3
2.3. Buyer's Deliverables......................................5
2.4. Payment of Cash Consideration; Stamp Duty.................6
2.5. Satisfaction with Documents...............................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER..........................7
3.1. Corporate Existence.......................................7
3.2. Authorization; Enforcement................................8
3.3. Consents and Approvals....................................8
3.4. No Conflicts..............................................9
3.5. Capital Structure; Subsidiaries..........................10
3.6. Transactions with Affiliates.............................11
3.7. Company Documents........................................11
3.8. Financial Statements.....................................12
3.9. Annual Regulatory Returns................................13
3.10. Absence of Certain Changes or Events.....................14
3.11. Contracts................................................16
3.12. Litigation...............................................18
3.13. Liabilities and Reserves.................................19
3.14. Taxation.................................................19
3.15. Assets...................................................27
3.16 Compliance with Laws, etc................................29
3.17. Insurance for Company's Operations.......................29
3.18. Insurance Business.......................................30
3.19. Reinsurance Agreements...................................30
3.20. Service Marks, Trademarks, Intellectual Property, etc....31
3.21. Pensions.................................................32
3.22. Directors, Officers and Employees........................35
3.23. Banks, Brokerage Accounts and Powers of Attorney.........36
3.24. Environmental Matters....................................37
3.25. Registration Statement; Proxy Statement..................38
3.26. Investment Advisory and Investment Company Matters.......38
3.27. Derivatives..............................................38
3.28. Brokers and Finders, etc.................................38
3.29. Securities...............................................38
3.30. Money Laundering.........................................39
3.31. Full Disclosure..........................................39
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Table of Contents
(Continued)
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND ITS SUBSIDIARIES......39
4.1. Corporate Existence......................................39
4.2. Authorization; Enforcement...............................40
4.3. Consents and Approvals...................................40
4.4. No Conflicts.............................................41
4.5. Capital Structure........................................41
4.6. SEC Reports; Buyer Financial Statements..................42
4.7. Absence of Certain Changes or Events.....................43
4.8. Contracts................................................44
4.9. Litigation...............................................46
4.10. Liabilities and Reserves.................................47
4.11. Taxation.................................................47
4.12. Compliance with Laws, etc................................48
4.13. Insurance Business.......................................49
4.14. Reinsurance Agreements...................................49
4.15. Buyer Employee Benefit Plans.............................50
4.16. Directors, Officers and Employees........................50
4.17. Environmental Matters....................................51
4.18. Investment Advisory and Investment Company Matters.......52
4.19. Takeover Statutes........................................52
4.20. Derivatives..............................................52
4.21. Brokers and Finders, etc.................................52
4.22. Securities...............................................52
4.23. Certain Actions..........................................52
4.24. Full Disclosure..........................................53
ARTICLE V COVENANTS 53
5.1. Operations in the Ordinary Course........................53
5.2. Restrictions.............................................54
5.3. Related Matters..........................................57
5.4. Tax Matters..............................................58
5.5. Access to Information....................................59
5.6. No Solicitation..........................................60
5.7. Filings and Authorizations...............................60
5.8. Confidentiality..........................................61
5.9. Registration Statement; Proxy Statement..................61
5.10. Shareholders' Meeting....................................62
5.11. Disaster Recovery Plan...................................62
ARTICLE VI CONDITIONS PRECEDENT..............................................62
6.1. Conditions to Each Party's Obligations...................62
6.2. Conditions to Buyer's Obligations........................63
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Table of Contents
(Continued)
Page
6.3. Conditions to Seller's Obligations.......................64
ARTICLE VII FURTHER AGREEMENTS...............................................65
7.1. Non-Competition..........................................65
7.2. Public Announcements.....................................66
7.3. Expenses.................................................66
7.4. D & O Insurance..........................................67
7.5. Further Assurances.......................................68
7.6. Books and Records........................................68
7.7. Pensions.................................................68
7.8. Company Register of Members..............................71
ARTICLE VIII INDEMNIFICATION.................................................71
8.1. Survival of Representations, etc.........................71
8.2. Indemnification..........................................71
8.3. Indemnification Procedures...............................73
ARTICLE IX TAX MATTERS.......................................................75
9.1. Coordination of Tax Deed Covenant and the Agreement......75
ARTICLE X TERMINATION........................................................76
10.1. Termination..............................................76
10.2. Effect of Termination....................................77
ARTICLE XI MISCELLANEOUS.....................................................77
11.1. Consent to Jurisdiction and Service of Process...........77
11.2. Notices..................................................78
11.3. Entire Agreement; No Third Party Beneficiaries...........79
11.4. Waivers and Amendments; Non-Contractual Remedies.........80
11.5. Payments and Currency....................................80
11.6. Binding Effect; No Assignment............................80
11.7. Severability.............................................80
11.8. Interpretation...........................................81
11.9. Governing Law............................................81
11.10. Waiver of Jury Trial.....................................81
11.11. Counterparts.............................................81
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EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Stockholder Agreement
Exhibit C Form of Tax Deed of Covenant
Exhibit D Form of Powers of Attorney
Exhibit E Form of Letters of Resignation
Exhibit F Form of Charter Amendment
Exhibit G Certain Holdings and Company Employees
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SELLER'S DISCLOSURE SCHEDULES
Schedule 3.4 No Conflicts
Schedule 3.5(a) Capital Structure
Schedule 3.5(c) Subsidiaries
Schedule 3.7(b) Company Documents
Schedule 3.8(b) Financial Statements
Schedule 3.8(c) Changes in Investment Portfolio/Accounting Methods
Schedule 3.9 Annual Regulatory Returns
Schedule 3.10 Certain Changes or Events Since the Balance Sheet Date
Schedule 3.11 Contracts
Schedule 3.12 Litigation
Schedule 3.13(a) Liabilities and Reserves
Schedule 3.14 Tax Matters
Schedule 3.15(a)(i) Investments
Schedule 3.15(a)(ii) Transactions Affecting Company's Investment Portfolio
Schedule 3.15(b) Real Property
Schedule 3.16 Compliance with Laws
Schedule 3.17 Insurance
Schedule 3.18 Permits
Schedule 3.19 Reinsurance Agreements and Retrocession Agreements
Schedule 3.20(a)(1) Service Marks, Trademarks, Intellectual Property
Schedule 3.20(a)(2) Software Matters
Schedule 3.21 Pensions
Schedule 3.22 Employees
Schedule 3.23 Banks, Brokerage Accounts and Powers of Attorney
Schedule 5.2(a)(xvi) Operating Restrictions
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BUYER'S DISCLOSURE SCHEDULES
Schedule 4.3 Consents and Approvals
Schedule 4.4(b) No Conflicts with Contracts
Schedule 4.4(c) No Conflicts with Officers and Employees
Schedule 4.5 Capital Structure
Schedule 4.6(c) Material Changes in Investment Policies
Schedule 4.7 Absence of Certain Changes or Events
Schedule 4.8 Contracts
Schedule 4.9 Litigation
Schedule 4.11 Taxation
Schedule 4.12 Compliance with Laws
Schedule 4.13 Insurance Business
Schedule 4.14 Reinsurance Agreements and Retrocession Agreements
Schedule 4.15 Employee Benefit Plans
Schedule 4.19 Takeover Statutes
Schedule 5.1(b) Transactions not in the Ordinary Course
vi
DEFINITIONS
Term Section
- ---- -------
2000 Company Financials.........................................ss.3.14(a)
Affiliate.......................................................ss.1.1(d)
Agency Contracts................................................ss.3.11(a)(x)
Agreement.......................................................Preamble
Annual Regulatory Returns.......................................ss.3.9(a)
Approved........................................................ss.3.21(a)
Average Final Price.............................................ss.1.1(c)
Balance Sheet Date..............................................ss.3.8(a)
Business Day....................................................ss.2.1
Buyer...........................................................Preamble
Buyer Balance Sheet Date........................................ss.4.6(c)
Buyer Material Adverse Effect...................................ss.4.1(b)
Buyer Reports...................................................ss.4.6(a)
Buyer SAP Statements............................................ss.4.6(d)
Buyer Scheduled Contract........................................ss.4.8(a)
Buyer Shares....................................................ss.1.1(b)
Buyer Tax Benefit...............................................ss.8.2(b)(i)
Buyer Tax Burden................................................ss.8.2(b)(i)
Cash Consideration..............................................ss.1.1(b)
Charter Amendment...............................................ss.5.10
Closing.........................................................ss.2.1
Closing Date....................................................ss.2.1
Code............................................................Preamble
Companies Act...................................................ss.3.5(a)
Company.........................................................Preamble
Company Dividend................................................ss.3.3
Company Financials..............................................ss.3.8(a)
Company Material Adverse Effect.................................ss.3.1(b)
Company Shares..................................................Preamble
Consents........................................................ss.3.3
Contract........................................................ss.3.11(a)
Damages.........................................................ss.8.2(a)
Derivatives.....................................................ss.3.27
Disclosed Scheme................................................ss.3.21(a)
Dividend........................................................ss.3.3
Employee........................................................ss.3.21(a)
Employee Benefit Plans..........................................ss.3.10(d)
Environmental Law...............................................ss.3.24(a)(i)
Event...........................................................ss.3.14(b)
Exchange Act....................................................ss.1.1(d)
Facilities......................................................ss.3.23(e)
FSA.............................................................ss.3.3
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Governmental Authority..........................................ss.3.3
Group Relief....................................................ss.3.14(b)
Holdings........................................................Preamble
HSR Act.........................................................ss.3.3
Indemnified Parties.............................................ss.7.4(b)
Indemnified Person..............................................ss.8.3(a)
Indemnifying Person.............................................ss.8.3(a)
Insurance Companies Act.........................................ss.3.9(a)
Intellectual Property Right.....................................ss.3.20(a)
Investment Advisors Act.........................................ss.3.26
Investment Company Act..........................................ss.3.26
Investment Policies.............................................ss.3.8(c)
Investment Proposal.............................................ss.5.6
Investment Reserves Release Tax.................................ss.3.3
Investments.....................................................ss.3.15(a)
Lease...........................................................3.15(b)(xii)
Liens...........................................................ss.1.1(a)
Litigation......................................................ss.3.12(a)
Meeting.........................................................ss.4.3(a)(iv)
Permit..........................................................ss.3.18(a)
Person..........................................................ss.3.5(a)
Property........................................................3.15(b)(i)
Proxy Statement.................................................ss.4.3(a)
Registration Rights Agreement...................................ss.2.2(d)
Registration Statement..........................................ss.4.3(a)
Reinsurance Agreement...........................................ss.3.19(a)
Relief..........................................................ss.3.14(b)
Representatives.................................................ss.5.8
Retrocession Agreement..........................................ss.3.19(a)
Scheduled Contract..............................................ss.3.11(a)
Scheduled Investments...........................................ss.3.15(a)
SEC.............................................................ss.4.3(a)
Securities Act..................................................ss.3.29
Seller..........................................................Preamble
Seller Tax Benefit..............................................ss.8.2(d)(i)
Seller Tax Burden...............................................ss.8.2(d)(i)
Seller's Actual Stamp Duty......................................ss.2.4(b)
Seller's Estimated Stamp Duty...................................ss.2.4(b)
Share Consideration.............................................ss.1.1(b)
Shares..........................................................Preamble
Shortfall.......................................................ss.7.7(g)
State...........................................................ss.3.3
Stockholder Agreement...........................................ss.2.2(e)
Subsidiary......................................................ss.3.5(c)
Tax.............................................................ss.3.14(b)
viii
Tax Authority...................................................ss.3.14(b)
Tax Clearance...................................................ss.3.14(a)
Tax Deed Covenant...............................................ss.2.2(f)
Tax Return......................................................ss.3.14(b)
Taxes Act.......................................................ss.3.14(b)
Transaction Documents...........................................ss.2.5
UK Accounting Standards.........................................ss.3.8(b)
Unaudited Financials............................................ss.3.8(a)
US GAAP.........................................................ss.3.8(b)(ii)
VAT.............................................................ss.3.14(b)
VAT Legislation.................................................ss.3.14(b)
VAT Regulations.................................................ss.3.14(a)
World-Wide Reassurance Business.................................ss.7.1
ix
SHARE PURCHASE AGREEMENT, dated as of August 6, 2001 (this "Agreement"), by
and between SCOTTISH ANNUITY & LIFE HOLDINGS, LTD., a Cayman Islands company
("Buyer"), and PACIFIC LIFE INSURANCE COMPANY, a California corporation
("Seller").
W I T N E S S E T H:
WHEREAS, Seller owns legally and beneficially 5,000,000 ordinary shares,
with a nominal value of (pound)1.00 per share, of World-Wide Holdings Limited,
an English private company limited by shares ("Holdings"), constituting all of
the issued and allotted share capital of Holdings (the "Shares");
WHEREAS, Holdings owns legally and beneficially 10,000,000 ordinary shares,
with a nominal value of (pound)1.00 per share, of World-Wide Reassurance Company
Limited, an English private company limited by shares (the "Company"),
constituting all of the issued and allotted share capital of the Company (the
"Company Shares"); and
WHEREAS, Seller desires to sell the Shares to Buyer, and Buyer desires to
purchase the Shares from Seller, in a transaction that will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1. Purchase and Sale of Shares.
(a) On the terms and subject to the conditions set forth herein, Seller
agrees to sell as legal and beneficial owner, and Buyer agrees to purchase, the
Shares, free from all liens, pledges, mortgages, options, encumbrances, claims
or other third party rights (including rights of preemption), restrictions or
limitations, in each case of any nature whatsoever (collectively, "Liens"),
together with all rights which may become attached to the Shares at or after the
Closing.
(b) The consideration to be delivered to Seller in exchange for the
purchase of the Shares and for Seller's agreements set forth in Section 7.1
shall consist of (i) the issuance by Buyer to Seller of the number of ordinary
shares, par value US $.01 per share, of Buyer (the "Buyer Shares") determined as
set forth in Section 1.1(c) (the "Share Consideration"), free from all Liens,
together with all rights which may become attached to the Buyer Shares at or
after the Closing and (ii) the amount of cash determined as set forth in Section
1.1(d) (the "Cash Consideration").
1
(c) The number of Buyer Shares that Seller shall be entitled to receive
shall be determined by dividing (i) the sum of (A) Seventy-Eight Million United
States Dollars (US $78,000,000) plus (B) the amount equal to the product
obtained by multiplying (1) 0.59 by (2) the amount, if any, by which US
$13,000,000 exceeds the sum of (x) the Dividend and (y) the Investment Reserves
Release Tax by (ii) the Average Final Price; provided, however, that:
(i) if the Average Final Price is less than US $13.00, the Average
Final Price shall be deemed to be US $13.00; and
(ii) if the Average Final Price is greater than US $21.00, the Average
Final Price shall be deemed to be US $21.00.
As used herein, "Average Final Price" shall mean the average (rounded to the
nearest US $0.0001) of the closing trading prices of the Buyer Shares on the
NASDAQ National Market, as reported in The Wall Street Journal, Eastern Edition
(or such other sources as the parties shall agree in writing), for the 20
consecutive trading days ending on the fifth business day immediately preceding
the Closing Date. For purposes of determining the amount (if any) by which U.S.
$13,000,000 exceeds the sum of the Dividend and the Investment Reserves Release
Tax, the sum of the Dividend and the Investment Reserves Release Tax, as
expressed in British pounds sterling, shall be converted to US dollars at the
rate of US $1.4293 for each British pound sterling.
(d) Notwithstanding the foregoing, if, upon receipt of the Share
Consideration as determined pursuant to Section 1.1(c), Seller would own more
than 24.9% of all of the then issued and outstanding Buyer Shares (taking into
account the Share Consideration and any other Buyer Shares legally or
beneficially owned by Seller or any Affiliate of Seller) the Share Consideration
shall be reduced so that the total number of Buyer Shares owned by Seller and
all Affiliates of Seller upon consummation of the transactions contemplated by
this Agreement will not exceed 24.9% of the total of all issued and outstanding
Buyer Shares (taking into account the Share Consideration and any other Buyer
Shares legally or beneficially owned by Seller or any Affiliate of Seller),
immediately after the Closing. The difference, if any, between the value of the
Share Consideration pursuant to Section 1.1(c) and value of the Share
Consideration pursuant to this Section 1.1(d), such difference to be determined
by reference to the Average Final Price, shall be paid in cash as set forth in
Section 2.4 hereof. For purposes of this Section 1.1(d) only, the term "Seller"
includes any Affiliate or other Person from which ownership of any Buyer Shares
would be attributed to Seller for purposes of determining whether Buyer would be
treated as a controlled foreign corporation within the meaning of Section 951 et
seq. of the Code, and the term "Buyer Shares" includes options, warrants,
preferred shares or other indicia of rights of ownership to Buyer Shares issued
to or held by Seller and its affiliates, if any. As used in this Agreement, the
term "Affiliate" has the meaning ascribed to such term in Rule 12b-2 of the
United States Securities Exchange Act of 1934, as amended (the "Exchange Act").
2
ARTICLE II
CLOSING
2.1. Closing.
The Closing of the transactions contemplated herein shall take place at
10:00 a.m., local time, on the date that is five (5) Business Days after the
satisfaction of the conditions set forth in Article VI or waiver thereof (to the
extent permitted by the terms of this Agreement), at the offices of Gibson, Dunn
& Crutcher LLP, Jamboree Center, 4 Park Plaza, Irvine, California 92614-8557, or
at such other time and place as the parties may mutually agree in writing (the
"Closing"). For the purposes of this Agreement, "Business Day" means any day
that is not a Saturday, Sunday or other day on which commercial banks in New
York City or London, England, are required or authorized by law to be closed.
The actual date on which the Closing shall occur is referred to herein as the
"Closing Date."
2.2. Seller's Deliverables.
To effect the transactions referred to in Article I, Seller shall, at the
Closing, deliver or cause to be delivered to Buyer (or to any Person whom Buyer
may designate, except with respect to the share certificates to be delivered
pursuant to Section 2.2(a)):
(a) the share certificates in respect of all the Shares, together with
stock transfers duly executed by the registered holders in favor of Buyer;
(b) an officer's certificate of Seller, in a form reasonably satisfactory
to Buyer, certifying the fulfillment of the conditions specified in Section 6.1
and Section 6.2;
(c) audited Company Financials for the year ended September 30, 2001;
(d) a counterpart original of the Registration Rights Agreement,
substantially in the form of Exhibit A (the "Registration Rights Agreement"),
duly executed by Seller;
(e) a counterpart original of the Stockholder Agreement, substantially in
the form of Exhibit B (the "Stockholder Agreement"), duly executed by Seller;
(f) a counterpart original of the Tax Deed of Covenant, substantially in
the form of Exhibit C (the "Tax Deed Covenant"), duly executed by Seller;
(g) a certificate, dated the Closing Date, of the Secretary of Holdings
attaching true, complete and correct copies of the Memorandum and Articles of
Association of Holdings;
(h) a certificate, dated the Closing Date, of the Secretary of the Company
attaching true, complete and correct copies of the Memorandum and Articles of
Association of the Company;
3
(i) a certificate, dated the Closing Date, of the Secretary or Assistant
Secretary of Seller attaching true, complete and correct copies of the
Certificate of Incorporation and bylaws of Seller;
(j) the Memorandum and Articles of Association, certificates on change of
name (if applicable), the common seals (if any), all minute books, statutory
registers, share certificate books, books of account and other statutory books
(which shall be current up to, but not including, the Closing Date) of Holdings
and the Company;
(k) all such documents (including any powers of attorney under which any
document required to be delivered under this Section 2.2 has been executed and
any necessary waivers or consents of Seller, Holdings or the Company) as may be
reasonably required (if any) to enable Buyer to be the holder of the Shares (as
represented by the share certificates) and to permit Seller, Holdings and the
Company to consummate the transactions contemplated by this Agreement;
(l) irrevocable powers of attorney in the form set out in Exhibit D
executed by Seller to enable Buyer (during the period prior to registration of
the transfer of the Shares) to exercise all voting and other rights attaching to
the Shares;
(m) a letter of resignation in the form set out in Exhibit E, duly executed
by each of the directors of Holdings and the Company designated by Buyer;
(n) certified copies of resolutions (certified by a duly appointed officer
to be true, complete and correct) adopted by the Boards of Directors of:
(i) the Company:
(A) recording acceptance of the resignation of the directors, the
Secretary of the Company and the Company's auditors; and
(B) recording the appointment of such persons as the directors,
the Secretary and the auditors of the Company as Buyer shall nominate;
(ii) Holdings:
(A) recording the acceptance of the resignation of the directors,
the Secretary of Holdings and Holding's auditors;
(B) recording the appointment of such persons as the directors,
the Secretary and the auditors of Holdings as Buyer shall nominate;
(C) approving (subject only to proper stamping) the transfer of
the Shares referred to in Section 2.2(a); and
(D) approving (subject only to proper stamping) the placing on
the Register of Members of Holdings of the name of Buyer in accordance
with the stock transfer form referred to in Section 2.2(a);
4
(iii) Seller, authorizing the execution and delivery of, and the
performance by Seller of its obligations under, this Agreement and the
other Transaction Documents to which it is a party; and
(o) any such other documents reasonably requested by Buyer to consummate
the transactions contemplated hereby, including those documents referred to in
Section 6.2 hereof.
2.3. Buyer's Deliverables.
To effectuate the transactions referred to in Article I, Buyer shall
deliver or cause to be delivered to Seller (or to any Person whom Seller may
designate):
(a) a duly executed certificate of Buyer Shares issued in the name of
Seller evidencing ownership of Share Consideration computed pursuant to Section
1.1;
(b) the Cash Consideration, if any, computed pursuant to Section 1.1;
(c) an officer's certificate of Buyer, in a form reasonably satisfactory to
Seller, certifying the fulfillment of the conditions specified in Section 6.1
and Section 6.3;
(d) a counterpart original of the Registration Rights Agreement, duly
executed by Buyer;
(e) a counterpart original of the Stockholder Agreement, duly executed by
Buyer;
(f) a counterpart original of the Tax Deed Covenant, duly executed by
Buyer;
(g) certified copies of the resolutions (certified by a duly appointed
officer to be true, complete and correct) adopted by of the Board of Directors
of Buyer, authorizing (i) the execution and delivery of, and the performance by
Buyer of its obligations under, this Agreement, the Registration Rights
Agreement, the Stockholder Agreement and any other documents or agreements
contemplated thereby to which Buyer is a party and (ii) the issuance of the
Share Consideration;
(h) a certificate, dated the Closing Date, of the Secretary or an Assistant
Secretary of Buyer attaching true, complete and correct copies of the Memorandum
and Articles of Association of Buyer;
(i) all such documents (including any powers of attorney under which any
document required to be delivered under this Section 2.3 has been executed and
any necessary waivers or consents of Buyer) as may be reasonably required (if
any) to enable Seller to receive the Share Consideration and the Cash
Consideration, if any, and to permit Buyer to consummate the transactions
contemplated by this Agreement; and
(j) any such other documents reasonably requested by Seller to consummate
the transactions contemplated hereby, including those documents referred to in
Section 6.3.
5
2.4. Payment of Cash Consideration; Stamp Duty.
(a) Cash Consideration. At the Closing, Buyer will pay to Seller the Cash
Consideration, if any, by wire transfer of immediately available funds, to an
account designated by Seller no later than two (2) Business Days prior to the
Closing; provided, however, that the Buyer shall be entitled to deduct and
withhold from the Cash Consideration otherwise payable hereunder to Seller any
amounts it is required to deduct and withhold with respect to the transactions
contemplated hereunder under the Code, or any provision of U.S. state or local
tax law, or any foreign tax law. To the extent that any amount is withheld
hereunder, such amount shall be treated for purposes of this Agreement as having
been paid to Seller.
(b) Payment of Seller's Portion of Stamp Duty. Buyer and Seller agree to
bear equally the stamp duties payable upon the acquisition by Buyer of the
Shares. At the Closing, Seller shall pay to Buyer Seller's estimated portion of
the stamp duty, which shall be based on the value of the Share Consideration,
estimated for purposes of such payment based on the closing trading price of the
Buyer Shares on the NASDAQ National Market System, as reported in The Wall
Street Journal, Eastern Edition (or such other sources as the parties shall
agree in writing) on the trading day immediately preceding the Closing Date, and
the Cash Consideration ("Seller's Estimated Stamp Duty"), by wire transfer of
immediately available funds to an account designated by Buyer in writing at
least two (2) Business Days prior to the Closing. Seller shall calculate
Seller's actual portion of the stamp duty ("Seller's Actual Stamp Duty") within
three (3) Business Days after the Closing Date and shall give written notice
thereof to Buyer. Seller's Actual Stamp Duty shall be based on the value of the
Share Consideration, based upon the closing trading price of the Buyer Shares on
the NASDAQ National Market System, as reported in The Wall Street Journal,
Eastern Edition (or such other sources as the parties shall agree in writing) on
the Closing Date, and the Cash Consideration. Seller's Estimated Stamp Duty and
Seller's Actual Stamp Duty shall be payable in British pound sterling, the
amount of which will be determined by converting the US dollar value of Seller's
Estimated Stamp Duty or Seller's Actual Stamp Duty, as the case may be, into
British pound sterling at the US dollar/British pound sterling exchange rate
utilized by the United Kingdom Inland Revenue Stamp Office for the day prior to
the Closing Date, in the case of the Seller's Estimated Stamp Duty, and for the
Closing Date, in the case of Seller's Actual Stamp Duty. If Seller's Actual
Stamp Duty exceeds Seller's Estimated Stamp Duty, Seller shall pay the
difference to Buyer by wire transfer of immediately available funds to the
account previously designated by Buyer pursuant to this Section 2.4(b) within
five (5) Business Days of the Closing Date. If Seller's Estimated Stamp Duty
exceeds Seller's Actual Stamp Duty, Buyer shall pay the difference to Seller by
wire transfer of immediately available funds to the account previously
designated by Seller pursuant to Section 2.4(a) within five (5) Business Days of
the Closing Date
2.5. Satisfaction with Documents.
All Transaction Documents executed and delivered by Buyer shall be in form
and substance, and shall be executed in a manner, reasonably satisfactory to
Seller. All Transaction Documents executed and delivered by Seller, Holdings or
the Company shall be in form and substance, and shall be executed in a manner,
reasonably satisfactory to Buyer. As used in this Agreement, "Transaction
Documents" means this Agreement, the Tax Deed Covenant, the Registration Rights
Agreement and the Stockholder Agreement.
6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in Seller's Disclosure Schedule, Seller represents and
warrants to Buyer as follows:
3.1. Corporate Existence.
(a) Seller's Existence. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California, and has
the corporate power and authority and possesses all rights, licenses,
authorizations and approvals, governmental or otherwise, necessary to entitle it
to own the Shares.
(b) Holdings' Existence. Holdings is a private company limited by shares,
incorporated in England and registered in England with registered no. 02145545.
Holdings is treated under United Kingdom law as resident in the United Kingdom
for the purposes of corporation tax. Holdings has been in continuous existence
since its incorporation and has all corporate power and authority and possesses
all rights, licenses, authorizations and approvals, governmental or otherwise,
necessary to entitle it to own, lease or otherwise hold its properties and
assets and to carry on its business as currently conducted that are material to
its business in the United Kingdom or, with respect to other jurisdictions,
where the failure to possess such rights, licenses, authorizations and approvals
would not reasonably be expected to have, in any case or in the aggregate, a
material adverse effect on the business, results of operations, assets,
liabilities or financial condition of Holdings and the Company on a consolidated
basis (a "Company Material Adverse Effect"). Holdings is duly qualified,
licensed or admitted to do business and is in good standing in each jurisdiction
in which the ownership, use or leasing of its assets and properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary, except where the failure to be so qualified, licensed, or
admitted or in good standing would not reasonably be expected to have a Company
Material Adverse Effect. No order has been made or resolution passed for the
winding up of Holdings, nor has any liquidator, administrator or, to the
knowledge of Seller, receiver or administrative receiver been appointed in
respect of Holdings or any of its assets or business.
(c) Company's Existence. The Company is a private company limited by
shares, incorporated in England and registered in England with registered no.
00825110. The Company is treated under United Kingdom law as resident in the
United Kingdom for the purposes of corporation tax. The Company has been in
continuous existence since its incorporation and has all corporate power and
authority and possesses all rights, licenses, authorizations and approvals,
governmental or otherwise, necessary to entitle it to own, lease or otherwise
hold its properties and assets and to carry on its business as currently
conducted that are material to its business in the United Kingdom or, with
respect to other jurisdictions, where the failure to possess such rights,
licenses, authorizations and approvals would not reasonably be expected to have
a Company Material Adverse Effect. The Company is duly qualified, licensed or
admitted to do business and is in good standing in each jurisdiction in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary, except where the failure to be so qualified, licensed, or admitted or
7
in good standing would not reasonably be expected to have a Company Material
Adverse Effect. In addition, the Company is (i) duly licensed or authorized as
an insurance company or reinsurance company, as the case may be, in its
jurisdiction of incorporation, (ii) duly licensed or authorized as an insurance
company or reinsurance company, as the case may be, in each other jurisdiction
where it is required to be so licensed or authorized and (iii) duly authorized
in its jurisdiction of incorporation and each other applicable jurisdiction to
write each line of business reported as being written in the Company Financials,
except, with respect to clauses (ii) and (iii), where the failure to be so
licensed or authorized would not reasonably be expected to have a Company
Material Adverse Effect or which would interfere in any material way with the
ability of Seller, Holdings or the Company to consummate the transactions
contemplated by the Transaction Documents. The Company has made all required
material filings under applicable insurance company statutes in the United
Kingdom, and has made all required filings under applicable insurance company
statutes in all other jurisdictions in which it does business, except where the
failure to file would not reasonably be expected to have a Company Material
Adverse Effect. No order has been made or resolution passed for the winding up
of the Company, nor has any liquidator, administrator or, to the knowledge of
Seller, receiver or administrative receiver been appointed in respect of the
Company or any of its assets or business.
3.2. Authorization; Enforcement.
Each of Seller, Holdings and the Company has all necessary corporate power
and authority to execute and deliver the Transaction Documents to which it is a
party, and perform its obligations under such Transaction Documents in
accordance with their respective terms. Each of Seller, Holdings and the Company
has taken all necessary corporate action to duly and validly authorize the
execution and delivery of the Transaction Documents to which it is a party and
the consummation by such party of the transactions contemplated by such
Transaction Documents. This Agreement has been duly executed and delivered by
Seller and constitutes the valid and legally binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by general principles of equity. On or before the
Closing Date, each of the other Transaction Documents to which Seller is a party
will be duly executed and delivered by Seller, and when executed and delivered
by Seller will constitute a valid and legally binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by general principles of equity.
3.3. Consents and Approvals.
Except for (a) any filing required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(collectively, the "HSR Act"), (b) any filings of applications and notices, as
applicable, with the insurance regulatory authorities in the jurisdictions in
which the Company operates its insurance businesses and the approval of such
applications or the grant of required licenses by such authorities, (c) any
filings, approvals or other requirements under applicable securities laws or
applicable insurance company stock issuance laws, (d) any filings required to be
8
made with any state insurance regulatory authorities in the United States, (e)
any required filings of applications and notice with the Financial Services
Authority in the United Kingdom (the "FSA") in relation to (i) the change of
controller of the Company that will take place at the Closing, (ii) a dividend
(the "Dividend") declared by Holdings to be paid to Seller prior to the Closing
in an amount not to exceed the lesser of (1) US $13,000,000 and (2) the amount
legally available for payment of the Dividend, provided that, in any event, the
Dividend shall not exceed US $13,000,000 (converted to British pound sterling as
provided in the last sentence of Section 1.1(c)) less the amount, if any, of the
Taxes payable as a result of the release of investment reserves by the Company
in order to pay the Company Dividend (the "Investment Reserves Release Tax") and
(iii) a dividend (the "Company Dividend") declared by the Company to be paid to
Holdings prior to the Closing in such amount as to enable Holdings to pay the
Dividend, no consent, approval, permit or authorization of, license or order of,
or registration, declaration, filing with, or notice to, any United Kingdom or
any other foreign, United States Federal, "State" (which for purposes of this
Agreement shall mean any state of the United States, the District of Columbia,
the Commonwealth of Puerto Rico or any possession or territory of the United
States), supranational, national, municipal or local government, any court, any
instrumentality subdivision, administrative agency or commission, insurance or
securities regulatory authority or other governmental authority or
instrumentality or regulatory or self-regulatory body or securities or
commodities exchange (each, a "Governmental Authority") (such consents,
approvals, authorizations, licenses, orders, registrations, filings and notices,
together with any consents, approvals, actions or notices required to be
obtained from any Governmental Authority, collectively, the "Consents") is
required to be obtained, made or given by or with respect to Seller, Holdings or
the Company in connection with (1) the execution and delivery by Seller,
Holdings or the Company of any of the Transaction Documents to which Seller,
Holdings or the Company is a party or (2) the performance by Seller, Holdings or
the Company of its obligations under any of such Transaction Documents or the
consummation by the Seller, Holdings or the Company of the transactions
contemplated by such Transaction Documents, except for such Consents, the
failure of which to be made or obtained would not reasonably be expected to have
a Company Material Adverse Effect or which would not interfere in any material
way with the ability of Seller, Holdings or the Company to consummate the
transaction contemplated by the Transaction Documents.
3.4. No Conflicts.
Neither the execution nor the delivery by Seller, Holdings or the Company
of the Transaction Documents to which Seller, Holdings or the Company is a
party, the performance by Seller, Holdings or the Company of such Transaction
Documents, or the consummation by the Seller, Holdings or the Company of the
transactions contemplated by such Transaction Documents will:
(a) conflict with or result in a breach of any provision of the Certificate
of Incorporation, bylaws or Memorandum and Articles of Association of Seller,
Holdings or the Company, as applicable;
(b) result in any conflict with, breach or violation of, or default (or an
event that, with notice or lapse of time or both, would constitute a default)
under, require any consent or approval which has not been obtained with respect
to, give rise to any right of termination, cancellation or acceleration of any
obligations or loss of any benefit under, or result in the imposition of any
9
Liens on any of the properties or assets of Holdings or the Company or the
creation or enforcement of any Lien on any of the properties or assets of
Holdings or the Company under: (i) any note, bond, mortgage, indenture, deed of
trust, license, lease, contract, agreement or other instrument or obligation,
permit, concession, franchise or license to which Holdings or the Company is a
party or by which they or any of their properties or assets are bound; or (ii)
any order, decree, injunction, law, rule or regulation applicable to Holdings or
the Company or any of their properties or assets, which conflict, breach,
violation or default, or failure to obtain consent or approval, or right of
termination, cancellation or acceleration or loss of benefit or imposition of
any Lien would reasonably be expected to have a Company Material Adverse Effect
or which would interfere in any material way with the ability of Seller,
Holdings and the Company to consummate the transactions contemplated by the
Transaction Documents; or
(c) permit or allow any officer or senior employee of the Company to
terminate his or her employment (other than as may be provided for in this
Agreement).
3.5. Capital Structure; Subsidiaries.
(a) The authorized share capital of Holdings consists of 5,000,000 ordinary
shares, with a nominal value (pound)1.00 per share, of which 5,000,000 shares
are issued and outstanding and constitute the Shares. The authorized share
capital of the Company consists of 15,000,000 ordinary shares, with a nominal
value (pound)1.00 per share, of which 10,000,000 shares are issued and
outstanding. No other shares of any class in the capital of Holdings or the
Company are authorized, allotted or issued. All of the Shares and Company Shares
have been duly authorized and validly issued, are fully paid and are represented
by certificates and are not subject to any preemptive rights, other than as
provided in the UK Companies Act of 1985 (as amended) (the "Companies Act").
Seller is the legal and beneficial owner of all of the Shares, free and clear of
all Liens, and Holdings is the legal and beneficial owner of all of the Company
Shares, free and clear of all Liens. There are no warrants, options, Contracts,
convertible or exchangeable securities or other preferential rights,
arrangements or commitments pursuant to which either of Holdings or the Company
is or may become obligated to allot, issue, sell, purchase or redeem any shares
in its capital or other equity ownership interests or securities, other than as
contemplated by this Agreement. There are no standstill, voting or similar
agreements or Contracts or any rights of first offer or first refusal to which
Seller or Holdings is a party that currently or in the future will limit the
ability of any individual, corporation, partnership, firm, joint venture,
unincorporated organization, governmental or regulatory authority or other
entity (each, a "Person") to acquire, vote, sell, hold or otherwise deal with
the Shares or the Company Shares and any interest therein or right in respect
thereof. Upon consummation of the transactions contemplated by this Agreement,
Buyer will acquire from Seller record and beneficial ownership of the Shares,
free and clear of all Liens, together with all rights which may become attached
to the Shares at or after the Closing.
(b) Neither Holdings nor the Company has at any time:
(i) repaid, redeemed or purchased or agreed to repay, redeem or
purchase any securities or shares of any class of its share capital or
otherwise reduced or agreed to reduce its issued share capital or any class
thereof;
10
(ii) directly or indirectly provided any financial assistance (as
defined in Section 151 of the Companies Act, for the purpose of the
acquisition of its shares or the shares of its holding company or for the
purpose of reducing or discharging any liability incurred in any such
acquisition whether pursuant to Section 155 of the Companies Act or
otherwise; or
(iii) capitalized or agreed to capitalize in the form of shares,
debentures or any other securities or in paying up any amounts unpaid on
any shares, debentures or other securities any profits or reserves of any
class or description.
(c) The only Subsidiary of Holdings is the Company. The Company has no
Subsidiaries. As used in this Agreement, the term "Subsidiary" or, if plural,
"Subsidiaries" of a party shall mean any corporate or other entity (including
joint ventures, partnerships, limited liability companies and other business
associations) in which such party directly or indirectly owns outstanding
capital stock or other voting securities having the power to elect a majority of
the directors or similar members of the governing body of such corporation or
other entity, or otherwise direct the management and polices of such corporation
or other entity; provided, however, that in respect of Holdings and the Company
the term "Subsidiary" shall also have the meaning, to the extent not included in
the foregoing definition, attributed to the term "subsidiary undertaking" in
Section 258 of the Companies Act.
3.6. Transactions with Affiliates.
No director or officer of Holdings or the Company is a beneficial owner of
5% or more of the issued share capital of either of Holdings or the Company nor
does any member of any director's or officer's immediate family or any other of
its, his or her Subsidiaries own 50% or more of the outstanding equity
securities generally entitling the holder thereof to vote in the election of
directors of any Person which has any material contract, agreement,
understanding, business arrangement or relationship with Holdings or the
Company.
3.7. Company Documents.
(a) Seller has delivered to Buyer prior to the date of this Agreement:
(i) true, complete and correct copies of the Memorandum and Articles
of Association of Holdings and the Company, with all amendments thereof,
having attached thereto all of the resolutions required by virtue of the
Companies Act to be so attached; and
(ii) all of the forms, filings and information of Holdings and the
Company supplied to the Registrar of Companies under the Companies Act
since January 1, 1995, which are all of the forms, filings and information
required by the Companies Act to be so supplied since such date.
(b) Seller has made available for inspection by Buyer copies of the minutes
of all meetings and written resolutions in lieu of meetings of the Board of
Directors of Holdings since May 1995 and of the Company and of its shareholders
since November 12, 1998. The statutory books and other corporate records of
Holdings and the Company are duly entered up and have in all material respects
11
been properly and accurately maintained in accordance with all legal
requirements relating thereto and are in Seller's possession or under its
control. The books of account and other accounting records of Holdings and the
Company contain true, full and accurate records of all information required to
be recorded in them, have been maintained in all material respects in accordance
with all applicable laws and generally accepted accounting practices on a proper
and consistent basis and are in Seller's possession or under its control.
3.8. Financial Statements.
(a) Seller has delivered to Buyer the following financial statements (which
term, as used in this Agreement, includes all footnotes and schedules, if any,
thereto): (i) the consolidated audited balance sheet of Holdings as at September
30, 2000, September 30, 1999, and September 30, 1998, and the audited balance
sheet of the Company as at September 30, 2000 (the "Balance Sheet Date"),
September 30, 1999, and September 30, 1998, and the audited consolidated profit
and loss account of Holdings and the audited profit and loss account of the
Company for each of the three fiscal years ended September 30, 2000, September
30, 1999, and September 30, 1998, including the reports of the directors thereon
and the other documents required by law to be annexed thereto (collectively, the
"Company Financials"), which shall be deemed to include audited Company
Financials as at and for the year ended September 30, 2001, when such financial
statements are finalized prior to Closing Date, and (ii) the unaudited
consolidated balance sheet and unaudited consolidated statement of income of
Holdings for the three month periods ended December 31, 2000 and March 31, 2001
(collectively, the "Unaudited Financials"), which shall be deemed to include the
unaudited consolidated balance sheet and the unaudited consolidated statement of
income of Holdings as at and for the three month periods ended June 30, 2001 and
September 30, 2001, when such unaudited financial statements are finalized prior
to Closing Date.
(b) (i) The Company Financials are based on the books and records of
Holdings and the Company and have been prepared in accordance with the
applicable requirements of the Companies Act applying to insurance
companies, are in accordance with all relevant statements of standard
accounting practice and/or financial reporting standards issued or adopted
by the United Kingdom Accounting Standards Board ("UK Accounting
Standards") (including the Statement of Recommended Practice on Accounting
for Insurance Business issued by the Association of British Insurers in
December 1998) and give a true and fair view of (A) the state of affairs of
Holdings and Company at the Balance Sheet Date and (B) the profits and
losses for the period covered.
(ii) The Company Financials make full provision for, or take into
account as at the Balance Sheet Date: (A) all material assets; (B) all
material liabilities whether actual, contingent or disputed, to the extent
required by UK Accounting Standards to be provided for, disclosed or taken
into account; (C) all material capital commitments; and (D) all material
bad and doubtful debts. All of Holdings' and the Company's material assets
and all debts due to them which were included in the Company Financials or
which have otherwise been represented as being (at the Balance Sheet Date)
their property were at such time their absolute property and (save for
those assets or debts subsequently disposed of or realized in the ordinary
course of business) are now their absolute property and are not subject to
12
any Lien (other than Liens arising in the ordinary course of business) and
are not subject to any leasing, hire purchase, retention of title or
conditional sale provision. The Unaudited Financials are derived from the
books and records of Holdings and the Company and have been prepared in
order to accommodate the consolidated financial reporting requirements of
Seller and its Subsidiaries under accounting principles generally accepted
in the United States of America ("US GAAP"), provided that Seller makes no
representation or warranty that the Unaudited Financials have been or will
be prepared in accordance with US GAAP. Reserving practices in the
Unaudited Financials are consistent in all material respects with past
reserving practices for interim reporting periods, and stockholder's equity
in the Unaudited Financials is computed on a basis consistent in all
material respects with past practice for interim reporting periods.
Reserving practices in the Company Financials are consistent in all
material respects with past reserving practices for annual reporting
periods, and equity shareholders' funds in the Company Financials are
computed on a basis consistent in all material respects with past practice
for annual reporting periods.
(c) Except as otherwise indicated in the Company Financials, since the
Balance Sheet Date, there has not been any material change by Holdings or the
Company in their Investment Policies or financial, tax or accounting methods, or
principles or practices (including any material change with respect to the
establishment of reserves, or any material change in depreciation or
amortization policies or rates). As used in this Agreement, "Investment
Policies" means the overall investment policies used in the management of a
Person's investment portfolio, including a Person's policies with respect to
duration, liquidity, currency, asset allocation and asset quality.
3.9. Annual Regulatory Returns.
(a) Seller has delivered to Buyer true, complete and correct copies of the
returns of the Company for the years ended September 30, 2000, September 30,
1999, and September 30, 1998, together with all exhibits and schedules thereto
(the "Annual Regulatory Returns"), as furnished to the Department of Trade and
Industry, HM Treasury or the FSA, as the case may be, pursuant to the Insurance
Companies Act 1982 (the "Insurance Companies Act"). The information concerning
the Company's business contained in the Annual Regulatory Returns was, at the
time each such Annual Regulatory Return was filed, true, complete and correct in
all material respects.
(b) The Annual Regulatory Returns (and all exhibits and schedules thereto)
have been audited and prepared, and reported upon in all material respects in
accordance with accounting practices prescribed or permitted for insurance
companies carrying on long-term business in the United Kingdom, and such
accounting practices have been applied on a consistent basis throughout the
periods involved, except as expressly set forth or disclosed in the notes,
exhibits or schedules thereto or in the Company Financials.
(c) All information in the Annual Regulatory Returns was prepared in
compliance in all material respects with all requirements of the Insurance
Companies Act and the regulations having effect for purposes of that Act.
Without prejudice to the generality of the foregoing, all of the material assets
and liabilities of Holdings and the Company were reflected in the Annual
13
Regulatory Returns to the extent permitted by, and were valued in accordance
with, the Insurance Companies (Accounts and Statements) Regulations 1996
(SI1996/943) and the Insurance Companies Regulations 1994 (SI1994/1516). The
reserves of Holdings and the Company were adequate in the aggregate to cover the
total amount of all reasonably anticipated liabilities of Holdings and the
Company under all outstanding insurance, reinsurance and other applicable
agreements as of the respective dates of such Company Financials. The admitted
assets of each of Holdings and the Company as determined under applicable law
are in an amount at least equal to the minimum amounts required by applicable
law. Since the Balance Sheet Date, no event has occurred or circumstance has
arisen such that the method or basis of valuation of any of the Holdings' and
the Company's assets shown on the Annual Regulatory Return for the year ended
September 30, 2000, would be required to be materially changed from the method
or basis adopted for the purposes of such Annual Regulatory Return, or that the
reserves of Holdings and the Company would no longer be adequate to cover the
total amount of all reasonably anticipated liabilities of Holdings and the
Company under all outstanding insurance, reinsurance and other agreements as of
the Closing Date.
3.10. Absence of Certain Changes or Events.
Except as otherwise specifically contemplated by Sections 5.6 and 6.3(k),
since the Balance Sheet Date, Holdings and the Company have conducted their
business only in the ordinary course consistent with past practices and there
has not been:
(a) any damage, destruction or loss to any of the assets of Holdings or the
Company, whether covered by insurance or reinsurance or not, that has resulted
in or would reasonably be expected to result in a Company Material Adverse
Effect;
(b) any declaration or payment or making of any dividend or other
distribution (whether in cash, securities or other property or any combination
thereof) in respect of the capital of Holdings or the Company (other than the
Dividend and the Company Dividend), or any repurchase, redemption or other
acquisition by Holdings or the Company of any of its capital, or any proposal by
Holdings or the Company to effect any of the foregoing;
(c) any ordinary or special resolution passed by the members of either
Holdings or the Company;
(d) any entry into any Contract with, or the making of any assurance or
undertaking to, any past, present or future director, officer or employee of
Holdings or the Company providing for his/her employment, any material increase
in salary or other regularly paid remuneration other than salary increases
implemented in July 2001 or any material increase in severance or termination
benefits payable or to become payable by Holdings or the Company to any such
director, officer or employee, any general increase in salaries of all or a
substantial portion of the employees of Holdings or the Company or the exercise
of any power or discretion to materially augment or introduce benefits under any
pension scheme in respect of any present employee (and any past employee, if
Holdings or the Company, as the case may be, has any remaining obligations
thereunder) or the introduction of, or any material increase in benefits under,
any collective bargaining agreement or similar Contract or in benefits under any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
14
share ownership, share purchase, share option, profit sharing, phantom stock,
retirement, vacation, severance, disability, death benefit, medical/health,
insurance or other plan or arrangement or understanding providing benefits to
any present employee (and any past employee, if Holdings or the Company, as the
case may be, has any remaining obligations thereunder) (collectively, "Employee
Benefit Plans");
(e) any loan or advance to any employee, or any Contract therefor, other
than advances for travel and other expenses in the ordinary course of business
consistent with past practice;
(f) any entry into any Contract or transaction (including any borrowing,
capital expenditure, capital financing or reinsurance or retrocession agreement)
by Holdings or the Company material to the business, operations, assets,
liabilities or financial condition of Holdings or the Company, except Contracts
or transactions in the ordinary course of business consistent with past
practice;
(g) any division, consolidation or reclassification of the share capital of
Holdings or the Company or any issuance or authorization of any issuance of any
securities in respect of, in lieu of or in substitution for the shares of
Holdings or the Company's share capital;
(h) any acquisition or disposal or any agreement to acquire or dispose of
any material business or any asset or the assumption of any material liability,
except in each case at value and terms agreed on an arms-length basis;
(i) any instance where Holdings or the Company has not paid its creditors
in accordance with its normal practice if such nonpayment involves an amount in
excess of US $50,000;
(j) any repayment of a loan or debenture by Holdings or the Company by
reason of its default thereunder;
(k) any realization by Holdings or the Company of a debt for less than the
book value of such debt and no debt owing to them has been subordinated,
written-off or has proved to be irrecoverable if such debt involves an amount in
excess of US $50,000;
(l) any significant change in accounting methods, principles or practices
by Holdings or the Company materially affecting its assets, liabilities, or
business;
(m) any material change in the underwriting, pricing, actuarial or
Investment Policies of Holdings or the Company;
(n) any payments, distributions, management fees or other compensation made
to any Person (including Seller and its Affiliates) under or in connection with
any Contracts (other than employment Contracts) relating to the management or
operation of the insurance and reinsurance business of the Company other than in
the ordinary course of business; or
(o) any other change, event, condition (financial or otherwise) which has
had or that would reasonably be expected to result in a Company Material Adverse
15
Effect; provided, however, that the following shall be excluded from the
definition of Company Material Adverse Effect and from the determination of
whether such Company Material Adverse Effect has occurred for purposes of this
Section 3.10(o): the effects of conditions or events that (i) are generally
applicable to the insurance industry, (ii) result from general economic
conditions including changes in interest rates or stock market conditions in the
United States or the United Kingdom, or (iii) result from the announcement of
this Agreement and the transactions contemplated hereby.
3.11. Contracts.
(a) As used in this Agreement, "Contract" means any in-force contract,
agreement, instrument, commitment or other arrangement, written or unwritten,
including any deed, loan or credit agreement, note, bond, mortgage, indenture or
lease to which a Person is a party or by which any of its material assets or
properties is bound (other than Reinsurance Agreements or Retrocession
Agreements). Schedule 3.11 of Seller's Disclosure Schedule contains a true,
complete and correct list of the following Contracts (each, a "Scheduled
Contract") (true, complete and correct copies of which, or, if none exist,
written descriptions of which, have been made available to Buyer prior to the
date of this Agreement):
(i) Contracts relating to the borrowing of money, guarantees, security
agreements, factoring agreements and deferred purchase or hire purchase
Contracts, including obligations for reimbursement under letters of credit
or reimbursement agreements therefor (other than letters of credit or
reimbursement agreements therefor that are (A) fully secured or
collateralized and (B) related to Reinsurance Agreements and Retrocession
Agreements entered into by the Company in the ordinary course of business
consistent with past practice) in any case representing future liabilities
in excess of US $100,000;
(ii) Contracts which permit a financial institution or other Person to
block or otherwise restrict Holdings' or the Company's immediate access to
deposits or other monies held thereby in any case involving amounts in
excess of US $50,000;
(iii) Contracts with any Employee pursuant to which Holdings or the
Company owes any monetary obligation (other than those Contracts involving
annual payments in any case of less than US $100,000 or which are
cancelable by Holdings or the Company on not more than ninety (90) days'
notice without cause or penalty);
(iv) Contracts with insurance agents and agencies, managing general
agents with binding authority, brokers, third party administrators and
consultants (other than those Contracts which are cancelable by Holdings or
the Company on not more than thirty (30) days' notice without cause or
penalty or that involve payments by Holdings or the Company of less than US
$100,000 annually); provided, however, that with respect to such Contracts
with managing general agents, Schedule 3.11 of Seller's Disclosure Schedule
shall also set forth (A) a brief description of each managing general
agent, including its jurisdiction of domicile, its address of record and
(where reasonably available) information regarding the ultimate beneficial
ownership thereof, and (B) the aggregate amount of insurance or reinsurance
16
which such managing general agent has written and has been authorized to
write on behalf of Holdings or the Company since the Balance Sheet Date;
(v) Contracts containing any provision or covenant limiting the
ability of Holdings or the Company to engage in any line of business or
compete with any Person (other than Contracts with insurance agents and
agencies or managing general agents with binding authority entered into by
Holdings or the Company in the ordinary course of business consistent with
past practice);
(vi) Contracts between Holdings and its Affiliates or between the
Company and its Affiliates;
(vii) Contracts in which any Employee has any monetary or other
interest in any case in excess of US $50,000, other than employment
arrangements entered into in the ordinary course of business;
(viii) Contracts involving the sale, transfer, assignment or other
disposition of assets or liabilities of Holdings or the Company having a
value in any case in excess of US $100,000 pursuant to which Holdings or
the Company has given representations and/or indemnities which continue to
be in effect and pursuant to which liability would reasonably be expected
to arise;
(ix) investment management agreements, investment custody agreements
and similar Contracts;
(x) Contracts with each reinsurance broker (including each managing
general agent) or agency (the "Agency Contracts") that individually
produced US $250,000 or more of gross written premiums for the Company
during the year ended September 30, 2000, or are reasonably expected by the
Company individually to produce US $250,000 or more of gross written
premiums for the Company during the year ending September 30, 2001, which
are subject to termination upon the occurrence of a change of ownership or
control of the Company;
(xi) Contracts (other than the Scheduled Contracts referred to in
Section 3.11(a)(iv) and Agency Contracts) representing future liabilities
in any case in excess of US $250,000 individually that are subject to
termination upon the occurrence of a change of ownership or control of
Holdings or the Company; provided, however, that if the aggregate future
liabilities for all Contracts (other than the Scheduled Contracts referred
to in Section 3.11(a)(iv) and Agency Contracts) representing future
liabilities in any case of less than US $250,000 that are subject to
termination upon the occurrence of a change of ownership or control of
Holdings or the Company and not listed on Schedule 3.11 of Seller's
Disclosure Schedule exceeds US $1,000,000, those Contracts shall also be
included in Schedule 3.11 of Seller's Disclosure Schedule;
(xii) Contracts pursuant to which Holdings or the Company has agreed
to grant or has granted an option or similar right to another Person
affecting any material asset of Holdings or the Company (other than assets
held by Holdings or the Company in its investment portfolio);
17
(xiii) Contracts which provide for payments in the event of a change
of control;
(xiv) insurance Contracts entered into by the Company; and
(xv) all other Contracts material to the business, operations, assets,
liabilities or financial condition of Holdings or the Company in any case
representing future liabilities (to the extent reasonably ascertainable)
which require payments by or to Holdings or the Company in excess of US
$50,000 individually (other than those Contracts which are cancelable by
Holdings or the Company on not more than ninety (90) days' notice without
cause or penalty) and which are not listed on any other Schedule hereto.
(b) Each of the Scheduled Contracts is in full force and effect and is
binding upon and enforceable against Holdings or the Company, as the case may
be, in accordance with their respective terms, except as the enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect affecting creditors' rights generally or
by general principles of equity. Neither Holdings nor the Company is in material
breach or default, or has received written notice of a claimed material breach
or default under any of the Scheduled Contracts and, to the knowledge of Seller,
there does not exist under any of the Scheduled Contracts any event which, with
the giving of notice or lapse of time, would constitute a material breach or
default by Holdings or the Company. To the knowledge of Seller, no other party
to any of the Scheduled Contracts is in material breach or default thereunder,
and neither Holdings nor the Company has given written notice thereof.
3.12. Litigation.
(a) There is no claim, action, proceeding, arbitration, investigation,
inquiry, charge or complaint before or by any Governmental Authority or any
private arbitration tribunal (collectively, "Litigation") now pending or, to the
knowledge of Seller, threatened against or relating to (i) Holdings or the
Company, (ii) any director or officer of Holdings or the Company (in his/her
capacity as such), (iii) the assets, properties or business of Holdings or the
Company, or (iv) the transactions contemplated by the Transaction Documents or
which questions the validity or enforceability of any of the Transaction
Documents or any action taken or to be taken by Seller, Holdings or the Company
in connection with the Transaction Documents except, in the cases of clauses (i)
through (iii), where any such Litigation would not reasonably be expected to
result in a Company Material Adverse Effect.
(b) Neither Holdings, the Company nor any of their respective directors or
officers (in his/her capacity as such) is subject to any order, writ,
stipulation, permanent, preliminary or temporary injunction or prohibitive
order, judgment or decree or other decision of any Governmental Authority.
3.13. Liabilities and Reserves.
(a) The balance sheets included in the Unaudited Financials reflect
provision (on an undiscounted basis) for all material obligations and
liabilities of Holdings and the Company in order to accommodate the consolidated
financial reporting requirements of Seller and its Subsidiaries under US GAAP;
provided, however, that Seller makes no representation or warranty that such
balance sheets have been or will be prepared in accordance with US GAAP. Except
as set
18
forth on Schedule 3.13(a) of the Seller's Disclosure Schedule and to the extent
specifically disclosed, reflected or reserved against in the Company Financials
and the notes thereto, the Company does not have any material obligations or
liabilities of any nature (whether accrued, absolute, contingent or otherwise,
and whether or not due, or arising out of transactions entered into, or any
state of facts existing, prior to such date), other than liabilities incurred
since the Balance Sheet Date, in the ordinary course of business consistent with
past practice.
(b) The reserving and valuation bases adopted by Holdings and the Company
in preparing the Company Financials and the Annual Regulatory Returns apply
levels of prudence which are not less than those generally accepted for similar
companies carrying on long-term insurance business in the United Kingdom.
(c) No external study of the Company's reserves has been prepared during
the five (5) year period immediately preceding the date of this Agreement other
than in connection with the preparation of the Company Financials.
3.14. Taxation.
(a) (i) General/Compliance.
(A) All material liabilities, whether actual, deferred,
contingent or disputed, of the Company for Tax measured by
reference to income, profits or gains earned, accrued or received
(or premiums earned, accrued or received) on or before the
Balance Sheet Date, or arising in respect of an Event occurring
or deemed to occur on or before the Balance Sheet Date, are
provided for or (as appropriate) disclosed in the Company
Financials for the year ended September 30, 2000 (the "2000
Company Financials") in accordance with UK Accounting Standards
and the accounting policies set out in the 2000 Company
Financials. All other warranties relating to specific Tax matters
set out in this Section 3.14 are made without prejudice to the
generality of the foregoing.
(B) Since the Balance Sheet Date:
(1) Except with respect to the Company Dividend and the
Dividend, neither Holdings nor the Company has been involved
in any transaction that has given or may give rise to a
liability to Tax on Holdings or the Company (or would have
given or might give rise to such a liability but for the
availability of any Relief) other than Tax in respect of
transactions entered into by it in the ordinary course of
business;
(2) no accounting period (as defined in section 12 of
the Taxes Act) of Holdings or the Company has ended as
referred to in section 12(3) of the Taxes Act; and
(3) neither Holdings nor the Company has been a party
to, nor has Holdings or the Company or any of their
respective assets or properties been subject to, any tax
sharing agreement or arrangement with any Person effective
for any year subsequent to
19
the financial year ended September 30, 2000, and since the
Balance Sheet Date, neither Holdings nor the Company has
made, nor is either liable for, any payments or other
compensation for any such tax sharing agreement or
arrangement.
(C) The Company has duly, and within any appropriate time
limits, made all Tax Returns required to be supplied to all
relevant Tax Authorities. All such Tax Returns were and remain
true, complete and correct in all material respects and were made
on a proper basis and to the knowledge of Seller do not reveal
any transactions which may be the subject of any dispute with any
Tax Authority. The Company is neither involved in any current
dispute with any Tax Authority nor is it (nor has it in the last
seven (7) years been) the subject of any investigation, audit or
non-routine visit by any Tax Authority. The Company has not been
informed of any planned investigation, audit or non-routine visit
by any Tax Authority and, to the knowledge of Seller, there are
no facts which are likely to cause such an investigation, audit
or non-routine visit to be instituted in respect of the Company.
Within the past seven (7) years, neither the Company nor any
director or officer of the Company (in his/her capacity as such)
has paid or become liable to pay, and to the knowledge of Seller
there are no circumstances by reason of which it or they may
become liable to pay, to any Tax Authority, any penalty, fine,
surcharge or interest in respect of any Tax (including in respect
of any failure to make, give or supply any Tax Return to any
relevant Tax Authority, or any failure to pay Tax on the due date
for payment).
(D) No transaction in respect of which any ruling, consent
or clearance (each, a "Tax Clearance") was required or sought
from any Tax Authority has been entered into or carried out by
Holdings or the Company without a Tax Clearance having first been
properly obtained, and all information supplied to any Tax
Authority or other appropriate authority in connection with any
such Tax Clearance fully and accurately disclosed all facts and
circumstances material to the giving of the Tax Clearance. Any
transaction for which a Tax Clearance was obtained has been
carried out only in accordance with the terms of such Tax
Clearance and the application on which the Tax Clearance was
based and at a time when, to the knowledge of Seller, the Tax
Clearance was valid and effective. To the knowledge of Seller, no
facts or circumstances have arisen since any such Tax Clearance
was obtained which would cause the Tax Clearance to become
invalid or ineffective.
(E) No Tax Authority has operated or agreed to operate any
special arrangement (being an arrangement which departs from any
relevant legislation or any published practice or concession) in
relation to the Company's affairs.
(F) The Company has not made, nor is there in effect with
respect to the Company, an election pursuant to sections
953(c)(3)(C) or 953(d) of the Code. The Company has not been, and
has no reason to believe that it will be, characterized as a
"passive foreign investment corporation" (as defined in Section
1291 et seq. of the Code).
20
(G) Neither Holdings nor the Company is, nor will either
become, liable to pay, or make reimbursement or indemnity in
respect of, any Tax in consequence of the failure by any other
Person to discharge that Tax within any specified period or
otherwise, where such Tax relates to income, profits or gains,
earned, accrued or received (or premiums earned, accrued or
received), or to any Event or circumstance occurring or arising
or deemed to occur or arise (whether wholly or partly) prior to
the Closing. No Relief has been claimed by and/or given to
Holdings or the Company and/or taken into account in determining
or eliminating any provision for Tax or deferred Tax in the 2000
Company Financials, which is not validly available to Holdings or
the Company and no challenge has been made by, nor to the
knowledge of Seller are grounds for a challenge available to, a
Tax Authority in relation thereto.
(H) The Company has made all deductions and retentions of or
on account of Tax as it was or is obliged or entitled to make,
and all such payments of or on account of Tax as should have been
made to any Tax Authority in respect of such deductions or
retentions.
(ii) Employees/Pensions. All United Kingdom income tax and class
I national insurance contributions and other sums payable to the
Inland Revenue under the PAYE system and any amounts of a
corresponding nature payable to any foreign Tax Authority due and
payable by the Company up to the date hereof have been paid and the
Company has made all such deductions and retentions as should have
been made under section 203 of the Taxes Act and all regulations made
thereunder or under any comparable laws or regulations of any relevant
foreign jurisdiction, including United States Federal and State wage
withholding, Social Security and other similar systems. The Company
has not adopted and does not operate, and is not part of, any scheme
approved, or for which approval has been or is to be sought, under
section 202 of the Taxes Act (charities: payroll deduction scheme).
Since the Balance Sheet Date, no payment has been made to the Company
to which section 601 of the Taxes Act applies (pension scheme
surpluses: payments to employers).
(iii) Capital Gains and Other Realization Proceeds. Upon the
Closing or the execution and delivery of this Agreement or otherwise
as a result of any matter contemplated by this Agreement, the Company
will not incur any liability pursuant to section 179 of the Taxation
of Chargeable Gains Act 1992.
(iv) Group Relief.
(A) Seller has disclosed to Buyer in writing prior to
the date of this Agreement full, accurate and complete
details of all arrangements or agreements to which Holdings
or the Company is a party or which in any way affect
Holdings or the Company and which relate to Group Relief and
of any such arrangements or agreements under which any claim
could be made by any Person either for the surrender to it
by or by it to Holdings or the Company of Group Relief or
for the making or repayment of any payment in relation to
Group Relief. Seller also has disclosed full details of all
claims made (whether
21
agreed with the Inland Revenue or not) for the surrender by
or to Holdings or the Company of Group Relief and of any
such claims intended to be so made or which were taken into
account or assumed in preparing the 2000 Company Financials
and of the terms of any arrangements or agreements pursuant
to which such surrenders were or are to be or were assumed
to be made.
(B) The Company is not a dual resident investing
company within the meaning of section 404 of the Taxes Act.
The Company is not, and at no time within the seven (7)
years immediately preceding the date of this Agreement has
been, a close company as defined in section 414 of the Taxes
Act.
(v) Distributions, etc. Except as disclosed or provided for
in their respective accounts, neither Holdings nor the Company
has on or after April 6, 1965: (1) made any distribution or
deemed distribution within the meanings of section 209, 210 or
418 of the Taxes Act (distributions and deemed distributions)
except as provided for in its audited accounts; (2) repaid,
redeemed or purchased or agreed to repay, redeem or purchase any
of its share capital; or (3) capitalized or agreed to capitalize
in the form of shares or debentures any profits or reserves of
any class or description, or other issued or agreed to issue
share capital otherwise than for new consideration (as defined in
section 254 of the Taxes Act). Neither Holdings nor the Company
has been concerned in any exempt distribution within section 213
of the Taxes Act within the seven (7) years immediately preceding
the date of this Agreement (demergers: exempt distributions).
Neither Holdings nor the Company has issued any share capital
which is of a relevant class as defined in section 249(2) of the
Taxes Act. Neither Holdings nor the Company has issued any
security (as defined in section 254(1) of the Taxes Act)
outstanding on Closing in circumstances such that any interest or
other payment payable in respect of it may be treated as a
distribution under section 209 of the Taxes Act, and has not
agreed to issue any such security.
(vi) Controlled Foreign Companies. The Company has not
received any notice of the making of a direction under section
747 of the Taxes Act and no circumstances exist which would
entitle the Inland Revenue to make such a direction and to
apportion to the Company any profits of a controlled foreign
company pursuant to section 752 of the Taxes Act.
(vii) Company Residence, Treasury Consents and Migration.
The Company is and has at all times in the seven (7) years
immediately preceding the date of this Agreement been accepted by
the UK Inland Revenue as resident in the United Kingdom for Tax
purposes and is not and has not been treated for the purposes of
any double taxation arrangements having effect by virtue of
section 788 of the Taxes Act or for any other Tax purpose as
resident in any other jurisdiction (including the conduct of the
affairs of the Company so as to be engaged in a United States
trade or business through a permanent establishment within the
meaning of Article 5 of the United Kingdom/United States Double
Taxation Agreement of 31st December, 1975), nor is the Company
nor has it been directly subject to Tax in any other
jurisdiction, except for United States Federal excise taxes
imposed under section 4371 et seq. of the Code in the
circumstances described in Schedule 3.14 of Seller's Disclosure
Schedule. The Company has not carried out or caused or permitted
22
to be carried out any of the transactions specified at the
relevant time in section 765(1) of the Taxes Act other than with
the prior written consent of HM Treasury (and, in the case of a
special consent, full particulars of which have been disclosed to
Buyer in writing prior to the date hereof; and any conditions
subject to which such consent was given have been complied with
in full) or specified at the relevant time in section 765A of the
Taxes Act without having duly provided the required information
to the Inland Revenue.
(viii) Value Added Tax.
(A) Section 3.14(a) of Seller's Disclosure Schedule
shall apply, with appropriate modifications, to any
equivalent sales or turnover tax in any jurisdiction other
than the United Kingdom to which the Company is subject.
(B) The Company:
(1) is registered for the purposes of VAT, has been so
registered at all times that it has been required to be
registered by VAT Legislation, and such registration is not
subject to any conditions imposed by or agreed with HM
Customs & Excise; and has complied fully with and observed
in all material respects the terms of VAT Legislation;
(2) has maintained and obtained all the records,
invoices and other documents (as the case may be) required
by the VAT Legislation and has preserved such records,
invoices and other documents in such form and for such
periods as are required by VAT Legislation;
(3) has disclosed to Buyer in writing (i) full details
of any method approved or directed for use by the Company by
Customs & Excise under regulation 102 of the Value Added Tax
(General) Regulations 1995 (SI 1995/2518) (the "VAT
Regulations") and which continues in force and effect
whether by specific agreement with Customs and Excise or
otherwise and (ii) the average percentage input tax recovery
obtained by the Company in the last eight (8) prescribed
accounting periods ending before the date of this Agreement
(prescribed accounting period having the meaning ascribed to
that expression by regulation 25 of the VAT Regulations);
(4) is a member of a group for VAT purposes but is not
the representative member of that group;
(5) is not required to make payments on account of VAT
for which it may become liable in a prescribed accounting
period (pursuant to VAT regulations 44 to 48 of the VAT
Regulations); and
(6) is not and has not been subject under VAT
Legislation to any penalty liability notice, written warning
of failure to comply, surcharge liability notice or
23
requirement to give security as a condition of making
taxable supplies.
(C) In respect of each of the assets of the Company (if
any) which is a capital item for the purpose of Part XV of
the VAT Regulations, Seller has disclosed to Buyer in
writing, prior to the date of this Agreement, full details
of the capital item affected, the amount of the total input
tax (within the meaning of such Regulations) which is
subject to adjustment, the percentage of the total input tax
which was reclaimable on the capital item in the first
interval applicable to it and any adjustments made or to be
made having regard to Events that occurred up to the date of
this Agreement, the date of acquisition of the capital item
and the number of intervals in the adjustment period
remaining from the date of this Agreement, and full details
of all matters to date relevant in determining any
adjustments.
(ix) Stamp Duties. All documents in the possession or under
the control of the Company or to the production of which the
Company is entitled which establish or are necessary to establish
the title of the Company to any asset have been duly stamped and
any applicable stamp duties or interest and penalties relating to
stamp duty in respect of such documents have been duly accounted
for and paid, and no such documents which are outside the United
Kingdom would attract stamp duty or interest and penalties
relating to stamp duty if they were brought into the United
Kingdom.
(x) Miscellaneous
(A) As of the Closing Date, neither Holdings nor the
Company has been engaged in a U.S. trade or business as
defined in section 864(b) of the Internal Revenue Code of
1986, (as amended)(the "Code").
(B) Neither Holdings nor the Company is a public
company limited by shares.
(C) Neither Holdings nor any affiliate of Holdings has
taken any action that (or failed to take any action if such
failure) would reasonably be likely to cause Holdings to be
characterized as an association taxable as a corporation for
U.S. federal income tax purposes.
(D) The Company is a UK insurance company that is
eligible for exemption from the US federal excise tax
imposed by Code section 4371 on insurance and reinsurance
premiums paid to the Company under the terms of the
Convention Between the Government of the United States of
America and the Government of the United Kingdom of Great
Britain and Northern Ireland for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with respect
to Taxes on Income and Capital Gains effective April 25,
1980.
(E) There are no Tax sharing agreements or
arrangements between any of Seller or any of its Subsidiaries
(other than Holdings or the Company) on the one hand and
Holdings or the Company on the other hand.
24
(b) Definitions. The following terms shall have the following meanings for
purposes of this Agreement and Schedule 3.14 of Seller's Disclosure Schedule:
(i) "Event" means the winding up or dissolution of any Person, and any
act, transaction or omission whatsoever, and any reference to an event
occurring on or before a particular date shall include events which for Tax
purposes are deemed to have, or are treated or regarded as having, occurred
on or before that date.
(ii) "Group Relief" means: (A) Relief surrendered or claimed pursuant
to Chapter IV of Part X of the Taxes Act; (B) advance corporation tax
surrendered or claimed pursuant to section 240 of the Taxes Act; and (C)
any Tax refund surrendered or claimed pursuant to section 102 of the
Finance Act of 1989 of the United Kingdom.
(iii) "Relief" means, unless the context otherwise requires, any
allowance, credit, deduction, exemption or set-off in respect of any Tax or
relevant to the computation of any income, profits or gains for the
purposes of any Tax; and (A) any reference to the "use" or "set off" of
Relief shall be construed accordingly and shall include use or set off in
part; and (B) any reference to the "loss" of a Relief shall include the
absence or non-existence of any such Relief, or to such Relief being
available only in a reduced amount.
(iv) "Tax" or "Taxes" means corporation tax, advance corporation tax,
income tax (including income tax or amounts on account of income tax
required to be deducted or withheld from or accounted for in respect of any
payment), capital gains tax, inheritance tax, VAT, national insurance
contributions, stamp duty, stamp duty reserve tax, duties of customs and
excise, petroleum revenue tax, council tax and local authority rates and
charges, insurance premium tax (including insurance premium excise tax),
climate change levy, landfill tax, all taxes, duties or charges replaced by
or replacing any of them, and all other taxes (direct or indirect) or
similar impost on gross or net income, profits or gains, distributions,
receipts, sales, use, occupation, franchise, value added and personal
property, taxes on premiums (whether calculated on the gross or net amount
thereof), and all levies, imposts, duties, charges or withholdings of any
nature whatsoever chargeable by any Tax Authority, and any payment
whatsoever which the Company may be or become bound to make to any Person
as a result of the discharge by that Person of any Tax which the Company
has failed to discharge, together with all penalties, charges and interest
relating to any of the foregoing or to any late or incorrect return (or
failure to file such return or other form or statement) in respect of any
of them, and regardless of whether any such taxes, levies, duties, imposts,
charges, withholdings, penalties and interest are chargeable directly or
primarily against or attributable directly or primarily to the Company or
any other Person and of whether any amount in respect of any of them is
recoverable from any other Person.
(v) "Tax Authority" means any taxing or other authority (whether
within or outside the United Kingdom, including the United States or any
State) competent to impose any Tax liability.
25
(vi) "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
(vii) "Taxes Act" means the Income and Corporation Taxes Act
1988.
(viii) "VAT" means value added tax.
(ix) "VAT Legislation" shall include the Value Added Tax Act
1994, and all other enactments in relation to VAT and all notices,
provisions and conditions made or issued thereunder, including the
terms of any agreement reached with HM Customs & Excise or any
concession disclosed to Buyer in writing prior to the date of this
Agreement.
(x) Any reference to income, profits or gains "earned,"
"accrued" or "received" on or before a particular date or in respect of
a particular period shall include income, profits or gains which for
Tax purposes are deemed to have been or are treated or regarded as
earned, accrued or received on or before that date or in respect of
that period.
(xi) Any reference to something occurring (including a Tax
liability arising) "in the ordinary course of business" shall, without
prejudice to the generality thereof, be deemed not to include:
(A) anything which results in the Company receiving a valid
Tax claim in respect of any liability to Tax of, or properly
attributable to, another Person (other than the Company);
(B) the acquisition or disposal of an asset or the supply of
services (including the lending of money, or the hiring or
licensing of tangible or intangible property) in a transaction
which is not entered into on arm's length terms;
(C) the creation, cancellation or reorganization of share or
loan capital, the creation, cancellation of any intra-group debt
or any company becoming or ceasing or being treated as ceasing to
be a member of a group of companies or as becoming or ceasing to
be associated or connected with any other company for any Tax
purposes; or
(D) anything which relates to a transaction or arrangement
which includes, or a series of transactions or arrangements which
includes, any step or steps having no commercial or business
purpose apart from the reduction, avoidance or deferral of a Tax
Liability.
(xii) Persons shall be treated as "connected" for the purposes
of this Section 3.14 if they are Connected within the meaning of
section 839 of the Taxes Act.
(xiii) References to any provision of an enactment include any
provision re-enacted by such provision.
26
3.15. Assets.
(a) (i) Schedule 3.15(a)(i) of Seller's Disclosure Schedule sets forth
a true, complete and correct list of all securities, mortgages and other
investments (collectively, the "Investments") owned by Holdings and the
Company on May 31, 2001, together with the date of purchase, cost basis and
book value thereof as of May 31, 2001. Except as set forth on Schedule
3.15(a)(1), Holdings and the Company have good and marketable title to all
the investments listed on Schedule 3.15(a)(1) or acquired in the ordinary
course of business since May 31, 2001 (collectively, the "Scheduled
Investments"). As of May 31, 2001, none of the Scheduled Investments is in
default in the payment of principal or interest and, except as disclosed on
Schedule 3.15(a)(1), the ratings assigned to each of the Scheduled
Investments that are rated by a rating agency have not been lowered or
downgraded since May 31, 2001. There are no Liens on any of the Scheduled
Investments, except as set forth on Schedule 3.15(a)(1).
(ii) Schedule 3.15(a)(ii) of Seller's Disclosure Schedule sets forth a
true, complete and correct list of all sales, purchases, exchanges or other
transactions in or affecting Holdings' or the Company's investment
portfolio from the Balance Sheet Date to May 31, 2001.
(b) (i) The premises disclosed by Seller in Schedule 3.15(b) of
Seller's Disclosure Schedule, (the "Property") comprise all the land and
premises owned, occupied or used by Holdings and the Company and all
details set out therein relating to the Property are correct and complete.
(ii) There are no properties (other than the Property) in respect of
which Holdings or the Company has any right or liability (whether
contingent, secondary or interest in anyotherwise) arising out of a
conveyance, transfer, lease, tenancy, licence, agreement or other document
relating to land or buildings or premises or an interest in land or
premises.
(iii) References in this Section 3.15(b) to legislation are to English
legislative expressions having particular meaning or effects under English
law and such expressions are deemed to have that meaning or effect for the
purposes of such Section.
(iv) Holdings is solely entitled, legally and beneficially, to the
estate of the Property specified in Schedule 3.15(b), and has good title to
it registered at HM Land Registry.
(v) The title documents necessary to prove Holdings' title to the
Property are in Holdings' possession and control, and are originals or,
where appropriate, properly examined abstracts.
(vi) Neither the Property nor any of its title deeds are subject to an
encumbrance, agreement, obligation, condition, right, easement, exception,
reservation, overriding interest (as defined in section 70(1) of the Land
Registration Act 1925) or other interest, subject to entries on the
registered title to the Property.
27
(vii) There is no person in possession of, or who has or claims a
right or interest in, the Property adversely to Holdings' interest.
Holdings is entitled to and has exclusive vacant possession of the
Property, and no person occupies, or has any right to occupy, the Property.
(viii) Holdings has not received notice complaining of non performance
or breach of any permission, consent, licence, permit, obligation,
condition, restriction, agreement (including, without limitation, the terms
of any lease or licence) or legal or administrative requirement affecting
the Property, its ownership, occupation or existing use.
(ix) Holdings has not received notice of any current, pending or
threatened civil, criminal, arbitration, administrative or other proceeding
or dispute concerning the Property.
(x) Holdings is not aware of any application for planning permission
relating to the Property awaiting determination and is not aware of any
planning decision or deemed refusal currently being the subject of any
appeal.
(xi) The Property is not subject to outgoings other than the uniform
business rate, water and sewerage rates and, in the case of a property held
under a lease, tenancy or licence, rent, service charge and insurance
premiums.
(xii) The rent under the Lease is not at the date of this Agreement
being reviewed or subject to pending review. For the purposes of this
Section 3.15(b), the term "Lease" shall mean the lease dated 28 March, 1977
between the Dean and Canons of Her Majesty's Free Chapel of St George
within Her Majesty's Castle at Windsor (1) and Telex Computer Products
Limited (2) relating to Old Bank House, Thames Road, Windsor, Berkshire,
England, or any renewal, extension, modification thereto, or any successor
lease thereof.
(xiii) Sections 24 to 28 of the Landlord and Tenant Act 1954 have not
been excluded in relation to the Lease.
3.16 Compliance with Laws, etc.
(a) Each of Holdings and the Company is in compliance with all applicable
United Kingdom, United States Federal, State, local or foreign judgments,
orders, injunctions, laws, statutes, regulations and ordinances and all
licenses, approvals and permits issued by any Governmental Authority, applicable
to it or any of its properties, assets, operations or business, except where the
failure of the Company to be so in compliance would not have a Company Material
Adverse Effect. Without prejudice to the generality of the foregoing, (A) the
Company and its directors and officers (in their capacities as such) have
complied in all material respects with all their respective obligations under
the Insurance Companies Act and there are no matters arising from such
compliance which are the subject of any dispute with the FSA, and (B) the
Company has not requested or been subject to any order made pursuant to section
67 or 68 of the Insurance Companies Act, nor has it been made subject to any
28
Notice of Requirements pursuant to, or any order made under sections 11, 12A and
13 or any other section of, the Insurance Companies Act.
(b) Since September 27, 1996, each of Holdings and the Company has filed or
otherwise provided all material reports, data, statements, documents,
applications, registrations, filings or submissions required to be filed with or
otherwise provided to any Governmental Authority with jurisdiction over the
Company or its business or operations. All such filings complied with applicable
laws and regulations in all material respects. The Company has not received
written notice of any material deficiencies asserted by any Governmental
Authority with respect to any such filings which have not been cured or
otherwise resolved to the satisfaction of such Governmental Authority and,
except as otherwise disclosed on Schedule 3.16 of Seller's Disclosure Schedule,
since September 27, 1996, there have been no material disputes or controversies
with, or investigations undertaken by, any such Governmental Authority with
respect to the Company or its business or operations.
3.17. Insurance for Company's Operations.
(a) Schedule 3.17 of Seller's Disclosure Schedule contains a true, complete
and correct list of all liability, property and casualty, employee liability,
directors and officers liability, surety bonds, key man life insurance and other
similar insurance Contracts of Holdings and of the Company that insure the
business, properties, operations or affairs of each of Holdings and of the
Company or affect or relate to the ownership, use or operations of Holdings' or
the Company's assets or properties and the amount of coverage under each such
insurance Contract of the Company. Holdings and the Company have insured against
all risks normally insured against by companies carrying on similar businesses
or owning property of a similar nature and Holdings and the Company have at all
times maintained adequate insurance for this purpose. All premiums due on all
such insurance Contracts of the Company have been paid, no notice of termination
of any such insurance Contract of the Company has been received and all such
insurance Contracts of the Company are in full force and effect.
3.18. Insurance Business.
(a) The Company possesses all material licenses, certificates of authority,
excess and surplus lines eligibilities, permits, orders, approvals or other
authorizations (each, a "Permit") required to transact or accept insurance or
reinsurance in or from the United Kingdom, and possesses all Permits required to
transact or accept insurance or reinsurance in or from all other jurisdictions
in or from which the Company now transacts or accepts insurance or reinsurance,
except where the failure to so possess would not reasonably be expected to have
a Company Material Adverse Effect, and such Permits are not subject to any
limitations, conditions or restrictions imposed by the relevant Governmental
Authority that would reasonably be expected to result in a Company Material
Adverse Effect. All such Permits are in full force and effect. Neither Holdings
nor the Company has received any notice of any event, inquiry, investigation or
proceeding that would reasonably be expected to result in the suspension,
revocation, non-renewal or limitation of any such Permit or the imposition of
any restrictions or requirements with respect thereto and, to the knowledge of
Seller, there is no sustainable basis that would reasonably be expected to
result in any such suspension, revocation, non-renewal or limitation or the
imposition of any restrictions or requirements with respect thereto.
29
3.19. Reinsurance Agreements.
(a) As used in this Agreement, "Reinsurance Agreement" means any contracts,
and associated trust agreements, by which a Person has assumed reinsurance from
any ceding insurer, and the term "Retrocession Agreement" means any contracts,
and associated trust agreements, by which any Person has ceded insurance or
reinsurance assumed by it to another reinsurer. Schedule 3.19 of Seller's
Disclosure Schedule contains, to the knowledge of Seller, a true, complete and
correct list of all Reinsurance Agreements or Retrocession Agreements currently
in-force and to which the Company is a party, and all such agreements that are
no longer in-force, but pursuant to which the Company has any material
liability.
(b) Each in-force Reinsurance Agreement or Retrocession Agreement to which
the Company is a party is in full force and effect, and is binding upon and
enforceable against the Company in accordance with their respective terms,
except as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally or by general principles of equity.
The Company is not in material breach or default under any of the in-force
Reinsurance Agreements or Retrocession Agreements and has not received written
notice of any such material breach or claimed material breach or default, and,
to the knowledge of Seller, there does not exist under any of the Reinsurance
Agreements or Retrocession Agreements any event which, with the giving of notice
or lapse of time, would constitute a material breach or default by the Company.
Except as listed on Schedule 3.19, to the knowledge of Seller, no other party to
an in-force Reinsurance Agreement or Retrocession Agreement is in material
breach or default thereunder. There are no material disputes with any party with
respect to the terms of any Reinsurance Agreement or Retrocession Agreement with
respect to the terms thereto, or balances due thereunder.
3.20. Service Marks, Trademarks, Intellectual Property, etc.
(a) Schedule 3.20(a)(1) and 3.20(a)(2) of Seller's Disclosure Schedule set
forth true, complete and correct lists (including the current status of any
registrations) of all material foreign and domestic patents, trademarks, service
marks, trade names, corporate and assumed names, design rights, copyrights
(excluding rights in computer software other than those items of computer
software set forth in Schedule 3.20(a)(2)), copyright registrations and
applications therefor, rights in know-how and other intangible and intellectual
property rights of any kind that are material to the business or operation of
Holdings or the Company, in each case whether registered or unregistered and
including applications for the grant of any of the foregoing and all rights or
forms of protection having equivalent or similar effect to any of the foregoing
which may subsist anywhere in the world (each, an "Intellectual Property
Right"), in each case stating whether such Intellectual Property Right is owned
legally and/or beneficially licensed to or registered in the name of Holdings or
the Company or used in its business. Holdings and the Company have the corporate
power, license, approvals, authorizations and right to use the "World-Wide
Reassurance" name. At the Closing, Holdings and/or, the Company will have vested
in it all of Holdings' and the Company's right and title to use the phrase
"World-Wide Reassurance" in respect of the business of Holdings and/or the
Company to the extent that Holdings and the Company have such rights as of the
date of this Agreement. No registrations have been sought or obtained with
respect to the phrase "World-Wide Reassurance" in any countries in the world.
30
Either Holdings or the Company is the sole legal and beneficial owner, or has a
valid and effective license or otherwise has the right to use, all of the
Intellectual Property Rights and either Holdings or the Company has the right to
use, free and clear of any royalty or other payment obligations, claims of
infringement or Liens, all Intellectual Property Rights that are material to the
conduct of its business. With respect to the software set forth on Schedule
3.20(a)(2) of Seller's Disclosure Schedule, and except as otherwise set forth on
such Schedule, the Company is the sole owner, or has a valid and effective
license or otherwise has the right to use (free and clear of any royalty or
other payment obligations, claims of infringement or Liens), all of such
software. The Company has made all material payments and performed all of its
other material obligations and covenants in connection therewith.
(b) The Company has not been charged and has not received any written claim
or charge, and, to the knowledge of Seller, there is no basis for any such claim
or charge, with respect to the infringement (whether in the past or as an
ongoing matter) of any unexpired patent, trademark, trade name, service mark or
design, copyright, copyright registration or other proprietary right of any
Person (including Seller and its Affiliates) and, to the knowledge of Seller,
the Company has not made unlicensed use of confidential information. To the
knowledge of Seller, no act has been done or omitted to be done, and no event
has occurred or is reasonably likely to occur, which may render any of the
Intellectual Property Rights subject to revocation, compulsory license,
cancellation or amendment or may prevent the grant or registration of a valid
intellectual property right pursuant to a pending application. No Person other
than the Company uses any of the service marks listed on Schedule 3.20(a)(1) of
Seller's Disclosure Schedule and no Person has disputed the right of the Company
to use without restriction any such service marks. No Intellectual Property
Rights owned or used by the Company and no use by or license for use granted to
the Company with respect to Intellectual Property Rights will be lost, or
rendered liable to any right of termination by any Persons, by reason of the
transactions contemplated by this Agreement.
(c) All the records and systems (including computer systems) and all data
and information of the Company are recorded, stored, maintained or operated or
otherwise held by the Company (or by Seller or its Affiliates for the benefit of
the Company), free from any Lien and all data and information of Holdings or the
Company recorded, stored, maintained or processed by them is recorded, stored,
maintained or processed in accordance with all United Kingdom legal requirements
relating thereto including the Data Protection Act, 1998.
3.21. Pensions.
(a) Definitions. The following terms shall have the following meanings for
the purposes of this Agreement:
(i) "Approved" means approved by the Inland Revenue for the purposes
of Chapter I of Part XIV of the Income and Corporation Taxes Act 1988 and a
reference to "Approval" is to be construed accordingly.
(ii) "Disclosed Scheme" means the World-Wide Holdings Limited
Retirement Benefits Scheme established pursuant to a trust deed dated 7
December 1978, and, where the context so permits, the individual pension
plan policies issued by Equitable Life Assurance Society in favor of C.Z.
31
Znowski, J.H. Greenhalgh and D.E. Brown under the respective policy numbers
IPP0002046, IPP0002040 and IPP0013714.
(iii) "Employee" means a director or employee or former employee or
former director of Holdings or the Company.
(b) Information.
All particulars of the Disclosed Scheme required to permit Buyer to
form a true and fair view of the benefits provided or to be provided
(including contingent benefits) to the Employees have been disclosed
to Buyer, including true and complete copies of:
(i) the current trust deed and rules governing the Disclosed Scheme
and any deeds of alteration;
(ii) the current explanatory booklet issued to members of the
Disclosed Scheme;
(iii) all announcements to members of the Disclosed Scheme other than
announcements which have been fully incorporated into the documents
referred to in paragraphs (a) and (b);
(iv) membership data of the members of the Disclosed Scheme;
(v) the reports on the last two actuarial valuations of the Disclosed
Scheme together with any subsequent draft valuations or actuarial updates;
and
(vi) the last two trustees reports and accounts of the Disclosed
Scheme.
(c) General Pension Warranties.
Except for the Disclosed Scheme there is not in operation, and no
proposal has been announced to enter into or establish, any agreement,
arrangement, custom or practice (whether legally enforceable or not
and whether Approved or not and whether funded or otherwise) for the
payment of, or payment of a contribution towards, a pension,
allowance, lump sum or other similar benefit on retirement, death,
termination of employment (whether voluntary or not) or during periods
of sickness or disablement, for the benefit of an Employee or an
Employee's dependants.
(d) Specific Pension Warranties.
(i) No discretion or power has been exercised (or practice followed)
under the Disclosed Scheme in relation to any of the Employees to:
(A) augment benefits (whether in relation to early retirement or
otherwise);
32
(B) admit to membership a person who would not otherwise have
been eligible for admission to membership;
(C) admit to membership a person on terms which provided for or
envisaged the payment of a transfer value or a transfer of assets from
another scheme to the Disclosed Scheme in a case in which the payment
or transfer has not been made or has not been made in full;
(D) provide a benefit which would not otherwise be provided; or
(E) pay a contribution which would not otherwise have been paid.
(ii) Each benefit (except a refund of contributions) payable under the
Disclosed Scheme on the death of a member of the Disclosed Scheme or during
periods of sickness or disability of the member is, at the date of this
Agreement, fully insured under a policy effected with an insurance company
of good repute. Each member has been covered for that insurance by that
insurance company at its usual rates and on its usual terms for person in
good health and all insurance premiums payable have been paid.
(iii) No plan, proposal or intention to amend, discontinue (in whole
or in part) or exercise a discretion in relation to the Disclosed Scheme
has been communicated to a member of the Disclosed Scheme.
(iv) Each Employee who has been admitted to or promised admission to
membership of the Disclosed Scheme has been admitted or promised admission
on terms which are consistent with the continue treatment of the Disclosed
Scheme as Approved and (if applicable) the provisions of Part II of
Schedule 6 to the Finance Act 1989. The substance of the terms of admission
or promised admission have been communicated to the Employee.
(v) To the knowledge of Seller, there has been no breach of the trusts
of the Disclosed Scheme.
(vi) To the knowledge of Seller, there is no civil, criminal,
arbitration, administrative or other proceeding or dispute (which includes,
without limitation, contact with OPAS or the Pensions Ombudsman) in
relation to any Employee concerning the Disclosed Scheme by or against the
trustees or administrator of the Disclosed Scheme, Seller, the Company or
Holdings and none is pending or threatened. Seller is also not aware of a
matter in relation to any Employee which might give rise to a proceeding or
dispute of that type.
(vii) All employer and member contributions due to the Disclosed
Scheme have been paid to the trustees of the Disclosed Scheme in accordance
with the Schedule of Contributions (as required by, and defined in, section
58 of the Pensions Act 1995).
(viii) To the knowledge of Seller, all fees, charges and expenses of
whatever nature (including, without limitation, all levies to be paid under
the Pensions Act 1995) with respect to the Disclosed Scheme have been paid
33
and no services have been rendered for which an account or invoice has not
been delivered.
(ix) To the knowledge of Seller, no claim has been made or threatened
against Seller or the trustees or administrators of the Disclosed Scheme,
or against any person whom the Seller is or may be liable to indemnify or
compensate, in connection with the Disclosed Scheme (other than routine
claims for benefits), there are no circumstances which may give rise to any
such claim and Seller has not given any indemnity to any person in
connection with the Disclosed Scheme.
(e) Compliance.
(i) The Disclosed Scheme is Approved and, to the knowledge of Seller,
there is no matter which might give the Inland Revenue reason to withdraw
Approval.
(ii) The Disclosed Scheme is a contracted-out scheme for the purposes
of the Pension Schemes Act 1993 and, to the knowledge of Seller, has been
administered in accordance with the contracting-out requirements of that
Act. There is a current contracting-out certificate issued in relation to
the Disclosed Scheme.
(iii) The Disclosed Scheme has been designed to comply with, and has
been administered in accordance with all applicable legal and
administrative requirements (including, without limitation, Article 141 of
the Treaty of Rome as it applies to the eligibility of an Employee to join
the Disclosed Scheme) and the trusts, powers and provisions of the
Disclosed Scheme.
(f) The Pensions Act 1995. The Disclosed Scheme complies in all material
respects with the provisions of the Pensions Act 1995.
(g) Sex-Equality.
(i) To the knowledge of Seller, the Disclosed Scheme has been operated
at all times in accordance with the documents constituting the same (as
lawfully amended from time to time) and all applicable laws and, without
limitation to the foregoing, all decisions made by the trustees and
administrators of the Disclosed Scheme have been made in accordance with
their powers and duties as the trustees or administrators respectively.
(ii) No part-time Employee or former Employee has either:
(A) been excluded from membership of the Disclosed Scheme; or
(B) been provided with benefits under the Disclosed Scheme which
are different from those provided for, or in respect of, full-time
Employees or former Employees or do not comply with the requirements
of Article 141 of the Treaty of Rome.
34
(iii) The Disclosed Scheme has not accepted any transfer value from a
pension arrangement (the "Paying Scheme") in respect of an Employee or
former Employee where the Paying Scheme in relation to such transfer value
did not comply with the requirements of Article 141 of the Treaty of Rome
(which, for the avoidance of doubt, includes obligations in respect of
part-timers).
3.22. Directors, Officers and Employees.
(a) Schedule 3.22 of Seller's Disclosure Schedule contains a true, complete
and correct list of all employees who are employed by Holdings or the Company or
who, as of the Closing, will be employed by Holdings or the Company, including,
with respect to each such employee, details of their annual salary or
compensation, any bonuses or incentive awards or other benefits paid or to which
they were entitled in 2000 and 2001, their date of birth, the date their
continuous employment with Holdings or the Company (as the case may be)
commenced and their job title.
(b) None of the employees has served notice of termination of his/her
employment with Holdings or the Company. There is not in existence any contract
of employment with any employee or any contract for services with any individual
which, if terminated or purported to be terminated by three (3) months' notice
or less, would give rise to a claim for damages or compensation or any right to
claim for a statutory redundancy payment or statutory compensation for unfair
dismissal.
(c) Both Holdings and the Company have in relation to each employee and
each of their former employees complied in all material respects with all
material obligations imposed on them by all contracts, statutes, orders,
regulations, collective agreements, awards and codes of conduct and practice
relevant to conditions of service and to the relations between them and the
employees and former employees and have in all material respects maintained
adequate and suitable records regarding the service of the employees and former
employees.
(d) Neither the Company nor Holdings has entered into any recognition
agreement with any trades union and neither has done any act which could be
construed as an act of recognition and neither Holdings nor the Company is
involved in and there are no present circumstances that are likely to give rise
to any industrial or trade dispute or any dispute or negotiation regarding a
claim of material importance with any trades union or any body of employees.
(e) Within the last two years no material liability (actual or contingent)
has been incurred by Holdings or the Company in respect of any breach of an
employment contract or a contract for services, and neither Holdings nor the
Company has incurred any material liability (actual or, to the knowledge of
Seller, contingent) to make any redundancy payment to pay compensation for
wrongful dismissal or has failed to comply with any order for the reinstatement
or re-engagement of any employee or incurred any other material liability as a
result of terminating a contract of employment or a contract for services.
35
3.23. Banks, Brokerage Accounts and Powers of Attorney.
(a) Schedule 3.23 of Seller's Disclosure Schedule contains a true, complete
and correct list of: (i) the name of each bank, trust company, securities or
other broker or other financial institution with which the Company has an
account, credit line or safe deposit box or vault, or otherwise maintains
business relations; (ii) the name of each Person authorized by the Company to
draw thereon or to have access to any safe deposit box or vault; and (iii) the
names of all Persons authorized by powers of attorney, proxies or other
instruments to act on behalf of the Company (other than those Persons who are
managing general agents and set forth on Schedule 3.11 of Seller's Disclosure
Schedule).
(b) The total amount borrowed by either Holdings or the Company does not
exceed any limitation on their borrowing powers contained in their Articles of
Association or in any deed, debenture or other document binding on them.
(c) Other than in the ordinary course of business, neither Holdings nor the
Company has loaned any money which has not been repaid and neither Holdings nor
the Company owns the benefit of any debts other than those debts which have
arisen in the ordinary course of business and neither Holdings nor the Company
has made any loan or quasi loan contrary to any legislation.
(d) Neither Holdings nor the Company has outstanding any loan capital nor
have they agreed to create or issue any loan capital, nor have they factored any
debts or engaged in financing of a type which would not be required to be shown
or reflected in their Company Financials or borrowed any money which they have
not repaid, except for borrowings not exceeding the amounts shown in the Company
Financials.
(e) In relation to all debentures, overdrafts, loans or other financial
facilities outstanding or available to Holdings or the Company ("Facilities"),
neither Holdings nor the Company is in contravention of, or non-compliance with,
any provision of the Facilities; and none of the Facilities may according to
their terms be terminated or mature prior to their stated maturity as a result
of the acquisition of the Shares by Buyer and the Facilities are adequate to
allow Holdings and the Company to continue trading after Closing on the same
basis as prior to the Closing.
3.24. Environmental Matters.
(a) There are not any past or present conditions or circumstances that
would reasonably be expected to interfere with or prevent the conduct of the
business of Holdings or the Company in compliance with: (i) any order of any
court or arbitration board or tribunal, or any law, ordinance, governmental rule
or regulation related to human health or the environment ("Environmental Law");
or (ii) the terms or conditions of any permits, approvals, licenses or consents
required to be issued by any Governmental Authority pursuant to any applicable
Environmental Law.
(b) There are not any past or present conditions or circumstances at,
arising out of, or related to, any current or former business, assets or
properties of Holdings or the Company, including but not limited to on-site or
off-site storage, treatment, disposal or the release or threatened release of
36
any chemical substance, product or waste, which would, individually or in the
aggregate, reasonably be expected to give rise to: (i) liabilities or
obligations for any cleanup, remediation, disposal or corrective action or any
long-term monitoring requirements under any Environmental Law, or (ii) claims
arising for personal injury, property damage, or damage to natural resources, in
each case that would reasonably be expected to have a Company Material Adverse
Effect;
(c) Neither Holdings nor the Company has (i) received any written notice of
noncompliance with, violation of, or liability or potential liability under any
Environmental Law or (ii) entered into any consent decree, settlement or order
or is subject to any order of any court or Governmental Authority or tribunal
under any Environmental Law or relating to the cleanup of any hazardous or toxic
materials, wastes, substances or any pollutants or contamination.
(d) There are no persons or entities whose liability, for any environmental
matters or under any applicable Environmental Law, Holdings or the Company has
retained or assumed contractually or has retained or assumed by operation of
law.
(e) Neither Holdings nor the Company has handled or directed the management
of or participated in any decisions with respect to or exercised any influence
or control over the use, generation, storage, treatment or disposal of any
hazardous or toxic materials, wastes or substances at or related to any of their
business, assets or properties.
(f) Holdings and the Company have made available to Buyer copies of all
environmental inspections, audits, studies, plans, records, data analyses or
reports conducted or prepared by or on behalf of Holdings or the Company within
the last two years and which are in their possession or control.
3.25. Registration Statement; Proxy Statement.
None of the information supplied or to be supplied by Seller for inclusion
in the Registration Statement or Proxy Statement will cause the Registration
Statement, at the time declared effective by the SEC, or the Proxy Statement,
when first mailed to the shareholders of Buyer and at the time of the Meeting,
to contain any untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.26. Investment Advisory and Investment Company Matters.
Neither Holdings nor the Company conducts activities of or is otherwise
deemed under law to control an "investment adviser," as such term is defined in
Section 2(a) (20) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), whether or nor registered under the Investment
Advisers Act of 1940, as amended (the "Investment Advisers Act"), or any person
required to be registered as an investment company under the Investment Company
Act. Neither Holdings nor the Company is an "investment company" as defined in
the Investment Company Act, and neither Holdings nor the Company is a promoter
(as such term is defined in Section 2(a)(30) of the Investment Company Act) of
any Person that is such an investment company.
37
3.27. Derivatives.
As of March 31, 2001, neither Holdings nor the Company was subject to any
material net exposure, individually or in the aggregate, under any futures,
option contracts, swaps, hedges or similar instruments ("Derivatives") to which
it is a party. All such Derivatives are accounted for in accordance with UK
Accounting Standards and reflect an economic hedge whereby neither Holdings nor
the Company has any risk, other than counterparty risk, to price movements in
the underlying investments.
3.28. Brokers and Finders, etc.
None of Seller, Holdings, nor the Company, nor any of their respective
officers, directors or employees, nor any of their Affiliates, has employed any
broker, agent or finder, or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated by
this Agreement.
3.29. Securities.
Seller is acquiring the shares of capital stock of Buyer comprising the
Share Consideration solely for its own account and not with a view to any
distribution of the Share Consideration or any part thereof, or interest
therein, except in accordance with the United States Securities Act of 1933, as
amended (the "Securities Act").
3.30. Money Laundering.
To the knowledge of Seller, neither Holdings nor the Company has been
involved in money laundering in any jurisdiction in which they have carried on
business. To the knowledge of Seller, Holdings and the Company comply (and have
complied at all times) in all material respects with the procedures concerning
the prevention of money laundering as contained in the Criminal Justice Act,
1988, the Prevention of Terrorism (Temporary Provisions) Act, 1989, the Drug
Trafficking Offences Act, 1986, the Money Laundering Regulations, 1993 and the
Criminal Justice Act 1993 or all other equivalent applicable legislation in
force in all other jurisdictions in which Holdings and the Company carry on
business.
3.31. Full Disclosure.
No representation or warranty of Seller herein contains an untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements made not misleading.
38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND ITS SUBSIDIARIES
Except as set forth in the Buyer's Disclosure Schedule, Buyer represents
and warrants as follows:
4.1. Corporate Existence.
Each of Buyer and its Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and possesses all rights, licenses, authorizations and approvals,
governmental or otherwise, necessary to entitle it to use its name, to own,
lease or otherwise hold its properties and assets and to carry on its business
as currently conducted, except where the failure to possess such rights,
licenses, authorizations and approvals would not reasonably be expected to have,
in any case or in the aggregate, a material adverse effect on the business,
results of operations, assets, liabilities or financial condition of Buyer and
its Subsidiaries on a consolidated basis (a "Buyer Material Adverse Effect").
Each of Buyer and its Subsidiaries has the corporate power and authority and is
duly qualified, licensed or admitted, to do business and is in good standing in
each jurisdiction in which such ownership, use or leasing of its assets and
properties, or the conduct of its business, makes such qualification necessary,
except where the failure to be so qualified licensed or admitted or in good
standing would not reasonably be expected to have a Buyer Material Adverse
Effect.
4.2. Authorization; Enforcement.
Buyer has all necessary corporate power and authority to execute and
deliver the Transaction Documents to which it is a party, and, assuming
shareholder approval of the Charter Amendment, to perform its obligations under
the Transaction Documents to which it is a party in accordance with the terms of
such Transaction Documents. Buyer has taken all necessary corporate action to
duly and validly authorize its execution and delivery of this Agreement and the
consummation by it of the transactions contemplated thereby, except that
shareholder approval of the Charter Amendment is required. As of the Closing and
assuming shareholder approval of the Charter Amendment, Buyer will have taken
all necessary corporate action to duly and validly authorize its execution and
delivery of the Transaction Documents (other than this Agreement) to which it is
a party and the consummation by it of the transactions contemplated by such
Transaction Documents. This Agreement has been duly executed and delivered by
Buyer and, upon due authorization, execution and delivery by Seller, constitutes
a valid and legally binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as the enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally or by general
principles of equity. On or before the Closing Date, each of the other
Transaction Documents to which Buyer is a party will be duly executed and
delivered by Buyer and when executed and delivered by Buyer will constitute a
valid and legally binding obligation of Buyer enforceable against Buyer in
accordance with its terms, except as the enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally or by general
principles of equity.
39
4.3. Consents and Approvals.
Except for (i) any filing required under the HSR Act and the expiration or
early termination of any applicable waiting period thereunder, (ii) any filings
of applications and notices, as applicable, with the insurance regulatory
authorities in the jurisdictions in which any insurance company Subsidiaries of
Buyer operate their respective businesses and the approval of such applications
or the grant of required licenses by such authorities, (iii) any filings,
approvals or other requirements under applicable securities laws or applicable
insurance company stock issuance laws, (iv) the filing with the Securities and
Exchange Commission (the "SEC") of a registration statement on Form S-4 (as
amended or supplemented, the "Registration Statement") relating to the issuance
of the Share Consideration to Seller, and the proxy statement (as amended and/or
supplemented from time to time, the "Proxy Statement") relating to the meeting
of its shareholders to be held for purposes of obtaining shareholder approval of
the Charter Amendment, the transactions contemplated by this Agreement and the
adoption of a 2001 stock option plan (the "Meeting"), (v) any filings of
applications and notices with the FSA in relation to the change of controller of
the Company that will take effect on Closing, (vi) the filing of an amendment to
the Company's Articles of Association with the appropriate authority in the
Cayman Islands, and (vii) any other approvals set forth on Schedule 4.3 of the
Buyer's Disclosure Schedule, no Consent is required to be obtained, made or
given by or with respect to Buyer in connection with the execution and delivery
by Buyer of any of the Transaction Documents to which Buyer is a party, the
performance by Buyer of its obligations under any of such Transaction Documents
or the consummation of the transactions contemplated by the Transaction
Documents, except for such Consents, the failure of which to be made or obtained
would not reasonably be expected to have a Buyer Material Adverse Effect or
which would not interfere in any material way with the ability of Buyer or its
Subsidiaries to consummate the transactions contemplated by the Transaction
Documents.
4.4. No Conflicts.
Neither the execution nor the delivery by Buyer of the Transaction
Documents to which Buyer is a party, the performance by Buyer of such
Transaction Documents, the consummation of the transactions contemplated by such
Transaction Documents, will:
(a) conflict with or result in a breach of any provision of the Memorandum
and Articles of Association of Buyer; provided, however, that the Charter
Amendment must become effective to permit the issuance of the Share
Consideration to Seller;
(b) result in any conflict with, breach or violation of, or default (or an
event that, with notice or lapse of time or both, would constitute a default)
under, require any consent or approval which has not been obtained with respect
to, give rise to any right of termination, cancellation or acceleration of any
obligations or loss of any benefit under, or result in the imposition of any
Liens on any of the properties or assets of Buyer or any of its Subsidiaries
under the terms, conditions or provisions of: (i) any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, agreement, permit,
concession, franchise or license or other instrument or obligation to which
Buyer or any Subsidiary is a party or by which it or any of its properties or
assets is bound or (ii) any order, decree, injunction, law, rule or regulation
applicable to Buyer or its Subsidiaries or any of its properties or assets,
which conflict, breach, violation or default under, or failure to obtain consent
40
or approval, or right of termination, cancellation or acceleration, or loss of
benefit or imposition of any Lien, would reasonably be expected to have a Buyer
Material Adverse Effect or which would interfere in any material way with the
ability of Buyer or its Subsidiaries to consummate the transactions contemplated
by such Transaction Documents; or
(c) permit or allow any officer of Buyer or any of its Subsidiaries listed
on Schedule 4.4(c) of Buyer's Disclosure Schedule to terminate his or her
employment or result in the acceleration of vesting of any benefits of any such
officer under any employee benefit plan, share option plan or profit related pay
plan of Buyer.
4.5. Capital Structure.
The authorized share capital of Buyer consists of 100,000,000 ordinary
shares, par value US $.01 per share, of which as of June 30, 2001, 15,712,576
shares are issued and outstanding, and 50,000,000 preferred shares, par value US
$.01 per share, of which as of June 30, 2001, no shares are issued and
outstanding. No other shares of any class in the capital of Buyer are
authorized, allotted or issued. All of the issued and outstanding shares of
Buyer have been duly authorized and validly issued, are fully paid and
nonassessable, represented by certificates and are not subject to any preemptive
rights. Buyer owns of record and beneficially all of the shares of its
Subsidiaries, free and clear of all Liens. There are no warrants, options,
Contracts, convertible or exchangeable securities or other preferential rights,
arrangements or commitments pursuant to which Buyer or any of its Subsidiaries
are or may become obligated to allot, issue, sell, purchase or redeem any shares
in its capital or other equity ownership interests or securities, other than as
contemplated by this Agreement. There are no standstill, voting or similar
agreements or Contracts or any rights of first offer or first refusal to which
Buyer or any of its Subsidiaries are a party that currently or in the future
will limit the ability of any Person to acquire, vote, sell, hold or otherwise
deal with the ordinary shares of Buyer or capital stock of its Subsidiaries and
any interest therein or right in respect thereof. Upon consummation of the
transactions contemplated by this Agreement, Seller will acquire from Buyer
beneficial ownership of the shares of Buyer comprising the Share Consideration,
free and clear of all Liens, together with all rights which may become attached
to such shares at or after the Closing.
4.6. SEC Reports; Buyer Financial Statements.
(a) Since December 1, 1998, Buyer has filed all reports, registration
statements, proxy statements or information statements and all other documents,
together with any amendments required to be made thereto, required to be filed
with the SEC under the Securities Act or the Exchange Act (collectively, the
"Buyer Reports"). Buyer has heretofore made available to Seller true copies of
all the Buyer Reports, together with all exhibits thereto, that the Seller has
requested. Included in such Buyer Reports are (i) audited consolidated balance
sheets of Buyer and its Subsidiaries at December 31, 1998, 1999 and 2000 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended, and the notes thereto and (ii) the unaudited balance
sheets of Buyer and its Subsidiaries at June 30, 2001, and the related unaudited
statements of income, stockholders' equity and cash flows for the periods then
ended and the notes thereto, each consolidated to the extent indicated therein.
41
(b) All of the financial statements included in the Buyer Reports since
December 31, 2000, presented fairly in all material respects the consolidated
financial position of Buyer and its Subsidiaries as at the dates mentioned and
the consolidated results of operations, changes in stockholders' equity and cash
flows for the periods then ended in conformity with US GAAP applied on a
consistent basis (subject, in the case of unaudited statements, to normal,
recurring audit adjustments as may be permitted by Form 10-Q of the SEC). As of
their respective dates, the Buyer Reports complied in all material respects with
all applicable rules and regulations promulgated by the SEC and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent reflected on the balance sheet included in the
Buyer's Annual Report on Form 10-K for the year ended December 31, 2000, or
quarterly reports on Form 10-Q for the quarters ended March 31, 2001, and June
30, 2001, neither Buyer nor any Buyer Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
of the type required to be reflected in financial statements prepared in
accordance with US GAAP, except for liabilities or obligations which,
individually or in the aggregate, have not had, or would not reasonably be
expected to have, a Buyer Material Adverse Effect.
(c) Except as otherwise indicated in the Buyer Reports, since December 31,
2000 (the "Buyer Balance Sheet Date"), there has not been any material change by
Buyer or its Subsidiaries in their Investment Policies or financial, tax or
accounting methods, principles or practices (including any material change with
respect to the establishment of reserves for unearned premium and reserves for
losses (including incurred but not reported losses), and loss adjustment
expenses, or any material change in depreciation or amortization policies or
rates), except for those changes promulgated by the Financial Accounting
Standards Board, the SEC, the National Association of Insurance Commissioners,
the Internal Revenue Service or any other regulatory body since December 31,
2000, that are applicable to companies engaged in business substantially similar
to that of Buyer.
(d) Each of the Subsidiaries of Buyer has filed all annual and quarterly
statements, together with all exhibits, interrogatories, notes, schedules and
any actuarial opinions, affirmations or certifications or other supporting
documents in connection therewith, required to be filed with or submitted to the
appropriate Governmental Authorities of the jurisdictions in which it is
domiciled and commercially domiciled or as may be required by any applicable
Governmental Authority regulating insurance or reinsurance on forms prescribed
or permitted by such authority (collectively, the "Buyer SAP Statements"). Buyer
has delivered or made available to Seller all of the Buyer SAP Statements for
each Subsidiary of Buyer for the periods beginning December 1, 1998, or, with
respect to Subsidiaries not in existence at such date, then on the date of
formation of such Subsidiary, each in the form (including exhibits, annexes and
any amendments thereto) filed with the applicable Governmental Authority.
Financial statements included in the Buyer SAP Statements and prepared on a
statutory basis, including the notes thereto, were prepared in conformity with
statutory accounting practices prescribed or permitted by the applicable
Governmental Authority consistently applied for the periods covered thereby and
present fairly the statutory financial position of such Subsidiaries of Buyer as
at the respective dates thereof and the results of operations of such
Subsidiaries of Buyer for the respective periods then ended. The Buyer SAP
Statements complied in all material respects with all applicable laws, rules and
regulations when filed, and no material deficiency has been asserted with
42
respect to any Buyer SAP Statements by a Governmental Authority. The statutory
balance sheets and income statements included in the Buyer SAP Statements
required to be audited have been audited, and Buyer has delivered or made
available to Seller true and complete copies of all audit opinions related
thereto for periods beginning December 1, 1998, or, with respect to Subsidiaries
not in existence at such date, then on the date of such Subsidiary's formation.
Buyer has delivered or made available to Seller true and complete copies of all
examination reports of insurance departments and any insurance regulatory
agencies received by Buyer relating to the Subsidiaries of Buyer.
Notwithstanding the foregoing, the representations in first, third, fourth and
fifth sentences of this Section 4.6, to the extent they relate to Subsidiaries
that were acquired by Buyer, are made to the knowledge of Buyer for periods
prior to Buyer's acquisition thereof.
4.7. Absence of Certain Changes or Events.
Except as disclosed in the Buyer Reports, since the Buyer Balance Sheet
Date, there has not been:
(a) any declaration or payment or making of any dividend or other
distribution (whether in cash, securities or other property or any combination
thereof) in respect of the capital of Buyer or its Subsidiaries, other than the
regular quarterly cash dividends paid by Buyer, or any repurchase, redemption or
other acquisition by Buyer or any of its Subsidiaries of any of its capital, or
any proposal by Buyer or any of its Subsidiaries to effect any of the foregoing;
(b) any ordinary or special resolution passed by the members of Buyer
except at the statutory 2001 annual meeting and at the 2001 annual meeting of
shareholders;
(c) any division, consolidation or reclassification of the share capital of
Buyer or any of its Subsidiaries or any issuance or authorization of any
issuance of any securities in respect of, in lieu of or in substitution for the
shares of the share capital of Buyer or any of its Subsidiaries;
(d) any acquisition or disposal or any agreement to acquire or dispose of
any material business or any asset or the assumption of any material liability,
except in each case at value and terms agreed on an arms-length basis;
(e) any significant change in accounting methods, principles or practices
by Buyer or any of its Subsidiaries materially affecting its assets,
liabilities, or business;
(f) any material change in the underwriting, pricing, actuarial or
Investment Policies dated February 7, 2001; or
(g) any other change, event, condition (financial or otherwise) which has
had or that would reasonably be expected to result in a Buyer Material Adverse
Effect, provided, however, that the following shall be excluded from the
definition of Buyer Material Adverse Effect and from the determination of
whether such Buyer Material Adverse Effect has occurred for purposes of this
Section 4.7(g): the effects of conditions or events that (i) are generally
applicable to the insurance industry, (ii) result from general economic
conditions including changes in interest rates or stock market conditions in the
United States, or (iii) result from the announcement of this Agreement and the
transactions contemplated hereby.
43
4.8. Contracts.
(a) Schedule 4.8 of Buyer's Disclosure Schedule contains a true, complete
and correct list of the following Contracts to which Buyer or any of its
Subsidiaries is a party (each, a "Buyer Scheduled Contract") (true, complete and
correct copies (or, if none exist, written descriptions) of which have been made
available to Seller prior to the date of this Agreement):
(i) Contracts relating to the borrowing of money, guarantees, security
agreements, factoring agreements and deferred purchase or hire purchase
Contracts, including obligations for reimbursement under letters of credit
or reimbursement agreements therefor (other than letters of credit or
reimbursement agreements therefor that are (A) fully secured or
collateralized and (B) related to Reinsurance Agreements and Retrocession
Agreements entered into by Buyer or its Subsidiaries in the ordinary course
of business consistent with past practice) in any case representing future
liabilities in excess of US $300,000;
(ii) Contracts which permit a financial institution or other Person to
block or otherwise restrict immediate access by Buyer or its Subsidiaries
to deposits or other monies held thereby in any case involving amounts in
excess of US $300,000;
(iii) Contracts with any employee pursuant to which Buyer or any of
its Subsidiaries owes any monetary obligation (other than those Contracts
involving annual payments in any case of less than US $100,000 or which are
cancelable by Buyer or its Subsidiaries on not more than ninety (90) days'
notice without cause or penalty);
(iv) Contracts with insurance agents and agencies, managing general
agents with binding authority, brokers, third party administrators and
consultants (other than those Contracts which are cancelable by Buyer or
its Subsidiaries on not more than ninety (90) days' notice without cause or
penalty or that involve payments by Buyer or its Subsidiaries of less than
US $100,000 annually); provided, however, that with respect to such
Contracts with managing general agents, Schedule 4.8 of Buyer's Disclosure
Schedule shall also set forth (A) a brief description of each managing
general agent, including its jurisdiction of domicile, its address of
record and (where reasonably available) information regarding the ultimate
beneficial ownership thereof, and (B) the aggregate amount of insurance or
reinsurance which such managing general agent has written and has been
authorized to write on behalf of Buyer or its Subsidiaries since the Buyer
Balance Sheet Date;
(v) Contracts containing any provision or covenant limiting the
ability of Buyer or its Subsidiaries to engage in any line of business or
compete with any Person (other than Contracts with insurance agents and
agencies or managing general agents with binding authority entered into by
Buyer or its Subsidiaries in the ordinary course of business consistent
with past practice);
(vi) Contracts between Buyer or its Subsidiaries and any Affiliates;
44
(vii) Contracts in which any employee has any monetary or other
interest in any case in excess of US $100,000, other than employment
arrangements entered into in the ordinary course of business;
(viii) Contracts involving the sale, transfer, assignment or other
disposition of assets or liabilities of Buyer or its Subsidiaries having a
value in any case in excess of US $300,000 pursuant to which Buyer or its
Subsidiaries has given representations and/or indemnities which continue to
be in effect and pursuant to which liability would reasonably be expected
to arise;
(ix) investment management agreements, investment custody agreements
and similar Contracts;
(x) Agency Contracts that individually produced US $300,000 or more of
gross written premiums for Buyer or its Subsidiaries during the year ended
December 31, 2000, or are reasonably expected by Buyer or its Subsidiaries
individually to produce US $300,000 or more of gross written premiums for
Buyer or its Subsidiaries during the year ending December 31, 2001, which
are subject to termination upon the occurrence of a change of ownership or
control of Buyer or its Subsidiaries;
(xi) Contracts (other than the Buyer Scheduled Contracts referred to
in Section 4.8(a)(iv) and Agency Contracts) representing future annual
liabilities in any case in excess of US $300,000 individually that are
subject to termination upon the occurrence of a change of ownership or
control of Buyer or its Subsidiaries; provided, however, that if the
aggregate future liabilities for all Contracts (other than the Buyer
Scheduled Contracts referred to in Section 4.8(a)(iv) and Agency Contracts)
representing future annual liabilities in any case of less than US $300,000
that are subject to termination upon the occurrence of a change of
ownership or control of Buyer or its Subsidiaries and not listed on
Schedule 4.8 of Buyer's Disclosure Schedule exceeds US $1,000,000 those
Contracts shall also be included in Section 4.8;
(xii) Contracts pursuant to which Buyer or its Subsidiaries have
agreed to grant or have granted an option or similar right to another
Person affecting any material asset of Buyer or its Subsidiaries (other
than assets held by Buyer or its Subsidiaries in its investment portfolio);
(xiii) Contracts which provide for payments in the event of a change
of control;
(xiv) insurance Contracts entered into by Buyer or its Subsidiaries;
and
(xv) all other Contracts material to the business, operations, assets,
liabilities or financial condition of Buyer or its Subsidiaries in any case
representing future liabilities (to the extent reasonably ascertainable)
which require payments by Buyer in excess of US $300,000 individually
(other than those Contracts which are cancelable by Buyer or its
Subsidiaries on not more than ninety (90) days' notice without cause or
penalty) and which are not listed on any other Schedule hereto.
45
(b) Each of the Buyer Scheduled Contracts is in full force and effect and
is binding upon and enforceable against Buyer or its Subsidiaries, as the case
may be, in accordance with their respective terms, except as the enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect affecting creditors' rights generally
or by general principles of equity. Neither Buyer nor any of its Subsidiaries is
in material breach or default, or has received written notice of a claimed
material breach or default under any of the Scheduled Contracts and, to the
knowledge of Buyer, there does not exist under any of the Buyer Scheduled
Contracts any event which, with the giving of notice or lapse of time, would
constitute a material breach or default by Buyer or its Subsidiaries that would
reasonably be expected to result in a Buyer Material Adverse Effect. To the
knowledge of Buyer, no other party to any of the Buyer Scheduled Contracts is in
material breach or default thereunder, and neither Buyer nor its Subsidiaries
has given written notice thereof.
4.9. Litigation.
(a) Except as set forth in the Buyer Reports, there is no Litigation now
pending or, to the knowledge of Buyer, threatened, against or relating to (i)
Buyer or its Subsidiaries, (ii) any director or officer of Buyer or its
Subsidiaries (in his/her capacity as such), (iii) the assets, properties or
business of Buyer or its Subsidiaries, or (iv) the transactions contemplated by
the Transaction Documents or which questions the validity or enforceability of
any of the Transaction Documents or any action taken or to be taken by Buyer or
any of its Subsidiaries in connection with the Transaction Documents, except in
the cases of clauses (i) through (iii) where such Litigation would not
reasonably be expected to have a Buyer Material Adverse Effect.
(b) Except as set forth in the Buyer Reports, neither Buyer nor any of its
directors or officers (in his/her capacity as such) is subject to any permanent,
preliminary or temporary injunction or prohibitive order, judgment or decree of
any Governmental Authority.
4.10. Liabilities and Reserves.
(a) The reserves carried on the Buyer SAP Statements of each of Buyer and
its Subsidiaries for the year ended December 31, 2000, and the quarter ended
March 31, 2001, for losses, claims and similar purposes (including claims
litigation) were, as of such dates, in compliance in all material respects with
the requirements for reserves established by the appropriate regulatory
authorities of the jurisdiction in which it is domiciled or commercially
domiciled or as may be required by any applicable Governmental Authority, were
determined in all material respects in accordance with generally accepted
actuarial standards and principles consistently applied, and were fairly stated
in all material respects in accordance with actuarial and statutory accounting
practices except as would not be reasonably expected to result in a Buyer
Material Adverse Effect.
(b) Except for regular periodic assessments in the ordinary course of
business, to the knowledge of Buyer, no claim or assessment is pending or, to
the knowledge of Buyer, threatened against any of the Subsidiaries of Buyer
which is peculiar or unique to such Subsidiary by any governmental guaranty
associations or Lloyds in connection with such association's or Lloyds' fund
46
relating to insolvent insurers which would be reasonably expected to have a
Buyer Material Adverse Effect.
4.11. Taxation.
Except as would not be reasonably expected to result in a Buyer Material
Adverse Effect:
(a) Each of Buyer and its Subsidiaries has filed all Tax Returns that it
was required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by any of Buyer and its Subsidiaries (whether or not
shown on any Tax Return) have been paid. None of Buyer and its Subsidiaries
currently is the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by a Tax Authority in a jurisdiction
where any of Buyer and its Subsidiaries does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. Neither Buyer nor its
Subsidiaries are involved in any current dispute with any Tax Authority nor are
any of Buyer and its Subsidiaries (nor have any of them, since December 1, 1998,
or, with respect to Subsidiaries not in existence at such date, since the date
of formation of such Subsidiary, been) the subject of any investigation, audit
or non-routine visit by any Tax Authority. Neither Buyer nor its Subsidiaries
have been informed of any planned investigation, audit or non-routine visit by
any Tax Authority, and, to the knowledge of Buyer, there are no facts which are
likely to cause such an investigation, audit or non-routine visit to be
instituted in respect of the Buyer or any of its Subsidiaries. There are no
Liens on any of the assets of any of Buyer and its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax.
(b) Each of Buyer and its Subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder, or other third
party.
(c) No director or officer (or employee responsible for Tax matters) of any
of Buyer and its Subsidiaries expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax liability of any of the Buyer and its Subsidiaries
either (i) claimed or raised by any Tax Authority in writing or (ii) as to which
any of the directors and officers (and employees responsible for Tax matters) of
Buyer and its Subsidiaries has knowledge based upon personal contact with any
agent of such Tax Authority.
(d) None of Buyer and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) All variable annuity contracts and variable universal life insurance
policies and related documents of Buyer and its Subsidiaries are in conformance
with any and all applicable tax laws. For annuity and life insurance policies
issued to persons subject to U. S. Income Tax laws, the annuity and life
insurance contracts qualify as "annuity" contracts and "life insurance
contracts" for United States Income Tax purposes, including applicable
qualification under Sections 72 and 817(h) of the Code for annuity contracts,
and Sections 7702 and 817(h) of the Code for life insurance contracts. No life
insurance contracts are treated as modified endowment contracts ("MEC") under
47
IRC Section 7702A unless the purchaser has affirmatively accepted MEC status of
the contract.
4.12. Compliance with Laws, etc.
(a) Each of Buyer or its Subsidiaries is in compliance with all applicable
Cayman Islands, Bermuda, Barbados, Ireland, United Kingdom, United States
Federal, State, local or foreign judgments, orders, injunctions, laws, statutes,
regulations and ordinances, and all licenses, approvals and permits issued by
any Governmental Authority, applicable to it or any of its properties, assets,
operations or business, except where the failure of the Buyer or its
Subsidiaries to be so in compliance would not in any case or in the aggregate
have a Buyer Material Adverse Effect. Without prejudice to the generality of the
foregoing, (A) Buyer, its Subsidiaries and their respective directors and
officers (in their capacities as such) are in compliance in all material
respects with all their respective obligations under all applicable insurance
laws and regulations and, to the knowledge of Buyer, there are no matters
arising from such compliance which are the subject of any dispute with any
insurance Governmental Authority, except where the failure of the Buyer or its
Subsidiaries to be so in compliance would not in any case or in the aggregate
have a Buyer Material Adverse Effect.
(b) Since December 1, 1998, or, in the case of any Subsidiary of Buyer not
in existence at such date, then on the date of formation of such Subsidiary,
Buyer and each of its Subsidiaries have filed or otherwise provided all material
reports, data, statements, documents, applications, registrations, filings or
submissions required to be filed with or otherwise provided to any Governmental
Authority with jurisdiction over the Buyer, its Subsidiaries or their business
or operations, and all such filings complied with applicable laws and
regulations in all material respects; provided, however, that Buyer makes this
representation to its knowledge as it relates to Subsidiaries that were acquired
by Buyer for periods prior to Buyer's acquisition thereof. None of Buyer or its
Subsidiaries has received written notice of any material deficiencies asserted
by any Governmental Authority with respect to any such filings which have not
been cured or otherwise resolved to the satisfaction of such Governmental
Authority and since the later of January 1, 2000, or the date Buyer acquired the
relevant Subsidiary, there have been no material disputes or controversies with,
or investigations undertaken by, any such Governmental Authority with respect to
the Buyer, its Subsidiaries or their businesses or operations.
4.13. Insurance Business.
Buyer and its Subsidiaries possess all material Permits required to
transact or accept insurance or reinsurance in or from all jurisdictions in or
from which Buyer or its Subsidiaries now transact or accept insurance or
reinsurance, except where the failure to so possess would not reasonably be
expected to have a Buyer Material Adverse Effect, and such Permits are not
subject to any limitations, conditions or restrictions imposed by the relevant
Governmental Authority that would reasonably be expected to result in a Buyer
Material Adverse Effect. All Contracts for life insurance and annuities to which
Buyer or its Subsidiaries are parties qualify under the laws, rules and
regulations of all applicable Governmental Authorities regulating insurance
matters as Contracts for life insurance and annuities. All such Permits are in
full force and effect. Neither Buyer nor its Subsidiaries has received any
notice of any event, inquiry, investigation or proceeding that would reasonably
48
be expected to result in the suspension, revocation, non-renewal or limitation
of any such Permit or the imposition of any restrictions or requirements with
respect thereto and, to the knowledge of Buyer, there is no sustainable basis
that would reasonably be expected to result in any such suspension, revocation,
non-renewal or limitation or the imposition of any restrictions or requirements
with respect thereto.
4.14. Reinsurance Agreements.
(a) Schedule 4.14 of Buyer's Disclosure Schedule contains a true, complete
and correct list of all Reinsurance Agreements or Retrocession Agreements
currently in-force to which Buyer or its Subsidiaries are parties, and all such
agreements that are no longer in-force, but pursuant to which Buyer or its
Subsidiaries have any material liability (true, complete and correct copies of
which (or descriptions of any Reinsurance or Retrocession Agreements that are
not in writing) have been made available to Seller prior to the date of this
Agreement).
(b) Each in-force Reinsurance Agreement or Retrocession Agreement is in
full force and effect, and is binding upon and enforceable against the Buyer or
its Subsidiaries in accordance with their respective terms, except as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by general principles of equity. Neither Buyer
nor any of its Subsidiaries is in material breach or default under any of the
in-force Reinsurance Agreements or Retrocession Agreements nor have any of them
received written notice of any such material breach or claimed material breach
or default, and, to the knowledge of Buyer, there does not exist under any of
the Reinsurance Agreements or Retrocession Agreements any event which, with the
giving of notice or lapse of time, would constitute a material breach or default
by Buyer or its Subsidiaries. To the knowledge of Buyer, no other party to an
in-force Reinsurance Agreement or Retrocession Agreement is in material breach
or default thereunder, and neither Buyer nor its Subsidiaries have given written
notice thereof. There are no material disputes with any party with respect to
the terms of any Reinsurance Agreement or Retrocession Agreement with respect to
the terms thereto, or balances due thereunder.
4.15. Buyer Employee Benefit Plans.
(a) Schedule 4.15 of Buyer's Disclosure Schedule sets out summaries of all
employee benefit plans, share option plans, profit related pay plans or other
employee benefit plans of any kind of Buyer or its Subsidiaries now in-force and
there are no other such plans.
(b) There is no legally binding liability to make any material payment to
or for the benefit of any of the employees of Buyer or its Subsidiaries or the
spouse or widow or any other relative of any of the employees of Buyer or its
Subsidiaries in respect of past service or the termination of the employment of
an employee or any other person by way of pension contribution, pension
retirement benefit or allowance and neither Buyer nor any of its Subsidiaries
has a superannuation fund, retirement benefit or other pension plan or
arrangement to provide benefits to past or present employees or directors (or
their dependents) by reason of retirement, death, disability, sickness or
otherwise.
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4.16. Directors, Officers and Employees.
(a) Buyer and its Subsidiaries have in relation to each employee and each
of their former employees complied in all material respects with all material
obligations imposed on them by all contracts, statutes, orders, regulations,
collective agreements, awards and codes of conduct and practice relevant to
conditions of service and to the relations between them and the employees and
former employees and has in all material respects maintained adequate and
suitable records regarding the service of the employees and former employees.
(b) Neither Buyer nor any of its Subsidiaries has entered into any
recognition agreement with any trades union and neither has done any act which
could be construed as an act of recognition and neither Buyer nor any of its
Subsidiaries is involved in and there are no present circumstances that are
likely to give rise to, any industrial or trade dispute or any dispute or
negotiation regarding a claim of material importance with any trades union or
any body of employees.
(c) Within the last two years, no material liability (actual or contingent)
has been incurred by Buyer or its Subsidiaries in respect of any breach of an
employment contract or a contract for services, and neither Buyer nor its
Subsidiaries has incurred any material liability (actual or, to the knowledge of
Buyer, contingent) to make any redundancy payment, to pay compensation for
wrongful dismissal or has failed to comply with any order for the reinstatement
or re-engagement of any employee or incurred any other material liability as a
result from terminating a contract of employment or a contract for services.
4.17. Environmental Matters.
(a) There are not any past or present conditions or circumstances that
would reasonably be expected to interfere with or prevent the conduct of the
business of Buyer or its Subsidiaries in compliance with: (i) any order of any
court or arbitration board or tribunal, or any Environmental Law, or (ii) the
terms or conditions of any permits, approvals, licenses or consents required to
be issued by any Governmental Authority pursuant to any applicable Environmental
Law.
(b) There are not any past or present conditions or circumstances at,
arising out of, or related to, any current or former business, assets or
properties of Buyer or its Subsidiaries, including but not limited to on-site or
off-site storage, treatment, disposal or the release or threatened release of
any chemical substance, product or waste, which would, individually or in the
aggregate, reasonably be expected to give rise to: (i) liabilities or
obligations for any cleanup, remediation, disposal or corrective action or any
long-term monitoring requirements under any Environmental Law; or (ii) claims
arising for personal injury, property damage, or damage to natural resources, in
each case that would reasonably be expected to have a Buyer Material Adverse
Effect.
(c) Neither Buyer nor any of its Subsidiaries has (i) received any written
notice of noncompliance with, violation of, or liability or potential liability
under any Environmental Law or (ii) entered into any consent decree, settlement
50
or order or is subject to any order of any court or Governmental Authority or
tribunal under any Environmental Law or relating to the cleanup of any hazardous
or toxic materials, wastes, substances or any pollutants or contamination;
(d) There are no persons or entities whose liability, for any environmental
matters or under any applicable Environmental Law, Buyer or its Subsidiaries has
retained or assumed contractually or has retained or assumed by operation of
law.
(e) Neither Buyer nor any of its Subsidiaries has handled or directed the
management of or participated in any decisions with respect to or exercised any
influence or control over the use, generation, storage, treatment or disposal of
any hazardous or toxic materials, wastes or substances at or related to any of
their business, assets or properties. and
(f) Buyer and its Subsidiaries have made available to Seller copies of all
environmental inspections, audits, studies, plans, records, data analyses or
reports conducted or prepared by or on behalf of Buyer or its Subsidiaries
within the last two years and which are in their possession or control.
4.18. Investment Advisory and Investment Company Matters.
Neither Buyer nor any of its Subsidiaries conducts activities of or is
otherwise deemed under law to control an "investment adviser," as such term is
defined in Section 2(a) (20) of the Investment Company Act, whether or not
registered under the Investment Advisers Act, or any person required to be
registered as an investment company under the Investment Company Act. Neither
Buyer nor any of its Subsidiaries is an "investment company" as defined in the
Investment Company Act, and neither Buyer nor any of its Subsidiaries is a
promoter (as such term is defined in Section 2(a)(30) of the Investment Company
Act) of any Person that is such an investment company.
4.19. Takeover Statutes.
No takeover statute under any jurisdiction in which Buyer or any of its
Subsidiaries are incorporated or formed, and no anti-takeover provision in the
Memorandum and Articles of Association of any of Buyer or its Subsidiaries (or
other comparable charter documents) is applicable to the transactions
contemplated by this Agreement or the other Transaction Documents to which it is
a party, except as shall be amended by the Charter Amendment.
4.20. Derivatives.
As of March 31, 2001, neither Buyer nor any of its Subsidiaries was subject
to any material net exposure, individually or in the aggregate, under any
Derivatives to which Buyer or any of its Subsidiaries is a party. All such
Derivatives are accounted for in accordance with US GAAP and reflect an economic
hedge whereby neither the Buyer nor any of its subsidiaries has any risk, other
than counterparty risk, to price movements in the underlying investments.
4.21. Brokers and Finders, etc.
Other than Putnam Lovell Securities Inc., whose fees shall be the sole
responsibility of Buyer and its Subsidiaries, neither Buyer, nor any of its
officers, directors or employees, nor any of its Affiliates, has
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employed any broker, agent or finder, or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.22. Securities.
Buyer is acquiring the Shares solely for its own account and not with a
view to any distribution of the Shares or any part thereof, or interest therein,
except in accordance with the Securities Act.
4.23. Certain Actions.
Buyer has no present plan or intention to transfer any of the Shares,
Company Shares or assets of Holdings and Company to any Subsidiary of Buyer or
to any other Person.
4.24. Full Disclosure.
No representation or warranty of Buyer herein contains an untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements made not misleading.
ARTICLE V
COVENANTS
5.1. Operations in the Ordinary Course.
(a) Except as otherwise contemplated by this Agreement or consented to in
writing by Buyer, from the date of this Agreement through the Closing Date,
Seller will cause each of Holdings and the Company to conduct its business only
in the usual, regular and ordinary course consistent with past practice. Without
limiting the generality of the foregoing, Seller will cause each of Holdings and
the Company to:
(i) maintain insurance coverages on the assets and properties of
Holdings and the Company on a basis consistent with past practice;
(ii) maintain its books, accounts and records on a basis consistent
with past practice;
(iii) comply in all material respects with all applicable judgments,
orders, injunctions, laws, statutes, regulations, ordinances and Permits of
Governmental Authorities and preserve in full force and effect all Permits
material to business and operations;
(iv) maintain and keep its material assets and equipment in good
repair, working order and condition, subject to reasonable and normal wear
and tear;
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(v) perform in all material respects its obligations under all Seller
Scheduled Contracts and under all insurance Contracts, Reinsurance
Agreements and Retrocession Agreements to which it is a party (in each
case, on a basis consistent with past practice); and
(vi) use its reasonable efforts to maintain and preserve its business
organization, retain the services of senior management, and maintain its
relationships with its agents, policyholders, suppliers and customers.
(b) Except as (i) otherwise contemplated by this Agreement or (ii) listed
in Schedule 5.1(b) of Buyer's Disclosure Schedule, from the date of this
Agreement through the Closing Date, Buyer will, and will cause each of its
Subsidiaries to, conduct its business in the usual, regular and ordinary course
consistent with past practice. Without limiting the generality of the foregoing,
Buyer will, and will cause each of its Subsidiaries to:
(i) maintain its books, accounts and records on a basis consistent
with past practice;
(ii) comply in all material respects with all applicable judgments,
orders, injunctions, laws, statutes, regulations, ordinances and Permits of
Governmental Authorities and preserve in full force and effect all Permits
material to business and operations;
(iii) maintain and keep its material assets and equipment in good
repair, working order and condition, subject to reasonable and normal wear
and tear;
(iv) perform in all material respects its obligations under all Buyer
Scheduled Contracts and under all insurance Contracts, Reinsurance
Agreements and Retrocession Agreements to which it is a party (in each
case, on a basis consistent with past practice); and
(v) use its reasonable efforts to maintain and preserve its business
organization, retain the services of senior management, and maintain its
relationships with its agents, policyholders, suppliers and customers.
5.2. Restrictions.
(a) Except as otherwise contemplated by this Agreement or consented to in
writing by Buyer, from the date of this Agreement through the Closing Date,
Seller will not permit Holdings or the Company to:
(i) incur any indebtedness for borrowed money in excess of US $250,000
or guarantee any such indebtedness or issue or sell any debt securities of
Holdings or the Company or guarantee any debt securities of other Persons
other than in the ordinary course of business consistent with past
practice;
(ii) grant or create any Lien on any of its assets other than Liens
granted or created in the ordinary course of business consistent with past
practice;
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(iii) make any material changes in its Investment Policies or make any
material change in its financial, tax or accounting methods, principles or
practices (including any material change with respect to the establishment
of reserves, losses (including incurred but not reported losses) or any
change in depreciation or amortization policies or rates adopted by it),
except as may be required by law or applicable UK Accounting Standards;
(iv) other than in the ordinary course of business consistent with
past practice, grant to any employee any increase in salary or other
regularly paid remuneration which would constitute a material increase in
the salary or other remuneration of such employee, or grant to any employee
any increase in severance or termination pay; grant or approve any general
increase in salaries of all or a substantial portion of the employees; pay
or award any bonus, incentive compensation, service award or other like
benefit for or to the credit of any employee; enter into any employment
Contract with any employee except as may be required under any employment
Contract set forth on Schedule 3.11 of Seller's Disclosure Schedule; or
adopt or amend in any material respect any Employee Benefit Plan;
(v) authorize, allot, issue, deliver or sell any shares in the capital
of Holdings or the Company or obligations or securities convertible into or
exchangeable for, or warrants, options or other rights in respect of, any
such shares;
(vi) amend its Memorandum or Articles of Association;
(vii) declare, pay or make any dividends or other distributions
(whether in cash, securities or other property or any combination thereof)
or reduce, repurchase, redeem or otherwise acquire any of its share
capital; provided, however, that the Company may pay and make the Company
Dividend and Holdings may pay and make the Dividend;
(viii) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any Person or otherwise acquire any assets or properties that are
material, individually or in the aggregate, to Holdings or the Company;
(ix) sell, lease or otherwise dispose of any of its assets or
properties that are material, individually or in the aggregate, to Holdings
or the Company (other than transactions involving securities in its
investment portfolio in the ordinary course of business consistent with
past practice, except as set forth in paragraph (xvi) of this Section 5.2);
(x) make any capital expenditure or execute any lease (other than a
lease renewal for its Windsor property) or incur any commitment or
liability therefor not contained in a written budget prepared by the
management of Holdings or the Company on or before the date of this
Agreement involving annual payments in excess of US $30,000 individually or
US $100,000 in the aggregate (other than expenditures, leases, commitments
or liabilities arising from the purchase or lease of automobiles owned by
Holdings or the Company for use in its business, if such automobiles are
purchased or leased to replace an existing Holdings or Company automobile);
54
(xi) terminate, amend or modify any Scheduled Contract involving
future liabilities in excess of US $100,000 in any case:
(xii) commute any insurance Contract, Reinsurance Agreement or
Retrocession Agreement involving more than US $1,000,000 in future
liabilities;
(xiii) cancel any indebtedness involving liabilities in excess of US
$250,000 in any case;
(xiv) waive or compromise any rights having an economic value to the
Company in excess of US $25,000 in any case (other than commutations of
insurance Contracts, Reinsurance Agreements or Retrocession Agreements and
settlements of insurance and reinsurance claims in the ordinary course of
business consistent with past practice);
(xv) settle pending or threatened Litigation (other than schedule
insurance or reinsurance litigation in the ordinary course of business
consistent with past practice) in an amount exceeding US $25,000 in the
aggregate;
(xvi) take any capital gains (or realize any investment profit) in
excess of US $250,000 in the aggregate or decrease the level of its benefit
reserves;
(xvii) purchase or otherwise invest in any interest in (i) real
property (including any extension of credit secured by a mortgage or deed
of trust), (ii) common or ordinary shares or (iii) bonds, notes, debentures
or other evidence of indebtedness, in each case other than in the ordinary
course of business consistent with past practice;
(xviii) make any payments to its Affiliates (other than the Dividend
or pursuant to the terms of the Scheduled Contracts described in Section
3.11(a)(vi));
(xix) take any action, or omit to take any action, that would result
in (i) any of the representations and warranties of Seller that are
qualified as to materiality becoming untrue or any of such representations
or warranties that are not so qualified becoming untrue in any material
respect or (ii) any of the conditions to the Closing being incapable of
being satisfied; or
(xx) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Except as otherwise contemplated by this Agreement or consented to in
writing by Seller, from the date of this Agreement through the Closing Date,
Buyer will not and will not permit its Subsidiaries to:
(i) make any material changes in its Investment Policies or make any
material change in its financial, tax or accounting methods, principles or
practices (including any material change with respect to the establishment
of reserves, losses (including incurred but not reported losses) or any
change in depreciation or amortization policies or rates adopted by it),
except as may be required by law or applicable accounting standards;
55
(ii) authorize, allot, issue, deliver or sell any shares in the
capital of Buyer or any of its Subsidiaries or obligations or securities
convertible into or exchangeable for, or warrants, options or other rights
in respect of, any such shares, other than (A) shares issued upon exercise
of outstanding options and warrants and (B) options granted under Buyer's
stock option plans existing as of the date hereof;
(iii) amend its Memorandum or Articles of Association;
(iv) declare, pay or make any dividends (excluding regular quarterly
cash dividends in amounts consistent with past practice) or other
distributions (whether in cash, securities or other property or any
combination thereof) or reduce, repurchase, redeem or otherwise acquire any
of its share capital;
(v) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any Person or otherwise acquire any assets or properties that are
material, individually or in the aggregate, to Buyer;
(vi) sell, lease or otherwise dispose of any of its assets or
properties that are material, individually or in the aggregate, to Buyer
(other than transactions involving securities in its investment portfolio
in the ordinary course of business consistent with past practice;
(vii) settle pending or threatened Litigation (other than
scheduled insurance or reinsurance litigation in the ordinary course of
business consistent with past practice) in an amount exceeding US
$250,000 in the aggregate;
(viii) make any payments to its Affiliates (other than payments or
transfers by or among Buyer and any of its Subsidiaries);
(ix) take any action, or omit to take any action, that would result in
(i) any of the representations and warranties of Buyer that are qualified
as to materiality becoming untrue or any of such representations or
warranties that are not so qualified becoming untrue in any material
respect or (ii) any of the conditions to the Closing being incapable of
being satisfied; or
(x) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.3. Related Matters.
Except as otherwise contemplated by this Agreement or consented to in
writing by the other party from the date hereof until the Closing:
(a) Seller shall promptly report to Buyer the termination of employment of,
or a written threat to terminate employment made by, any of the employees of
Holdings or the Company listed on Exhibit G.
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(b) Buyer shall promptly report to Seller the termination of, or a written
threat to terminate employment made by, the Chief Executive Officer, President,
any Executive Vice President or any Senior Vice President of Buyer.
(c) Each of Seller and Buyer shall promptly notify the other party in
writing of any event, condition, change or effect having, or which, insofar as
reasonably can be foreseen, would have, a Company Material Adverse Effect, in
the case of Seller, or a Buyer Material Adverse Effect, in the case of Buyer.
(d) Each of Seller and Buyer shall promptly notify the other party in
writing of any matter or change that affects or, insofar as reasonably can be
foreseen, would affect the accuracy or completeness of any representation or
warranty made by such party in this Agreement. If such representation or
warranty is of a nature that can be made accurate, Seller or Buyer, as the case
may be, shall use its reasonable efforts to promptly effect appropriate curative
action and shall provide the other party with evidence thereof reasonably
satisfactory to the other party.
(e) Each of Seller and Buyer shall promptly notify the other party in
writing if it fails to perform or observe any covenant or agreement to be
performed or observed by it under this Agreement and shall use its reasonable
efforts to promptly effect appropriate curative action and shall provide the
other party with evidence thereof reasonably satisfactory to the other party.
5.4. Tax Matters.
(a) Tax Returns. Section 9 of the Tax Deed Covenant shall govern the
responsibility for filing the Tax Returns of Holdings and Company.
(b) Cooperation on Tax Matters.
(i) Buyer, Seller, Holdings and Company shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to Section 9 of the Tax Deed Covenant
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Seller
agrees (A) to retain all books and records with respect to Tax matters
pertinent to Holdings and Company relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by Buyer, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any Tax Authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, shall allow
the other party to take possession of such books and records.
(ii) Buyer and Seller further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other person as may be necessary to mitigate, reduce or
57
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(c) Check-the-Box Election. In connection with the purchase of the Shares
hereunder, and as part of the plan to have the transaction qualify as a
reorganization within the meaning of Section 368(a) of the Code, Buyer shall, at
the direction of Seller, make an election under Section 301.7701-3(c) of the
United States Income Tax Regulations to treat Holdings as a disregarded entity
for United States income tax purposes. At the time specified by Seller, Buyer
shall make such election by filing IRS Form 8832 (or any successor form) and
take all other actions necessary to make a valid election at the time specified
by Seller.
(d) Prior to the Closing Date, neither Seller, Holdings nor the Company
shall without the consent of the Buyer (which consent shall not be unreasonably
withheld) (i) make or rescind any material express or deemed election relating
to Taxes, or change any of its methods of reporting income or deductions for Tax
purposes from those employed in the preparation of its Return(s) for the prior
Tax year, except as may be required by applicable law, or (ii) settle or
otherwise discharge any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes.
(e) Limitation on Post-Closing Transfers. For the 24 month period following
the Closing Date, Buyer shall not transfer any of the Shares, Company Shares or
assets of Holdings and Company to a Subsidiary of Buyer or any other Person, or
take any other action during such period with respect to the Shares, Company
Shares or assets of Holdings and Company that would constitute a transfer
described in Section 368(a)(2)(C) of the Code.
(f) Section 1248 Amount and Subpart F Income. During the period commencing
on the Closing Date and ending on September 30, 2002, Buyer, without the written
consent of the Seller, shall not cause or allow Holdings and the Company to
engage in a transaction not in the ordinary course of business that would (i)
increase the "Section 1248 amount" (as defined in Section 1.367(b)-2(c) of the
United States Income Tax Regulations) used for purposes of determining the
amount of income recognized by Seller from the disposition of the Shares to
Buyer or (ii) increase the amount of subpart F income (as defined in Section
952(a) of the Code) recognized by Seller from its ownership of the Shares and
Company Shares. In addition to Buyer's general obligation to cooperate on tax
matters under Section 5.4(b) hereof, Buyer shall maintain and provide to Seller
all financial information necessary for Seller to (i) determine the Section 1248
amount for purposes of determining the amount of income recognized by Seller
from the disposition of the Shares pursuant to this Agreement and (ii) determine
the amount of subpart F income recognized by Seller from its ownership of the
Shares and Company Shares.
(g) Certain Post-Closing Limitations. The parties hereto shall use their
reasonable efforts to cause the transaction contemplated by this Agreement to
qualify as a reorganization under Section 368(a)(1)(C) of the Code. Following
the Closing, Buyer shall cooperate with Seller, as reasonably requested by
Seller, in satisfying applicable filing requirements pertaining to the
transactions contemplated hereunder qualifying as a reorganization under Section
368(a)(1)(C) of the Code.
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5.5. Access to Information.
(a) Seller shall afford to Buyer, and to Buyer's accountants, counsel,
financial advisers and other representatives, at reasonable times (during normal
business hours) until the Closing Date, access to all of Holdings and the
Company's books, records, Contracts, facilities and personnel, including
management and employees, so that Buyer may investigate Holdings and the Company
and its Subsidiaries (including their financial statements, accounting methods,
assets, liabilities, insurance and reinsurance Contracts and other arrangements,
client lists, administrative procedures, operations and business plans and
prospects); and Seller shall furnish promptly to Buyer from the date hereof
until the Closing updated financial statements comparable to those described in
Section 3.8(a) promptly after such financial statements have been prepared by
Holdings and the Company and in accordance with past practice, in the case of
each quarterly financial statement, certified by the Finance Director of
Holdings and the Company and, in the case of each annual financial statement,
audited by the independent auditors of Holdings and the Company.
(b) Buyer shall afford to Seller, and to Seller's accountants, counsel,
financial advisers and other representatives, at reasonable times (during normal
business hours) until the Closing Date, access to all of Buyer's and its
Subsidiaries' books, records, Contracts, facilities and personnel, including
management and employees, so that Seller may investigate Buyer and its
Subsidiaries (including their financial statements, accounting methods, assets,
liabilities, insurance and reinsurance Contracts and other arrangements, client
lists, administrative procedures, operations and business plans and prospects);
and Buyer shall furnish promptly to Seller from the date hereof until the
Closing updated financial statements comparable to those described in Section
4.6(b) promptly after such financial statements have been prepared by Buyer and
its Subsidiaries and in accordance with past practice, in the case of each
quarterly financial statement, certified by the Chief Financial Officer of Buyer
and, in the case of each annual financial statement, audited by the independent
auditors of Buyer.
5.6. No Solicitation.
Seller shall not, nor shall it permit any of its Affiliates to, nor shall
it authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative or agent of, Seller or any
of its Affiliates to, directly or indirectly, (a) solicit, initiate or encourage
the submission of any Investment Proposal or (b) participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, or take any other action to knowingly facilitate any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Investment Proposal. For purposes of this Agreement, "Investment Proposal" means
any inquiry, proposal or offer from any Person relating to any direct or
indirect acquisition or purchase of a business that constitutes a substantial
portion of the securities or assets of Holdings or the Company, including any
reinsurance transaction entered into outside the ordinary course of business
involving more than 25% of Holdings' or the Company's assets or policyholder
liabilities, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Holdings or the Company, other than the transactions contemplated by this
Agreement.
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5.7. Filings and Authorizations.
Each of Buyer and Seller shall, as promptly as practicable and in any event
not later than 30 days from the date of this Agreement with respect to filings
required with the FSA and any other insurance Governmental Authority, including
without limitation filings on Form A and Form E under relevant state Insurance
Holding Company statutes, and the notification required to be filed under the
HSR Act, file or supply, or cause to be filed or supplied, all applications,
notifications and information required to be filed or supplied by it pursuant to
applicable law in connection with the transactions contemplated by this
Agreement. Each of Buyer and Seller, as promptly as practicable, shall (a) make,
or cause to be made, all such filings and submissions under the laws, rules and
regulations applicable to it, or to its Affiliates as may be required for it to
consummate the transactions contemplated by this Agreement, (b) use its
reasonable efforts to obtain or cause to be obtained, all authorizations,
approvals, consents and waivers from all Persons and Governmental Authorities
necessary to be obtained by it, or its Affiliates, in order for it so to
consummate such transactions and (c) use its reasonable efforts to take, or
cause to be taken, all other actions necessary, proper or advisable in order for
it to fulfill its obligations hereunder. Buyer and Seller will coordinate and
cooperate with one another in exchanging such information and supplying such
reasonable assistance as may be reasonably requested by each in connection with
the foregoing.
5.8. Confidentiality.
Following the date hereof, each party hereto will hold, and will use its
reasonable efforts to cause its respective officers, directors, employees,
agents, investment bankers, attorneys, financial advisors or other
representatives (collectively "Representatives") to hold, in strict confidence
from any Person (other than any Subsidiary or Representative), unless (a)
compelled to disclose by judicial or administrative process or required to
disclose (including in connection with obtaining the necessary approvals of this
Agreement and the transaction contemplated hereby of Governmental Authorities or
by other requirements of law, including, securities laws, or rules of any
applicable stock exchange) or (b) disclosed in an action brought by a party
hereto in pursuit of its rights or in the exercise of its remedies hereunder,
this Agreement, the other agreements contemplated hereby, the Schedules and
Exhibits hereto and all documents and information concerning the other party or
any of its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions
contemplated hereby, including without limitation pursuant to Section 5.5,
except to the extent that such documents or information can be shown to have
been (i) previously known by the party receiving such documents or information,
(ii) in the public domain (either prior to or after the furnishing of such
documents or information hereunder) through no fault of such receiving party or
(iii) later acquired by the receiving party from another source if the receiving
party is not aware that such source is under an obligation to another party
hereto to keep such documents and information confidential; provided, however,
that the foregoing restrictions will not apply to Buyer's use of any documents
and information concerning the business of Holdings and the Company upon
consummation of the Closing.
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5.9. Registration Statement; Proxy Statement.
As promptly as practicable following the date of this Agreement, and in any
event not later than 30 days from the date of this Agreement, Buyer shall
prepare and file with the SEC the Registration Statement and the Proxy Statement
in accordance with the Securities Act and the Exchange Act and shall use all
reasonable efforts to have the Registration Statement declared effective and the
Proxy Statement cleared by the SEC; provided, however, that prior to filing,
Buyer shall deliver a copy of the proposed filings to Seller and provide Seller
with a reasonable time period in which to review and comment upon such filings,
it being agreed that Buyer will not make any such filings without the prior
consent of Seller, such consent not to be unreasonably withheld. Buyer shall
promptly provide to Seller copies of any written comments received from the SEC
and shall promptly advise Seller of any oral comments received from the SEC.
Seller shall be entitled to review and comment on any proposed amendments to the
Registration Statement or the Proxy Statement. As promptly as practicable after
the Registration Statement has been declared effective and the Proxy Statement
has been cleared by the SEC, Buyer shall mail the Proxy Statement to its
shareholders as of the record date for the Meeting. Buyer shall take such action
as may be required to be taken under applicable state securities or "blue sky"
laws in connection with issuance of the Shares. The Registration Statement and
the Proxy Statement shall include the recommendation of Buyer's Board of
Directors that shareholders of the Buyer vote in favor of the Charter Amendment
and the other transactions contemplated by this Agreement.
5.10. Shareholders' Meeting.
The Buyer shall take all actions necessary in accordance with the Cayman
Islands law and its Articles and Memorandum of Association to duly call, give
notice of, convene and hold the Meeting as promptly as practicable to consider
and vote upon (i) the adoption and approval of amendments to its Memorandum of
Association and Articles of Association in the form of Exhibit F hereto (the
"Charter Amendment"), (ii) the approval of the other transactions contemplated
by this Agreement, and (iii) the adoption of a 2001 stock option plan in a form
reasonably satisfactory to Seller. The shareholder vote required for the
adoption and approval of the Charter Amendment, the other transactions
contemplated by this Agreement and a 2001 stock option plan shall be the vote
required by Cayman Islands law and Buyer's Memorandum and Articles of
Association, which Buyer represents and warrants to be an affirmative vote by
holders of 66 2/3% of the outstanding ordinary shares of Buyer. Buyer shall,
through its Board of Directors, recommend to its shareholders approval of the
Charter Amendment and the other transactions contemplated by this Agreement, and
upon such shareholder approval and the satisfaction or waiver of conditions
precedent to the Closing set forth in Sections 6.1 and 6.2, Buyer shall take all
action necessary to cause the Charter Amendment to become effective under Cayman
Islands law.
5.11 Disaster Recovery Plan.
As promptly as practicable after the date hereof, Seller shall cause
Holdings and the Company to implement a disaster recovery plan relating to its
business and operations including, without limitation, all records and files.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligations.
The respective obligations of each party to consummate the Closing of the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or prior to the Closing Date of each of the following conditions:
(a) Stockholder Approval. The shareholders of Buyer shall have duly
approved (i) the Charter Amendment, (ii) the transactions contemplated by this
Agreement and the Transaction Documents, and (iii) the adoption of a 2001 stock
option plan in form reasonably satisfactory to Seller.
(b) Standard and Poors Rating. At or prior to the Closing, Standard & Poors
Corporation shall have issued a letter or other communication stating that upon
the Closing, the Company shall have a rating of "A-" or higher.
(c) Litigation. The consummation of the Closing shall not be prohibited or
restrained by any order, injunction, decree or judgment of any Governmental
Authority.
(d) Employment Agreements. Buyer shall have entered into employment
agreements with the Holding employees set forth in Exhibit G in forms mutually
agreed to by Seller and Buyer.
(e) Charter Amendment. The Charter Amendment shall have been filed by Buyer
with the appropriate Cayman Islands Governmental Authority and shall have become
effective under Cayman Islands law.
6.2. Conditions to Buyer's Obligations.
The obligations of Buyer to consummate the Closing shall be subject to the
delivery of all documents required to be delivered by Seller pursuant to Section
2.2, and to the satisfaction in full, prior to or at the Closing, of each of the
following conditions precedent (any one or more of which may be waived by
Buyer):
(a) Governmental Consents and Approvals. All consents, authorizations, "no
objection" notices, orders and approvals of (or filings or regulations with) any
Governmental Authority required in connection with the execution, delivery and
performance of this Agreement and the Transaction Documents shall have been
obtained and shall be in full force and effect and all statutory waiting periods
in respect thereof shall have expired without the imposition of any conditions
which would reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) Third Party Consents and Approvals. All authorizations, consents
waivers and approvals from Persons to Contracts or any agreement to which
Holdings or the Company is a party or by which either of them is bound, as may
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be required to be obtained by them in connection with the performance of this
Agreement and the Other Transaction Documents, the failure to obtain which would
result in a Company Material Adverse Effect or would prevent the consummation of
the transactions contemplated hereby.
(c) Representations and Warranties. All representations and warranties of
Seller contained in Article III qualified as to materiality shall be true,
complete and correct, in all respects and those not so qualified shall be true,
complete and correct in all material respects, at and as of the Closing Date as
if such representations and warranties were made at and as of the Closing Date,
except as affected by actions taken after the date of this Agreement in
compliance with the terms hereof.
(d) Compliance with Agreements and Conditions. Seller shall have performed
and complied in all material respects with all covenants, agreements,
obligations and conditions required by this Agreement to be performed or
complied with by it at or before the Closing Date.
(e) Seller's Certificate. Seller shall have delivered to Buyer and its
Subsidiaries a certificate, dated the Closing Date, signed on behalf of Seller
by a Senior Vice President and Secretary or Assistant Secretary to the effect
that the conditions set forth in Sections 6.2(c) and 6.2(d) have been satisfied.
(f) Material Adverse Effect. There shall not have occurred or arisen after
September 30, 2000, and prior to the Closing, any change, event, condition
(financial or otherwise), or state of circumstances or facts with respect to
Holdings or the Company which would reasonably be expected to have a Company
Material Adverse Effect, other than as contemplated by this Agreement.
6.3. Conditions to Seller's Obligations.
Seller's obligations to consummate the Closing are subject to the delivery
of all documents required to be delivered by Buyer pursuant to Section 2.3 and
to the satisfaction in full, prior to or at the Closing, of each of the
following conditions precedent (any one or more of which may be waived by
Seller):
(a) Governmental Consents and Approvals. All consents, authorizations, "no
objection" notices, orders and approvals of (or filings or regulations with) any
Governmental Authority required in connection with the execution, delivery and
performance of this Agreement and the Transaction Documents shall have been
obtained and shall be in full force and effect and all statutory waiting periods
in respect thereof shall have expired without the imposition of any conditions
which would reasonably be expected to have, individually or in the aggregate, a
Buyer Material Adverse Effect.
(b) Third Party Consents and Approvals. All authorizations, consents
waivers and approvals from Persons to Contracts or any agreement to which Buyer
or any of its Subsidiaries is a party or by which either of them is bound, as
may be required to be obtained by them in connection with the performance of
this Agreement and the Other Transaction Documents, the failure to obtain which
would result in a Buyer Material Adverse Effect or would prevent the
consummation of the transactions contemplated hereby.
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(c) Representations and Warranties. All representations and warranties of
Buyer and its Subsidiaries contained in Article IV qualified as to materiality
shall be true, complete and correct, and those not so qualified shall be true,
complete and correct in all material respects, at and as of the Closing Date as
if such representations and warranties were made at and as of the Closing Date,
except as affected by actions taken after the date of this Agreement in
compliance with the terms hereof.
(d) Compliance with Agreements and Conditions. Buyer and its Subsidiaries
shall have performed and complied in all material respects with all covenants,
agreements, obligations and conditions required by this Agreement to be
performed or complied with by them at or before the Closing Date.
(e) Buyer's Certificates. Buyer shall have delivered to Seller a
certificate, dated the Closing Date, signed on behalf of Buyer by its Chairman
and Chief Executive Officer and its President and Chief Financial Officer, to
the effect that the conditions set forth in Sections 6.3(c) and 6.3(d),
respectively, have been satisfied.
(f) Buyer Material Adverse Effect. There shall not have occurred or arisen
after December 31, 2000, and prior to the Closing, any change, event, condition
(financial or otherwise), or state of circumstances or facts with respect to
Buyer or its Subsidiaries which would reasonably be expected to have a Buyer
Material Adverse Effect, other than as contemplated by this Agreement.
(g) Certain Agreements with Executives. Messrs. Michael French and Scott
Willkomm shall have entered into agreements with Seller with respect to their
respective ownership of Buyer Shares in forms acceptable to Seller.
(h) Stock Option Grant. Buyer shall have (i) granted options to acquire
Buyer Shares to the employees of Holdings and the Company set forth on Exhibit G
in amounts satisfactory to Seller, and (ii) committed to grant to other
employees of Holdings and the Company an aggregate number of options to acquire
Buyer Shares acceptable to Seller.
(i) Opinion of Counsel. Seller shall have received an opinion of counsel
from Gibson, Dunn & Crutcher LLP stating that the transactions contemplated
herein qualify as a tax-free reorganization under Section 368(a)(1)(C) of the
Code.
(j) Company Dividend and Dividend. The Company shall have paid the Company
Dividend to Holdings, and Holdings shall have paid the Dividend to Seller.
(k) Letter Agreements relating to Employment Agreements. Buyer shall have
delivered to Seller copies of letter agreements executed by each of the Chief
Executive Officer, Chief Operating Officer, the Executive Vice Presidents and
the Senior Vice Presidents of Buyer with respect to such executives' employment
agreements with Buyer, if any, in forms mutually agreed to by Seller and Buyer.
(l) Letter Agreements relating to Buyer's Executives' Options. Buyer shall
have delivered to Seller copies of letter agreements executed by each of the
Chief Executive Officer, Chief Operating Officer, the Executive Vice Presidents
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and the Senior Vice Presidents of Buyer with respect to such executives' options
to purchase Buyer Shares in forms mutually agreed to by Seller and Buyer.
(m) Directors and Officers Insurance. Buyer shall have in effect directors
and officers insurance in an amount and on terms reasonably satisfactory to
Seller.
ARTICLE VII
FURTHER AGREEMENTS
7.1. Non-Competition.
From the date hereof until the date that is 12 months from the Closing
Date, Seller covenants that it shall not, and it shall cause its Subsidiaries
not to, (a) hire or solicit for hire any of the senior management of Holdings as
of the date of this Agreement or (b) individually or jointly with others,
directly or indirectly, whether for its own account or for that of any other
Person, own or hold any ownership or other participating interest in, or manage,
operate, control or otherwise participate as such in, or act as a partner,
principal or proprietor of any Person engaged in the reinsurance business
outside of the United Sates substantially similar to the reinsurance business
conducted by the Company as of the date hereof (the "World-Wide Reassurance
Business"); provided, however, that it shall not be a violation of this Section
7.1 for Seller and its Subsidiaries to (i) own or hold any investment owned or
held on the date of this Agreement or a passive investment as part of its
investment portfolio in any Person which engages in the World-Wide Reassurance
Business, so long as any such investment that is an equity investment does not
exceed five percent (5%) of the aggregate outstanding capital stock for other
equity ownership interest) of such Person, (ii) acquire a Person no more than
five percent (5%) of the consolidated revenues of which for each of the three
fiscal years of such Person ended prior to the acquisition of such Person by
Seller or any of its Subsidiaries were derived from the World-Wide Reassurance
Business, or (iii) underwrite insurance and/or reinsurance and/or provide
insurance and/or reinsurance related services to existing and successor
insureds, insurers, reinsurers, retrocessionaires and other clients of Seller
and its Affiliates in continuance of arrangements and contracts existing with
Seller and its Subsidiaries on the date of this Agreement (including all
renewals, or extensions thereof.
7.2. Public Announcements.
Buyer and Seller will consult with each other before issuing any press
release or otherwise making any public statements regarding the transactions
contemplated by the Transaction Documents, and will not issue any such release
or make any such statement, prior to such consultation or, after such
consultation, if any party is not reasonably satisfied with the substance of
such release or statement. Notwithstanding the foregoing, any party hereto may
make any disclosure required to be made by it under applicable law (including
United States Federal securities law), stock exchange regulations or order of a
court of competent jurisdiction if it determines in good faith, upon advice of
counsel, that it is necessary to do so and gives prior notice to the other
parties hereto, using its reasonable efforts (given any time constraints) to
contact the other parties hereto and discuss such disclosure with such other
party(s).
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7.3. Expenses.
(a) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated pursuant to Section 10.1, except for
(i) payment of all stamp duties applicable to the transfer of Shares to Buyer,
which shall be borne equally by Buyer and Seller, (ii) as provided in Section
7.3(b) and (iii) as provided in Section 7.8, all fees and expenses incurred in
connection with the Transaction Documents and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses.
(b) If this Agreement is terminated by either Buyer or Seller as a result
of an uncured breach by the other party pursuant to Section 10.1(d) or Section
10.1(e), hereof, then the breaching party shall pay the terminating party, in
next day funds, an amount equal to the reasonable out-of-pocket fees and
expenses incurred or paid by or on behalf of the terminating party and its
Affiliates in connection with the transactions contemplated by this Agreement
and the Transaction Documents, including all reasonable fees and expenses of
counsel, investment bankers, accountants, actuaries, lenders, experts and
consultants; provided, however, that (i) the terminating party shall provide the
breaching party with reasonable documentation of the fees and expenses for which
it seeks payment hereunder, and (ii) in no event shall the reimbursement of such
expenses exceed US $1,000,000.
7.4. D & O Insurance.
(a) For three years after the Closing Date, Seller shall provide tail
insurance coverage for all present and former directors and officers of Holdings
and the Company covering claims made after the Closing Date in respect of acts
or omissions occurring prior to the Closing Date, with a coverage limit of US
$5,000,000 in the aggregate; provided, however, that such coverage shall not
extend to any such director or officer who does not cooperate in a reasonable
manner with Seller in the defense of any such claim and Seller shall not be
required to pay a three-year premium in excess of US $75,000. Buyer shall (and
shall cause Holdings and the Company to) use reasonable efforts to obtain the
cooperation of such directors and officers in the defense of any claims, actions
and proceedings covered by such insurance.
(b) After the Closing Date through the third anniversary of the Closing
Date, Buyer shall to the extent permitted by applicable law indemnify and hold
harmless each present (as of the Effective Time) or former officer or director
of the Company and/or Holdings (the "Indemnified Parties"), against all claims,
losses, liabilities, damages, judgments, fines and reasonable fees, costs and
expenses (including attorneys' fees and expenses) incurred in connection with
any claim, action, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to (i) the fact
that the Indemnified Party is or was an officer, director or employee of the
Company and/or Holdings or (ii) matters existing or occurring at or prior to the
Closing Date (including this Agreement and the transactions and actions
contemplated hereby), whether asserted or claimed prior to, at or after the
Closing Date, to the fullest extent permitted under applicable law; provided,
however, that no Indemnified Party may settle any such claim without the prior
approval of Buyer (which approval shall not be unreasonably withheld or
delayed). Promptly after receipt by an Indemnified Party of actual notice of any
claim, suit, action, proceeding or investigation (collectively, a "Claim") for
which indemnification hereunder may be sought, the Indemnified Party shall give
notice
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thereof to Buyer, and the Indemnified Party shall permit Buyer (at the expense
of Buyer) to assume the defense of such Claim, provided, that (i) counsel for
Buyer who shall conduct the defense of such Claim shall be reasonably
satisfactory to the Indemnified Party, and the Indemnified Party may participate
in such defense at such Indemnified Party's expense, and (ii) the failure of any
Indemnified Party to give notice as provided herein shall not relieve Buyer of
its indemnification obligation hereunder except to the extent that such failure
results in a lack of actual notice to Buyer and Buyer is naturally prejudiced as
a result of such failure to give notice. Except with the prior written consent
of the Indemnified Party, Buyer, in the defense of any such claim or litigation,
shall not consent to entry of any judgment or enter into any settlement that
provides for injunctive or other nonmonetary relief affecting the Indemnified
Party or that does not include as a unconditional term thereof the giving by
each claimant or plaintiff to such Indemnified Party of a release from all
liability with respect to such Claim. In the event that the Indemnified Party
shall in good faith determine that Buyer and the Indemnified Party have
differing interests of the Indemnified Party may have available to it one or
more defenses or counterclaims that are inconsistent with one or more of those
that may be available to Buyer in respect of such Claim, the Indemnified Party
shall have the right at all times to take over and assume control over the
defense, settlement, negotiations or litigation relating to any such claim with
counsel of its choice at the sole cost of Buyer, provided, that if the
Indemnified Party does so take over and assume control, the Indemnified Party
shall not settle such claim or litigation without the consent of Buyer, such
consent not to be unreasonably withheld. In the event that Buyer does not accept
the defense of any matter as above provided, the Indemnified Party shall have
the full right to defend against any such claim or demand, and shall be entitled
to settle or agree to pay in full such claim or demand and be indemnified
hereunder. In any event, Buyer and the Indemnified Party shall cooperate in the
defense of any Claim.
(c) For so long as Seller is entitled to designate members to Buyer's Board
of Directors pursuant to the Stockholder Agreement, Buyer shall maintain
directors and officers insurance in amounts and on terms reasonably satisfactory
to Seller.
7.5. Further Assurances.
On and after the Closing Date, Buyer and Seller will take, and each of them
shall cause their respective Subsidiaries to take, all appropriate actions and
execute all documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the provisions hereof,
including those in order to put Buyer in possession and operating control of the
business of the Company.
7.6. Books and Records.
Buyer and Seller agree that with respect to any books, records and files
relating to the business, properties, assets or operations of the Company, each
party (at its expense) shall have the right, to the extent reasonably requested
by such party, to inspect and to make copies of the same at any time during
normal business hours for any proper purpose. Seller further agrees that, to the
extent any such books, records and files have not otherwise been delivered to
the Company or Buyer, Seller will not, and will not permit any of its
Subsidiaries to, destroy or dispose of any such books, records or files without
first offering to provide such books, records or files to Buyer at no expense to
Seller or any of its Subsidiaries. Buyer further agrees that it will not, and
67
will not permit any of its Subsidiaries to, destroy or dispose of any such
books, records or files without first offering to provide such books, records or
files to Seller at no expense to Buyer or any of its Subsidiaries.
7.7 Pensions.
(a) For purposes of this Section 7.7, the following terms shall have the
following meanings:
(i) "Actuary" means a Fellow of the Institute of Actuaries (or, in
Scotland, a Fellow of the Faculty of Actuaries).
(ii) "Buyer's Actuary" means the actuary appointed by Buyer for the
purposes of this Section 7.7 and may be the Scheme Actuary.
(iii) "Independent Actuary" means the Actuary (if any) appointed for
the purpose of Section 7.7(e), who shall act as expert not as arbitrator,
whose fees for acting shall be borne equally between Buyer and Seller,
whose decision shall (in the absence of manifest error) be final and
binding, and to whom Buyer and Seller shall instruct their respective
Actuaries to give all such assistance as he may require in order to perform
the functions for which he is appointed.
(iv) "Minimum Funding Requirement" has the meaning given to it by
section 56 of the Pensions Act 1995.
(v) "Scheme Actuary" means the actuary appointed by the trustees of
the Disclosed Scheme for the purposes of section 47(1)(b) of the Pensions
Act 1995.
(vi) "Seller's Actuary" means such actuary (if any) appointed by
Seller for the purposes of this Section 7.7, and if no such appointment is
made then references thereto shall be to Seller.
(vii) "Shortfall" shall have the meaning given to it in Section
7.7(f).
(viii) "Timing Adjustment Factor" means (0.6 x A/B ) + (0.4 x
(1+i)n), where:
"A" is the value of one unit in the Britannic Asset Management
Fund in which the Disclosed Scheme is partially invested on the date
that payment of the Shortfall is actually made by Seller;
"B" is the value of one such unit on the Closing Date;
"i" is the annualized percentage yield during 2001 on the
Emeritus Fund Deposit Administration Policy in which the Disclosed
Scheme is also partially invested; and
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"n" is the period (expressed as a percentage of a complete year)
from and including the Closing Date to but excluding the date of
actual payment.
(b) Seller agrees to indemnify Buyer in respect of the amount (if any) by
which the value of the assets of the Disclosed Scheme (as determined by the
Scheme Actuary in accordance with the calculation requirements of sections 56 to
61 of the Pensions Act 1995, effective as at the Closing Date and
notwithstanding there being no requirement under that Act to determine their
value as at that date) falls short of the Disclosed Scheme's Minimum Funding
Requirement by more than (pound)930,000, as further provided in Section 7.7(c)
to (i) below.
(c) Buyer will procure that no later than three months after the Closing
Date the Scheme Actuary computes and certifies to both Buyer's Actuary and
Seller's Actuary the valuation of the Disclosed Scheme referred to in Section
7.7 (b), and provides to both Buyer's Actuary and Seller's Actuary such data and
other information as they may reasonably require in order to review the
valuation of the Disclosed Scheme.
(d) Buyer and Seller shall cause Buyer's and Seller's Actuaries to review
such computation and, if they agree with it, to certify the same to each other
and to the Scheme Actuary, within two months of being supplied with the
valuation of the Disclosed Scheme under Section 7.7 (c) and any data and
information reasonably required for the purpose, whereupon it shall become final
and binding.
(e) In the event that by the end of the period referred to in Section 7.7
(d) no such agreement has been certified, then (unless and for so long as they
may agree that no such independent appointment shall be made or requested)
Buyer's Actuary and Seller's Actuary shall jointly appoint (or in the event of
their failure jointly to appoint and in the absence of any agreement not to
appoint, Buyer and Seller shall procure that Buyer's Actuary and Seller's
Actuary jointly apply to the President of the Institute of Actuaries for an
appointment of) the Independent Actuary who shall certify the valuation of the
Disclosed Scheme.
(f) In the event that, when certified under Section 7.7 (d) or (e) as the
case may be, the value of the assets of the Disclosed Scheme at the Closing Date
falls short of the Disclosed Scheme's Minimum Funding Requirement by more than
(pound)930,000 ("the Shortfall"), Seller shall, within 14 days of the date on
which the valuation is certified, pay to the Company, by way of indemnity, the
amount of the Shortfall (as certified by the Scheme Actuary (or the Independent
Actuary as the case may be) and notified to Seller), adjusted as set out (and
together with such additional payments (if any) as may be calculated in
accordance with) Sections 7.7 (h) and (i).
(g) On payment of the adjusted Shortfall Buyer shall procure that the
Company shall immediately contribute an amount equal to the adjusted Shortfall
to the Disclosed Scheme.
(h) The Shortfall referred to in Section 7.7 (f), multiplied (in respect of
the period from (and including) the Closing Date to (but excluding) the date of
actual payment) by the Timing Adjustment Factor, shall be paid to the Company no
later than 14 days after the receipt by Seller of the notification made in
accordance with Section 7.7 (f) certifying the value of the Shortfall as at the
Closing Date.
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(i) Seller shall in addition pay to the Company by way of indemnity, upon
the amount due under Section 7.7 (f) (or any such part thereof as shall remain
unpaid) and remaining outstanding after the expiry of the 14 day period,
interest from the final date for payment thereof to the date of actual payment,
at the base rate of National Westminster Bank plc from time to time in force
calculated on a day to day basis with monthly rests.
(j) Seller agrees to indemnify Buyer, the Company and/or the trustees of
the Disclosed Scheme against all payments, cash, expenses and damages (including
reasonable legal and actuarial fees) incurred as a result of (a) any successful
claim brought by a current or former employee of the Company, or (b) the
granting of rights in the Disclosed Scheme in recognition, that his or her
rights of access to the Disclosed Scheme were not effected in a manner which was
compliant with Article 141 Treaty of Rome, in either case within two years from
the Closing Date, but only insofar and to the extent that any such payments
exceed the amount (if any) by which the value of the Disclosed Scheme's assets
as of the Closing Date falls short of its Minimum Funding Requirement by less
than (pound)930,000, determined under Section 7.7(f).
(k) For the avoidance of doubt, this Section 7.7 is not subject to the
limitations on, Seller's indemnification obligations set forth in Section 8.2 of
this Agreement.
7.8 Company Register of Members. Following execution of this Agreement,
Seller shall cause the Company to take, at the reasonable expense of Seller, all
actions reasonably necessary to rectify to the reasonable satisfaction of Buyer
any error which appears on the Company's register of members as of the date
hereof, including without limitation, entries relating to the holding of shares
in the Company by E.F. Hutton California, and Seller further undertakes that
notwithstanding the occurrence of the Closing, it shall provide to the Company
and to Buyer such assistance in obtaining such rectification as may reasonably
be required.
ARTICLE VIII
INDEMNIFICATION
8.1. Survival of Representations, etc.
(a) All representations and warranties contained in Articles III and IV or
made pursuant thereto shall not be affected by any right of investigation by the
parties or any knowledge of facts determined in accordance therewith, and shall
survive the Closing until the date that is the second anniversary of the Closing
Date except that the representations and warranties in Sections 3.14 and 4.11
shall survive the Closing until the expiration of the applicable statutes of
limitation, the representations and warranties to Sections 3.5(a) and 4.5(a)
shall survive the Closing and continue indefinitely. No action for
indemnification under this Article VIII may be brought with respect to such
representations and warranties after the expiration 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.
(b) All covenants and agreements made by the parties to this Agreement
which contemplate performance following the Closing shall survive the Closing.
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All other covenants and agreements shall not survive the Closing and shall
terminate as of Closing; provided, however, that if any such covenant is
breached on or prior to the Closing, the non-breaching party shall retain all
rights and remedies with respect to such breach following the closing or
agreement.
8.2. Indemnification.
(a) Subject to Sections 8.1 and 8.2(b) from and after the Closing, Seller
agrees to indemnify Buyer, Holdings and the Company against, and hold Buyer and
the Company harmless from, any damage (excluding any consequential, special,
punitive and treble damages), claim, liability or expense, including interest,
fines, penalties and reasonable attorneys' fees, in each case whether incurred
in connection with a final judgment, award or disposition of the matter or
settlement (collectively "Damages"), arising out of the breach of any
representation or warranty of Seller and the breach of any covenant or agreement
of Seller, in each case contained in this Agreement that survives the Closing
for such period as provided in Section 8.1; and
(b) In addition to the limitations set forth in Section 8.2(a), Seller's
indemnification obligations shall be limited as follows:
(i) the amount of any Damages to be indemnified by Seller under this
Article VIII shall be (A) reduced by an amount (the "Buyer Tax Benefit")
equal to the excess of (1) the amount of Taxes that would have been payable
in a taxable year by Buyer or its Subsidiaries, as the case may be, if
Buyer or its Subsidiaries had not incurred the Damages over (2) the Taxes
actually payable by Buyer or its Subsidiaries, as the case may be, in such
taxable year, provided, that the Buyer Tax Benefit shall include any refund
or reduction of Taxes actually received or realized from the incurrence of
the Damages and (B) increased by an amount (the "Buyer Tax Burden") equal
to the amount of Taxes payable by Buyer or its Subsidiaries attributable to
the receipt of Buyer or its Subsidiaries, as the case may be, of any
indemnification payment hereunder;
(ii) the amount of any Damages to be indemnified by Seller under this
Article VIII shall be reduced by the net amount that Buyer or its
Subsidiaries recovers (after deducting all attorneys' fees, expenses and
other costs of recovery) from any insurer or third party liable for such
Damages; provided, however, that Buyer or its Subsidiaries, as the case may
be, shall not be obligated to request, pursue or obtain such insurance or
third party proceeds prior to receiving indemnification proceeds from
Seller; and, provided, further, that to the extent that Seller makes any
indemnification payment to Buyer or its Subsidiaries, Seller shall be
subrogated to the rights of Buyer or its Subsidiaries to obtain such
insurance or third party proceeds, and, upon its receipt of the full amount
of the indemnification payment owing hereunder with respect to such matter,
Buyer or its Subsidiaries, as the case may be, shall assign all such rights
to Seller (it being understood that if such rights are not assignable, then
Buyer or its Subsidiaries, as the case may be, will cooperate with Seller
to the extent reasonably requested in order to pursue such subrogated
rights);
71
(iii) Buyer shall be entitled to indemnification for Damages under
this Article 8 only when the aggregate of all such Damages exceeds US
$1,000,000 and then only to the extent of any such excess;
(iv) the aggregate liability of Seller under this Section 8.2 shall
not exceed US $42,500,000; and
(v) Seller shall not be liable for duplicative indemnification
payments under the Transaction Documents.
(c) Subject to Section 8.2(d), from and after the Closing, Buyer agrees to
indemnify Seller and its Affiliates and to cause Holdings and the Company to
indemnify Seller and its Affiliates against and hold Seller and its Affiliates
harmless from any Damages arising out of the breach of any representation or
warranty of Buyer, and the breach of any covenant or agreement of Buyer, in each
case contained in this Agreement that survives the Closing for such period of
survival as provided in Section 8.1.
(d) In addition to the limitations set forth in Section 8.2(c), Buyer's
indemnification obligations shall be limited as follows:
(i) the amount of any Damages to be indemnified by Buyer under this
Article 8 shall be (A) reduced by an amount (the "Seller Tax Benefit")
equal to the excess of (1) the amount of Taxes that would have been payable
in a taxable year by Seller if Seller had not incurred the Damages over (2)
the Taxes actually payable by Seller in such taxable year; provided,
however, that the Seller Tax Benefit shall include any refund or reduction
of Taxes actually received or realized from the incurrence of the Damages
and (B) increased by an amount (the "Seller Tax Burden") equal to the
amount of Taxes payable by Seller attributable to the receipt of Seller of
any indemnification payment hereunder;
(ii) the amount of any Damages to be Indemnified under this Article 8
shall be reduced by the net amount that Seller recovers (after deducting
all attorneys' fees, expenses, and other costs of recovery) from any
insurer or third party liable for such Damages; provided, however, that
Seller shall not be obligated to request, pursue or obtain such insurance
or third party proceeds prior to enforcing or receiving Indemnification
proceeds from Buyer; and provided, further, that to the extent that Buyer
makes any Indemnification payment to Seller, Buyer shall be subrogated to
the rights of Seller, as the case may be, to obtain such Insurance or third
party proceeds and, upon its receipt of the full amount of the
Indemnification payment owing hereunder, with respect to such matter,
Seller, as the case shall be, shall assign all such rights to Buyer (it
being understood that if such rights are not assignable, then Seller, as
the case may be, will cooperate with Buyer to the extent reasonably
requested in order to pursue such subrogated rights);
(iii) Seller shall be entitled to indemnification for Damages under
this Article 8 only when the aggregate of all such Damages exceeds US
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$1,000,000 and then only to the extent of any such excess (excluding
Damages arising from breaches of Section 5.4 hereof).
(iv) the aggregate liability of Buyer under this Section 8.2 shall not
exceed US $42,500,000 (excluding Damages arising from breaches by Buyer of
Section 5.4 hereof); and
(v) Buyer shall not be liable for duplicative indemnification payments
under the Transaction Documents.
(e) Notwithstanding the provisions of this Article VIII, any
indemnification related to Taxes for which Seller must indemnify Buyer
(including with respect to breaches of representations and warranties contained
in Section 3.14) shall be governed by Article IX.
8.3. Indemnification Procedures.
(a) Upon any Person entitled to be indemnified under Section 8.2 (the
"Indemnified Person") receiving notice of any claim or the commencement of any
action, or otherwise becoming aware of a fact, condition or event for which
indemnification is provided under Section 8.2., the Indemnified Person will
reasonably promptly notify the Person from whom indemnification is sought (the
"Indemnifying Person") in writing of such fact, condition or event; provided,
however, that the failure to provide such notice shall not relieve the
Indemnifying Person of its indemnification obligations hereunder unless such
failure materially prejudices the ability of such Indemnifying Person to contest
such Damages. If such fact, condition or event is the assertion of a claim or
the bringing of any action or proceeding by a third party, then the Indemnifying
Person will be entitled to participate in or take charge of the defense or
investigation of such claim, action or proceeding (or that part of any claim,
action or proceeding for which indemnification is being provided) with counsel
reasonably satisfactory to the Indemnified Person; provided, however, that the
Indemnifying Person and its counsel shall proceed with diligence and in good
faith with respect thereto. If such fact, condition or event involves a dispute
or review by any Governmental Authority or Tax Authority, then the Indemnifying
Person shall advise the Indemnified Person regarding the Indemnifying Person's
course of action. After notice to the Indemnified Person of the Indemnifying
Person's election to assume the defense or investigation of any such claim,
action or proceeding or part thereof (as the case may be), the Indemnifying
Person shall not be liable to the Indemnified Person under this Article VIII for
any legal or other expenses in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the Indemnified
Person shall have the right to employ separate counsel and to participate in the
defense or investigation of such claim, action or proceeding or part thereof (as
the case may be) if (i) the Indemnified Person has reasonably concluded that use
of counsel of the Indemnifying Person's choice would reasonably be expected to
give rise to a conflict of interest (in which event the Indemnifying Person
shall bear one-half (1/2) of the expenses of such separate counsel) or (ii) the
Indemnifying Person shall not have employed counsel to represent the Indemnified
Person within a reasonable time after notice of the assertion of any such claim
or institution of any such action or proceeding (in which event the Indemnifying
Person shall bear all the reasonable expenses of such separate counsel). In the
event that an Indemnifying Person elects not to assume the defense of a claim,
action or proceeding or part thereof (as the case may be), the Indemnified
73
Person and its counsel shall proceed with diligence and in good faith with
respect thereto and the Indemnifying Person will not be obligated to pay the
reasonable fees and expenses of no more than one counsel for all Indemnified
Persons with respect to such claim, action or proceeding unless the Indemnified
Person has reasonably concluded that use of one counsel would reasonably be
expected to give rise to a conflict of interest between such Indemnified Person
and any other of such Indemnified Persona with respect to such claim or part
thereof (as the case may be) in which event the indemnifying Person shall bear
one-half (1/2) of the expenses of such additional counsel. The parties hereto
agree to render to each other one assistance as may be reasonably requested in
order to insure the proper and adequate defense of any such claim, action or
proceeding.
(b) If the Indemnifying Person has elected to assume the defense or
investigation of any claim, action or proceeding or part thereof pursuant to
Section 8.3(a), the Indemnifying Person shall be entitled to settle or
compromise such claim, action or proceeding or part thereof; provided, however,
that any such settlement or compromise involving the imposition of equitable
remedies or involving the imposition of any obligations on the Indemnified
Person shall require the prior written consent of the Indemnified Person (which
consent shall not be unreasonably withheld). If the Indemnifying Person elects
not to assume the defense of a claim, action or proceeding or part thereof (as
the case may be) pursuant to Section 8.3(a), the Indemnified Person shall be
entitled to settle or compromise such claim, action or proceeding or part
thereof (as the case may be) only with the consent of the Indemnifying Person
(which consent shall not be unreasonably withheld). If the Indemnified Person is
represented by separate counsel pursuant to Section 8.3(a), such settlement or
compromise shall be effected only with the prior written consent of the
Indemnified Person (which consent shall not be unreasonably withheld). No
Indemnifying Person shall be required to consent to entry of any judgment or
enter into any settlement or compromise which does not include as an
unconditional terms thereof the giving by the claimant or plaintiff to such
Indemnified Person of a release from all liability in respect to such claim or
litigation. Whenever the Indemnified Person or the Indemnifying Person either
receives or makes a firm offer to settle a claim for which indemnification is
sought under Section 8.2, it shall promptly notify the other of such offer. If
the Indemnifying Person refuses to accept such offer within ten (10) Business
Days after receipt of such offer (or of notice thereof), such claim shall
continue to be contested and, if such claim is within the scope of the
Indemnifying Person's indemnity contained in Section 8.2, the Indemnified Person
shall be indemnified pursuant to the terms hereof. If the Indemnifying Person
notifies the Indemnified Person in writing that the Indemnifying Person desires
to accept such offer, but the Indemnified Person refuses to accept such offer
within ten (10) Business Days after receipt of such notice, the Indemnified
Person may continue to contest such claim and, in such event, the total maximum
liability of the Indemnifying Person to indemnify or otherwise reimburse the
Indemnified Person hereunder with respect to such claim shall be limited to, and
shall not exceed, the amount of such offer, plus reasonable out-of-pocket costs
and expenses (including reasonable attorneys' fees and disbursements); provided,
however, that this sentence shall not apply to any settlement of any claim
involving the imposition of equitable remedies or to any settlement imposing any
obligations on such Indemnified Person.
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ARTICLE IX
TAX MATTERS
9.1 Coordination of Tax Deed Covenant and the Agreement.
(a) Subject to the provisions of this Article IX, the parties agree that,
to the extent that Seller's representations and warranties pertaining to Tax
matters under Section 3.14 of this Agreement relate to Taxes for which Seller
has agreed to pay Buyer pursuant to Section 2.1 of the Tax Deed Covenant (as
limited by Sections 3.1 and 3.2 of the Tax Deed Covenant), the following
provisions shall apply: Subject to the provisions of Sections 9.1(d) and (e),
(i) Seller's liability for such Taxes shall be determined solely pursuant to the
provisions of the Tax Deed Covenant, (ii) disputes related to such Taxes and the
conduct of claims related to such Taxes shall be governed solely by the
provisions of Section 4 of the Tax Deed Covenant and other applicable provisions
of the Tax Deed Covenant, and (iii) the indemnification provisions of Article
VIII of this Agreement shall not apply.
(b) If and to the extent Seller's representations and warranties pertaining
to Tax matters under Section 3.14 of this Agreement hereof relate to Taxes other
than Taxes, for which Seller has agreed to pay Buyer pursuant to Section 2.1 of
the Tax Deed Covenant (as limited by Sections 3.1 and 3.2 of the Tax Deed
Covenant), subject to the provisions of Sections 9.1(d) and (e), the
indemnification provisions of Article VIII shall apply for purposes of
determining Seller's obligation to indemnify Buyer for Damages arising out of
Seller's breach of any such representation or warranty.
(c) The provisions of Article VIII shall apply with respect to any Damages
arising out of any breach by Buyer of any covenant of Buyer under Section 5.4.
(d) Notwithstanding any provision in the Tax Deed Covenant or this
Agreement, Seller shall have no liability for Taxes, Taxation or Liability for
Taxation under the Tax Deed Covenant or liability for indemnification for
Damages under Article VIII of this Agreement unless and until the aggregate
amount of all such liabilities exceeds U.S. $1,000,000 and then only to the
extent of such excess.
(e) Notwithstanding any provision in the Tax Deed Covenant or this
Agreement, the aggregate liability of Seller for indemnification for Damages
under Article VIII of this Agreement plus liability for Taxes, Taxation or
Liability for Taxation under the Tax Deed Covenant shall not exceed U.S.
$42,500,000.
(f) The parties acknowledge and agree that (i) the provisions of Section
11.1 of this Agreement shall apply with respect to any dispute between the
parties under the Tax Deed Covenant, and (ii) the provisions of Section 11.2 of
this Agreement shall apply for purposes of giving notices pursuant to the terms
of the Tax Deed Covenant.
75
ARTICLE X
TERMINATION
10.1. Termination.
This Agreement may be terminated at any time prior to the Closing Date:
(a) by mutual agreement in writing of Buyer and Seller;
(b) by Buyer or Seller upon written notice to the other party (i) if the
Closing shall not have occurred by March 31, 2002 or such later date as the
parties shall have agreed to in writing, provided that the nonoccurrence of the
Closing is not attributable to an intentional breach of the terms hereof by the
party seeking termination, or (ii) if any Governmental Authority shall have
issued an injunction, decree or order or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Closing;
(c) by either Buyer or Seller if a condition to its obligation to perform
becomes incapable of fulfillment, provided, however, that the right to terminate
this Agreement pursuant to this Section 10.1(c) shall not be available to any
party if its obligation to perform became incapable of fulfillment due to its
intentional failure to fulfill any obligation under this Agreement;
(d) by Buyer if there has been a breach by Seller of any representation,
warranty, covenant or agreement set forth in this Agreement that is qualified as
to materiality or a material breach by Seller of any representation, warranty,
covenant or agreement that is not so qualified, and such breach, if capable of
being cured, shall not have been corrected or cured to the reasonable
satisfaction of Buyer within twenty (20) Business Days after Buyer has provided
written notice thereof to Seller;
(e) by Seller if there has been a breach by Buyer or its Subsidiaries of
any representation, warranty, covenant or agreement set forth in this Agreement
that is qualified as to materiality or a material breach of any representation,
warranty, covenant or agreement that is not so qualified and such breach, if
capable of being cured, shall not have been corrected or cured to the reasonable
satisfaction of Seller within twenty (20) Business Days after Buyer has provided
written notice thereof to Seller;
(f) by Buyer or Seller if the shareholders of Buyer do not approve the
Charter Amendment and this Agreement and the transactions contemplated hereby at
the Meeting;
(g) by Seller if Buyer's Board of Directors, in the course of exercising
its fiduciary duties or otherwise, chooses not to recommend to Buyer's
shareholders approval of the Charter Amendment or of the consummation of the
transactions contemplated in this Agreement or withdraws its recommendation with
respect thereto;
(h) by Seller if the Average Final Price is less than US $13.00 or by Buyer
if the Average Final Price is greater than US $21.00; and
76
(i) by Seller if (i) the sum of (A) the Cash Consideration plus (B) the
amount of all liabilities of Holdings immediately prior to the effective time of
the Closing would exceed (ii) 20% of the value of the aggregate consideration
payable by Buyer to Seller hereunder, inclusive of the value of the Share
Consideration, determined without regard to the minimum value of $13.00 provided
for under Section 1.1(c)(i), plus the Cash Consideration.
10.2. Effect of Termination.
In the event of the termination of this Agreement by Buyer or Seller as
provided in Section 10.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer, or Seller or their
respective directors, officers or Affiliates; provided, however, that,
notwithstanding a termination of this Agreement, the provisions of Section 5.8
(relating to the obligation to keep confidential and not to use certain
information and data obtained by them from the Company), and Sections 7.2 and
7.3 shall continue in full force and effect.
ARTICLE XI
MISCELLANEOUS
11.1. Consent to Jurisdiction and Service of Process.
Any legal action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, including without limitation
the Tax Deed Covenant, may be instituted in any United States Federal court
located in the Southern District of New York, State of New York, and each party
hereto agrees not to assert as a defense in any such action, suit or proceeding,
any claim that it is not subject personally to the jurisdiction of such court,
that its property is exempt or immune from attachment or execution, that the
action, suit or proceeding is brought in an inconvenient forum, that the venue
of the action, suit or proceeding is improper or that this Agreement, the Tax
Deed Covenant or the subject matter hereof or thereof may not be enforced in or
by such court. Each party further irrevocably submits to the jurisdiction of
such court in any such action, suit or proceeding. Buyer and its Subsidiaries
hereby appoint LeBoeuf, Lamb, Greene & MacRae, L.L.P., Attention: Hugh T.
McCormick, at its offices at 125 West 55th Street, New York, New York 10019, or
its offices at such other address in New York, New York, as it hereafter
furnishes to the parties to this Agreement, as their authorized agent to accept
and acknowledge on such parties' behalf service of any and all process that may
be served in any such action suit or proceeding. Any and all service of process
and any other notice in any such action, suit or proceeding shall be effective
against any party if given properly pursuant to the United States Federal Rules
of Civil Procedure or other applicable rules. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner permitted
by law or to commence legal proceedings or otherwise proceed against any other
party in any jurisdiction other than New York.
11.2. Notices.
Unless otherwise provided herein, any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
77
effective (a) when received, if delivered personally or by facsimile on a
Business Day during normal business hours (at the place of receipt) (with
confirmation of receipt thereof immediately thereafter) at the address or
telecopy number designated below or (b) on the second Business Day following the
date of delivery to an internationally recognized overnight courier, if so
delivered and marked or overnight or the most expediently available delivery and
fully prepaid, in each case, addressed as follows:
if to Buyer:
Scottish Annuity & Life Holdings, Ltd.
Grand Pavilion Commercial Centre
802 West Bay Road
Grand Cayman, Cayman Islands BWI 75201
Telephone: (345) 949-2800
Facsimile: (345) 949-0276
Attention: Scott E. Willkomm, President
with copies to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
U.S.A.
Telephone: (212) 424-8219
Facsimile: (212) 424-8500
Attention: Hugh T. McCormick
if to Seller:
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, CA 92660-6397
Telephone: (949) 219-3011
Facsimile: (949) 219-3706
Attention: General Counsel
with copies to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Telephone: 212-229-7000
Facsimile: 213-229-7520
Attention: Karen E. Bertero
78
Any party may, from time to time, by five (5) days' notice given in accordance
with this Section 11.2 to the other parties, designate another address or person
for receipt of notices hereunder.
11.3. Entire Agreement; No Third Party Beneficiaries.
This Agreement together with the exhibits and schedules hereto and the
other Transaction Documents (a) contains the entire agreement among the parties
with respect to the subject matter hereof, and supersedes all prior agreements,
written or oral, with respect thereto, and (b) except as set forth in Section
7.4 or as otherwise expressly specified herein, is not intended to confer upon
any person other than the parties any rights or remedies hereunder.
11.4. Waivers and Amendments; Non-Contractual Remedies.
This Agreement may be amended, modified or supplemented, and the terms
hereof may be waived, only by a written instrument signed by the parties or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof or the exercise of any
other such right, power or privilege. The rights and remedies herein provided
are cumulative and are not exclusive of any rights or remedies that any party
may otherwise have at law or in equity.
11.5. Payments and Currency.
(a) Any and all amounts payable hereunder, whether at the Closing or
otherwise, shall be paid to the appropriate party in United States dollars. No
payment obligation hereunder shall be discharged by amounts paid in another
currency.
(b) Except as otherwise specifically provided in this Agreement, if (i) any
monies owing under or pursuant to this Agreement are received or recovered by
one party hereunder from any other party hereunder in a currency other than
United States dollars or (ii) any judgment, settlement or final adjudication of
amounts owing under or pursuant to this Agreement by one party hereunder to any
other party hereunder is denominated in a currency other than United States
dollars, then such monies, judgment, settlement or final adjudication shall be
converted into United States dollars at the New York foreign exchange selling
rate applicable to trading among banks in amounts of US $1,000,000 or more (as
quoted at 3:00 p.m. Eastern time) as set forth in The Wall Street Journal
(Eastern Edition) with respect to the date on which such monies are received or
recovered or the date on which payment pursuant to such judgment, settlement or
final adjudication is due and owing.
11.6. Binding Effect; No Assignment.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and legal representatives. This
Agreement shall not be assigned, in whole or in part, by any party hereto
without the consent of the other party hereto.
79
11.7. Severability.
If at any time any provision of this Agreement is or becomes illegal,
invalid, void or unenforceable in any respect under the law of any jurisdiction,
neither the legality, validity, nor enforceability of the remaining provisions
hereof nor the legality, validity or enforceability of such provision under the
law of any other jurisdiction shall in any way be affected or impaired thereby,
the remainder of the provisions of this Agreement shall remain in full force and
effect. The parties shall endeavor in good faith negotiations to replace any
invalid, illegal, void or unenforceable provision with a valid, legal and
enforceable provision, the economic effect of which comes as close as possible
to the invalid, illegal, void or unenforceable provision.
11.8. Interpretation.
The Exhibits and Schedules are a part of this Agreement as if fully set
forth herein. All references herein to Sections, clauses, Exhibits and Schedules
shall be deemed references to such parts of this Agreement, unless the context
otherwise requires. The table of contents and headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. All
pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require. The phrase "to the knowledge of
Seller" or any similar phrase shall be deemed to refer to the knowledge of any
executive officers of Seller, Holdings or the Company, with such executive
officers being deemed to have made reasonable inquiry of the appropriate
personnel of Seller, Holdings and the Company with respect to the matter in
question. The phrase "to the knowledge of Buyer" or any similar phrase shall be
deemed to refer to the knowledge of any executive officers of Buyer or its
Subsidiaries, with such executive officers being deemed to have made reasonable
inquiry of the appropriate personnel of Buyer or its Subsidiaries with respect
to the matter in question. The definitions of terms in this Agreement shall be
applicable to both the singular and the plural forms of the terms defined where
either such form is used in this Agreement. Whenever the words "include,
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The word "herein," "hereof" and
"hereunder," and other words of similar import, refer to this Agreement as a
whole and not to any particular Section or clause. The adoption of the various
monetary amounts as de minimis or maximum levels or as a criterion resulting in
certain occurrences is not intended by the parties to be, and should not be
construed as, an indication of immateriality or materiality for purposes of any
of the Transaction Documents.
11.9. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS.
11.10. Waiver of Jury Trial.
Each party hereby waives, to the fullest extent permitted by applicable
law, any right it may have to a trial by jury in respect of any litigation
directly or indirectly arising out of, under or in connection with any of the
Transaction Documents.
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11.11. Counterparts.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto.
81
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
BUYER:
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
By: /s/ Scott E. Wilkomm
------------------------------------------
Name: Scott E. Wilkomm
Title: President and Chief Financial Officer
SELLER:
PACIFIC LIFE INSURANCE COMPANY
By: /s/ Glenn S. Schafer
------------------------------------------
Name: Glenn S. Schafer
Title: President
By: /s/ Audrey L. Milfs
------------------------------------------
Name: Audrey L. Milfs
Title: Secretary
82
Exhibit A
FORM OF
REGISTRATION RIGHTS AGREEMENT
between
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
and
PACIFIC LIFE INSURANCE COMPANY
Dated ---- ----, 200-
TABLE OF CONTENTS
Section 1. Definitions...................................................1
Section 2. Demand Registrations..........................................3
Section 3. Piggyback Registrations.......................................5
Section 4. Hold-Back Agreements..........................................6
Section 5. Registration Procedures.......................................7
Section 6. Registration Expenses........................................11
Section 7. Indemnification..............................................11
Section 8. Rules l44 and 144A...........................................13
Section 9. Underwritten Registrations...................................14
Section 10. Covenants of Stockholder.....................................14
Section 11. Miscellaneous................................................14
i
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated ------, 200-,
is entered into between Pacific Life Insurance Company, a California corporation
("Stockholder") and Scottish Annuity & Life Holdings, Ltd., a Cayman Islands
corporation (the "Company").
WHEREAS, the Company has entered into a Share Purchase Agreement with
Stockholder, dated August 6, 2001 (the "Share Purchase Agreement"), pursuant to
which and in connection with the transactions contemplated thereby, Stockholder
will acquire beneficial ownership of the Shares;
WHEREAS, the parties each desire to make certain covenants and agreements
concerning, among other things, the registration from time to time of the Shares
under the Securities Act of 1933, as amended (the "Securities Act"); and
WHEREAS, concurrent with the execution and delivery hereof, Stockholder and
the Company have entered into an agreement with respect to Stockholder's
investment in the Company (the "Stockholder Agreement").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
Company and Stockholder hereby agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Company Shares" means the ordinary shares, par value US $.01 per share, of
the Company.
"Delay Period" has the meaning set forth in Section 2(d) of this Agreement.
"Demand Notice" has the meaning set forth in Section 2(a) of this
Agreement.
"Demand Registration" has the meaning set forth in Section 2(b) of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"Interruption Period" has the meaning set forth in Section 5(o) of this
Agreement.
1
"list" means the listing of any securities on any stock exchange, quotation
system or other securities market in Europe, the United States or elsewhere.
"Losses" has the meaning set forth in Section 7(a) of this Agreement.
"Misstatement/Omission" has the meaning set forth in Section 7(a) of this
Agreement.
"Other Security Holders" has the meaning set forth in Section 2(c) of this
Agreement.
"Pacific LifeCorp" means Pacific LifeCorp, a Delaware corporation domiciled
in California that is the wholly-owned subsidiary of PMHC and the direct parent
corporation of Stockholder.
"Pacific Life Entity" means (a) PMHC, (b) Pacific LifeCorp and/or (c) any
direct or indirect wholly-owned subsidiary of PMHC.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency, limited liability company
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"Piggyback Registration" has the meaning set forth in Section 3(a) of this
Agreement.
"PMHC" shall mean Pacific Mutual Holding Company, a California mutual
holding company, which is the indirect parent corporation of Pacific Life
Insurance Company.
"qualify" means the qualification of any securities for sale, or of any
offering document in relation thereto, with any securities regulatory authority.
"register" means the preparation and filing of a Registration Statement in
compliance with the Securities Act and the declaration or ordering by the
Commission of the effectiveness of such Registration Statement.
"Registrable Securities" means (i) the Shares, (ii) any Company Shares
issued or issuable with respect to the Shares by way of stock dividends or stock
splits or in connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization or otherwise and (iii) any depositary
shares or depositary receipts representing or evidencing the Shares referred to
in (i) and (ii) hereof. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when (i) they have been
distributed to the public pursuant to an offering registered under the
Securities Act, (ii) they have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act or (iii) they are
eligible for immediate sale pursuant to Rule 144(k) under the Securities Act.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the related prospectus
and any information deemed to be a part of such prospectus pursuant to Rule 430A
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under the Securities Act, all amendments and supplements to such registration
statement or prospectus, including pre-and post-effective amendments (including
any registration statement filed pursuant to Rule 462(b) under the Securities
Act), all exhibits thereto and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
promulgated thereunder.
"Shares" means the Company Shares acquired by Stockholder pursuant to and
in connection with the Share Purchase Agreement and any other Shares acquired by
Stockholder other than in violation of the Stockholder Agreement.
"Stockholder" means Pacific Life Insurance Company and any of its
affiliates that hold Company Shares.
Unless otherwise stated, capitalized terms used but not
defined herein have the meanings set forth in the Share Purchase Agreement.
Section 2. Demand Registrations.
(a) Demand Registration. At any time following the Closing Date,
Stockholder shall have the right to require the Company to file a Registration
Statement in respect of all or a portion of the Registrable Securities (a
"Demand Registration"), by delivering to the Company written notice stating that
such right is being exercised, specifying the number of the Registrable
Securities to be included in such registration and describing the intended
method of distribution thereof (a "Demand Notice"); provided, however, that the
Company shall not be required to file a Registration Statement unless the total
aggregate value of the Registrable Securities, as of the date of the Demand
Notice, proposed to be registered by Stockholder pursuant to such Registration
Statement shall exceed US$ five (5) million. As promptly as practicable, but in
no event later than forty-five (45) days after the Company receives a Demand
Notice, the Company shall file with the Commission and thereafter use
commercially reasonable efforts to cause to be declared effective promptly a
Registration Statement (including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act if the Company is
then eligible to use such a registration) (a "Demand Registration") providing
for the registration of such number of Registerable Securities Stockholder shall
have demanded be registered for distribution in accordance with such intended
method of distribution.
(b) Number of Demand Registrations. Stockholder shall be entitled to
request an aggregate of three (3) Demand Registrations pursuant to this Section
2; provided, however, that Stockholder shall not be entitled to request more
than one (1) Demand Registration during any 12-month period. A registration
shall not count as one of the permitted Demand Registrations (i) unless it has
been declared or ordered effective and (ii) unless Stockholder is able to
register and sell at least 50% of the Registrable Securities requested by
Stockholder to be included in such registration.
(c) Shelf Registrations. Notwithstanding anything to the contrary in this
Section 2, if the Company is eligible to register the Registerable Securities on
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Form S-3 (or F-3), Stockholder shall have the right to require up to two (2)
such registrations per calendar year, each of which registrations shall be a
"Demand Registration" for all purposes of this Agreement, except that such
registrations shall not count as one or more of the three (3) Demand
Registrations that the Company is required to effect pursuant to Section 2(b).
Subject to paragraph (f) below, the Company may include in such registration
other securities for sale for its own account or for the account of any other
holders of the securities of the Company ("Other Security Holders").
(d) Effectiveness of Registration Statements. Subject to Section 2(e), upon
the occurrence of any event that would cause the Registration Statement (i) to
contain a material misstatement or omission or (ii) to be not effective and
usable for resale of Registrable Securities during the period that such
Registration Statement is required to be effective and usable, the Company shall
file an amendment to the Registration Statement as soon as reasonably
practicable, in the case of clause (i), correcting any such misstatement or
omission and, in the case of either clause (i) or (ii), use commercially
reasonable efforts to cause such amendment to be declared effective and such
Registration Statement to become usable as soon as reasonably practicable
thereafter. The Company agrees to use commercially reasonable efforts to keep
any Registration Statement filed pursuant to this Section 2 continuously
effective and usable for the sale of Registrable Securities (i) until 180 days
from the date on which the Commission declares such Registration Statement
effective or (ii) until all the Registrable Securities covered by such
Registration Statement have been sold pursuant to such Registration Statement,
if earlier, in either case as such period may be extended pursuant to this
Section 2.
(e) Restrictions on Demand Registrations. The Company shall have the right
to delay the filing of any Registration Statement otherwise required to be
prepared and filed by the Company pursuant to this Section 2, or to suspend the
use of any Registration Statement, for such period as set forth below (a "Delay
Period"), if:
(i) the Board of Directors of the Company determines that, in the
Board of Director's reasonable judgment and good faith, the registration
and distribution of the Registrable Securities covered or to be covered by
such Registration Statement would materially interfere with any pending
financing, acquisition, reorganization or other material transaction
involving the Company or any of its subsidiaries or would require
disclosure of any other material corporate development that the Company is
not otherwise required or prepared to disclose, for a period not in excess
of 90 days; provided, however, that the Company may not exercise this right
more than twice in any 12 month period; or
(ii) the Demand Registration would require that the Company prepare
audited financial statements as of a date other than its fiscal year end
(unless Stockholder agrees to pay the expenses of such an audit), until
such time as year-end audited financial statements become available.
(f) The Company will promptly give Stockholder written notice of such
determination and an approximation of the period of the anticipated delay.
Stockholder agrees to cease all public disposition efforts under such
Registration Statement with respect to Registrable Securities immediately upon
receipt of notice of the beginning of any Delay Period. The Company shall
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provide written notice to Stockholder of the end of each Delay Period. The time
period for which the Company is required to maintain the effectiveness of a
Registration Statement referred to in Section 2(d) hereto shall be extended by
the aggregate number of days of all Delay Periods and Interruption Periods
affecting such Registration.
(g) Other Registration Rights. The Company shall not enter into any
agreement granting any Other Security Holder piggyback rights to include such
Other Security Holder's securities in any registration in which Stockholder has
the right to include Registrable Securities on a priority basis more favorable
to such Other Security Holder than is provided to Stockholder pursuant to
Section 3(b).
(h) Withdrawal of Demand Notice. In connection with a Demand Notice
delivered by Stockholder pursuant to this Section 2, Stockholder may, at any
time prior to the effective date of the Registration Statement in respect
thereof, withdraw such Demand Notice by providing written notice to Company to
such effect; provided, however, that no such withdrawn Demand Notice shall be
deemed to have been a Demand Registration if such Demand Notice is withdrawn
prior to the filing by the Company of a Registration Statement pursuant thereto
or if Stockholder elects to bear all expenses associated with such withdrawn
Demand Notice and the Registration Statement pursuant thereto.
(i) Preemption of Demand Registration. Notwithstanding anything to the
contrary contained herein, after receiving a written request for a Demand
Registration, the Company may elect to effect an underwritten primary
registration in lieu of the Demand Registration if the Company's Board of
Directors believes that such primary registration would be in the best interests
of the Company. If the Company so elects to effect a primary registration, the
Company shall give prompt written notice (which shall be given not later than
thirty (30) days after the date of the Demand Notice) to Stockholder of its
intention to effect such a registration and shall afford Stockholder the rights
contained in Section 3 with respect to Piggyback Registrations. In the event
that the Company so elects to effect a primary registration after receiving a
request for a Demand Registration, the Company shall use commercially reasonable
efforts to have the Registration Statement declared effective by the Commission
as soon as reasonably practicable. In addition, the request for a Demand
Registration shall be deemed to have been withdrawn and such primary
registration shall not be deemed to be a Demand Registration.
Section 3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any of
its equity securities (other than Registrable Securities) under the Securities
Act (other than a registration statement on Form S-4 (or F-4) or S-8 (or F-8)(or
any successor forms to such Forms), whether or not for sale for its own account,
the Company will give prompt written notice of such proposed filing to
Stockholder at least thirty (30) days before the anticipated filing date. Such
notice shall offer Stockholder the opportunity to register such amount of
Registrable Securities as it shall request (a "Piggyback Registration"). Subject
to Sections 3(b) and 3(c) hereof, the Company shall include in each such
Piggyback Registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within fifteen (15)
days after such notice has been given by Stockholder to the Company. If the
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Registration Statement relating to the Piggyback Registration is to cover an
underwritten offering, such Registrable Securities shall be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. Stockholder shall be permitted to withdraw all or
part of the Registrable Securities from a Piggyback Registration at any time
prior to the effective time of such Piggyback Registration.
(b) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company by or through one or
more underwriters of recognized standing and the lead underwriters advise the
Company that, in their good faith judgment, the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering without materially and adversely affecting the marketability of the
offering, then the Company will include in the Registration Statement relating
to such registration (i) first, the securities the Company proposes to sell, and
(ii) second, the Registrable Securities requested to be included in such
registration by Stockholder and the securities requested to be included in such
registration by Other Security Holders, reduced, in each case, on a pro rata
basis, based on the amount of Registrable Securities owned by Stockholder or the
securities owned by each such Other Security Holder.
(c) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of Other Security Holders by or
through one or more underwriters of recognized standing and the lead
underwriters advise the Company that, in their good faith judgment, the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without materially and adversely affecting
the marketability of the offering, the Company will include in such registration
the securities owned by such Other Security Holders and the Registrable
Securities requested to be included in such registration by Stockholder,
reduced, in each case, on a pro rata basis, based on the amount of Registrable
Securities owned by Stockholder or the securities owned by each such Other
Security Holder.
Section 4. Hold-Back Agreements.
(a) Company Hold-Back. The Company agrees (i) if so required by the lead
underwriters of an underwritten offering effected pursuant to a Registration
Statement under Section 2 or 3 hereof, not to effect any public or private sale
or distribution of securities of the same type (including any underlying
securities) as the Registrable Securities included in such underwritten
registration, or any securities convertible into or exchangeable or exercisable
for such securities, during the ten (10) days prior to the pricing of such
offering and until the earlier of (A) the end of the 120-day period beginning on
the date of pricing of such offering (except as part of such underwritten
offering and except pursuant to registrations on Form S-4 (or F-4) or Form S-8
(or F-8) (or any successor forms to such Forms)), unless the lead underwriters
for such offering otherwise agree, and (B) the abandonment of such offering, and
(ii) to use commercially reasonable efforts to cause each holder of securities
of the same type as the securities included in such underwritten offering, or
any securities convertible into or exchangeable or exercisable for such
securities, in each case purchased from the Company at any time after the date
of this Agreement (other than in a registered public offering), to agree not to
effect any public or private sale or distribution or otherwise dispose
(including sales pursuant to Rule 144 under the Securities Act) of any such
securities during such period (except as part of such underwritten registration,
6
if otherwise permitted), unless the lead underwriters for such offering
otherwise agree.
(b) Stockholder Hold-Back. If the Company registers securities of the
Company in connection with an underwritten public offering of Company Shares
solely by the Company, Stockholder, if so requested by the lead underwriters of
such underwritten offering, agrees not to effect any public sale or distribution
of any of the Registrable Securities, including any sale pursuant to Rule 144
under the Securities Act (other than as a part of such underwritten public
offering) without the consent of the Company or such lead underwriters during
the period commencing on a date specified by the lead underwriters, such date
not to exceed ten (10) days prior to the effective date of such Registration
Statement, and ending on the earlier of (A) 120 days after the pricing of such
offering, (B) the abandonment of such offering and (C) the first date on which
the Company or any affiliate or executive officer of the Company is permitted to
sell Company Shares.
Section 5. Registration Procedures.
Whenever the Company is required to register Registrable Securities
pursuant to Section 2 or 3 hereof, the Company will use commercially reasonable
efforts to effect the registration to permit the sale of such Registrable
Securities in accordance with the intended method or methods of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities as prescribed by Section 2 or 3 on a form
available for the sale of the Registrable Securities by Stockholder in
accordance with the intended method or methods of distribution thereof and use
commercially reasonable efforts to cause each such Registration Statement to
become and remain effective within the time periods and otherwise as provided
herein;
(b) prepare and file with the Commission such amendments, (including
post-effective amendments) to the Registration Statement and such supplements to
the prospectus as may be necessary to keep such Registration Statement effective
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement until such
time as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such Registration Statement;
(c) furnish to Stockholder and to each underwriter, if any, such number of
copies of such Registration Statement, each amendment and post-effective
amendment thereto, the prospectus included in such Registration Statement
(including each preliminary prospectus and any supplement to such prospectus and
any other prospectus filed under Rule 424 of the Securities Act), in each case
including all exhibits, and such other documents as Stockholder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by Stockholder or to be disposed of by such underwriter (the Company
hereby consenting to the use in accordance with all applicable law of each such
Registration Statement (or amendment or post-effective amendment thereto) and
each such prospectus (or preliminary prospectus or supplement thereto) by
7
Stockholder and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Registration Statement or
prospectus);
(d) use commercially reasonable efforts to register or qualify and, if
applicable, to cooperate with Stockholder, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of, the Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as the Stockholder or lead underwriters (if any) shall reasonably
request, to keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and to do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company will not be required (i) to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this paragraph or (ii) to consent to general service of process or taxation in
any such jurisdiction where it is not so subject;
(e) use commercially reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which securities of the
same class as the Registrable Securities are then listed and, if not so listed,
to be listed on NASDAQ or a national securities exchange selected by the
Company;
(f) provide a transfer agent and registrar for all such Registrable
Securities and a CUSIP number or other recognized securities identification
number for all such Registrable Securities not later than the effective date of
such Registration Statement;
(g) comply with all applicable rules and regulations of the Commission, and
make available to its security holders an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (or in each case within such extended
period of time as may be permitted by the Commission for filing the applicable
report with the Commission) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in an underwritten
offering or (ii) if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Company after the effective
date of a Registration Statement, which earnings statement shall cover said
12-month period;
(h) use commercially reasonable efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities included therein for sale in any jurisdiction, and, in the event of
the issuance of any stop order suspending the effectiveness of a Registration
Statement, or of any order suspending the qualification of any Registrable
Securities included in such Registration Statement for sale in any jurisdiction,
the Company will use commercially reasonable efforts promptly to obtain the
withdrawal of such order at the earliest possible moment;
8
(i) obtain "cold comfort" letters and updates thereof (which letters and
updates (in form, scope and substance) shall be reasonably satisfactory to the
lead underwriters, if any, and Stockholder) from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data are,
or are required to be, included in the Registration Statement), addressed to
each of the underwriters, if any, and Stockholder, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and such other
matters as the lead underwriters, if any, or Stockholder may reasonably request;
(j) obtain opinions of independent counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the lead underwriters, if any, and Stockholder),
addressed to Stockholder and each of the underwriters, if any, covering the
matters customarily covered in opinions of issuer's counsel requested in
underwritten offerings, such as the effectiveness of the Registration Statement
and such other matters as may be requested by such counsel and lead
underwriters, if any;
(k) promptly notify Stockholder and the lead underwriters, if any, and
confirm such notice in writing,
(i) when a prospectus or any supplement or post-effective amendment to
such prospectus has been filed and, with respect to a Registration
Statement or any post-effective amendment thereto, when the same has become
effective,
(ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration
Statement or related prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any prospectus or the initiation of any proceedings
by any Person for that purpose,
(iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Securities for offer or
sale under the securities or blue sky laws of any jurisdiction, or the
contemplation, initiation or threatening of any proceeding for such
purpose, and
(v) of the happening of any event or the existence of any facts that
make any statement made in such Registration Statement or prospectus untrue
in any material respect or that require the making of any changes in such
Registration Statement or prospectus so that it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made (in the case of any
prospectus), not misleading (which notice shall be accompanied by an
9
instruction to Stockholder and the lead underwriters, if any, to suspend
the use of the prospectus until the requisite changes have been made);
(l) if requested by the lead underwriters, if any, or Stockholder, promptly
incorporate in a prospectus, supplement or post-effective amendment such
information as the lead underwriters, if any, and Stockholder reasonably request
to be included therein relating to the sale of the Registrable Securities,
including, without limitation, information with respect to the number of shares
of Registrable Securities being sold to the underwriters, the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten offering of the Registrable Securities to be sold in such
offering, and make all required filings of such prospectus, supplement or
post-effective amendment promptly following notification of the matters to be
incorporated in such supplement or post-effective amendment;
(m) furnish to Stockholder and the lead underwriters, without charge, at
least one signed copy of the Registration Statement;
(n) as promptly as practicable upon the occurrence of any event
contemplated by clause 5(k)(v) above, prepare a supplement or post-effective
amendment to the Registration Statement or the prospectus, or any document
incorporated therein by reference, or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold hereunder, the prospectus will not contain an untrue statement of a
material fact or an omission to state a material fact required to be stated in a
Registration Statement or prospectus or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(o) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by Stockholder or by the lead underwriters
(including cooperating in reasonable marketing efforts, including participation
by the senior executives of the Company in any "roadshow" or similar meeting
with potential investors) in order to expedite or facilitate the disposition of
such Registrable Securities and, in connection therewith, provide
indemnification provisions and procedures substantially to the effect set forth
in Section 7 hereof with respect to all parties to be indemnified pursuant to
said Section. The above shall be done at each closing under such underwriting or
similar agreement, or as and to the extent required thereunder.
Stockholder agrees that, upon receipt of written notice from the Company of
the happening of any event of the kind described in Section 5(k)(iii), (iv) or
(v), Stockholder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement until Stockholder's receipt of
the copies of the supplemented or amended Registration Statement contemplated by
Section 5(n), or until it is advised in writing by the Company that the use of
the applicable prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus (such period during which
disposition is discontinued being an "Interruption Period"), and, if so directed
by the Company, Stockholder will deliver to the Company all copies of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
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Section 6. Registration Expenses.
(a) Expenses Generally. The Company shall bear all expenses incurred in
connection with the registration or attempted registration of the Registrable
Securities pursuant to Sections 2 and 3 of this Agreement as provided herein.
Such expenses shall include, without limitation, all printing, legal and
accounting expenses incurred by the Company or Stockholder and all registration
and filing fees imposed by the Commission, any state securities commission or
the principal national securities exchange or national market system on which
the Shares are then traded or quoted. Notwithstanding the foregoing sentence,
Stockholder shall be responsible for any brokerage or underwriting commissions
and taxes of any kind (including, without limitation, transfer taxes) with
respect to any disposition, sale or transfer of Registrable Securities.
(b) Withdrawal of Registration Statement. The obligation of the Company to
bear the expenses described in Section 6(a) shall apply irrespective of whether
a registration, once properly demanded, if applicable, becomes effective, is
withdrawn or suspended or is converted to another form of registration,
irrespective of when any of the foregoing shall occur; provided, however, that
the expenses described in Section 6(a) related to any Registration Statement
withdrawn solely at the request of Stockholder or any supplements or amendments
to a Registration Statement resulting from a Misstatement/Omission by
Stockholder shall be borne solely by Stockholder.
Section 7. Indemnification.
(a) Indemnification by Company. The Company agrees to indemnify, to the
fullest extent permitted by law, Stockholder, each affiliate of Stockholder and
each officer, director, employee, counsel, agent or representative of
Stockholder and its affiliates and each Person who controls any such Person
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) against, and hold it and them harmless from, all losses,
claims, damages, liabilities, costs (including, without limitation, costs of
preparation and attorneys' fees and disbursements) and expenses, including
expenses of investigation (collectively, "Losses") arising out of, caused by or
based upon any untrue or alleged untrue statement of material fact contained in
any Registration Statement, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (a "Misstatement/Omission"), or any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law, or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; provided, however, that the
Company shall not be liable insofar as such Misstatement/Omission or violation
is made in reliance upon and in conformity with information furnished in writing
to the Company by Stockholder expressly for use therein. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act) to the same extent as provided above with respect to the
indemnification of Stockholder. This indemnity shall be in addition to any other
indemnification arrangements to which Company may otherwise be party.
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(b) Indemnification by Stockholder. In connection with any Registration
Statement in which Stockholder is participating, Stockholder agrees to
indemnify, to the fullest extent permitted by law, the Company and each
affiliate, employee, counsel, agent, representative, director or officer of the
Company and each Person who controls the Company (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act) against, and
hold it harmless from, any Losses arising out of or based upon any
Misstatement/Omission contained in the Registration Statement, if and to the
extent that such Misstatement/Omission arose out of or was based upon
information furnished in writing by Stockholder for use therein. The obligation
of Stockholder to indemnify will be limited to the net amount of proceeds (net
of payment of all expenses) received by Stockholder from the sale of Registrable
Securities pursuant to such Registration Statement giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. In case any action, claim or
proceeding shall be brought against any Person entitled to indemnification
hereunder, such indemnified party shall promptly notify each indemnifying party
in writing, and such indemnifying party shall assume the defense thereof
including the employment of counsel reasonably satisfactory to such indemnified
party and payment of all fees and expenses incurred in connection with the
defense thereof. The failure to so notify such indemnifying party shall not
affect any obligation it may have to any indemnified party under this Agreement
or otherwise except to the extent that (as finally determined by a court of
competent jurisdiction (which determination is not subject to review or appeal))
such failure materially prejudiced such indemnifying party. Each indemnified
party shall have the right to employ separate counsel in such action, claim or
proceeding and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of each indemnified party unless: (i) such
indemnifying party has agreed to pay such expenses; (ii) such indemnifying party
has failed promptly to assume the defense and employ counsel reasonably
satisfactory to such indemnified party; or (iii) the named parties to any such
action, claim or proceeding (including any impleaded parties) include both such
indemnified party and such indemnifying party or an affiliate or controlling
person of such indemnifying party, and such indemnified party shall have been
advised by counsel that either (x) there may be one or more legal defenses
available to it which are different from or in addition to those available to
such indemnifying party or such affiliate or controlling person or (y) a
conflict of interest may exist if such counsel represents such indemnified party
and such indemnifying party or its affiliate or controlling person; provided,
however, that such indemnifying party shall not, in connection with any one such
action or proceeding, or separate but substantially similar or related actions
or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the fees and expenses
of more than one separate firm of attorneys (in addition to any local counsel),
which counsel shall be designated by such indemnified party.
No indemnified party shall be liable for any settlement effected without
its written consent. Each indemnifying party agrees, jointly and severally, that
it will not, without the indemnified party's prior written consent, consent to
entry of any judgment or settle or compromise any pending or threatened claim,
action or proceeding in respect of which indemnification or contribution may be
sought hereunder unless the foregoing contains an unconditional release, in form
and substance reasonably satisfactory to the indemnified parties, of the
indemnified parties from all liability and obligation arising therefrom. The
12
indemnifying party's liability to any such indemnified party hereunder shall not
be extinguished solely because any other indemnified party is not entitled to
indemnity hereunder.
(d) Survival. The indemnification provided for under this Agreement will
(i) remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party, (ii) survive the transfer of securities and
(iii) survive the termination of this Agreement.
(e) Right to Contribution. If the indemnification provided for in this
Section 7 is unavailable to, or insufficient to hold harmless, an indemnified
party under Section 7(a) or Section 7(b) above in respect of any Losses referred
to in such Sections, then each applicable indemnifying party shall have an
obligation to contribute to the amount paid or payable by such indemnified party
as a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the Company, on the one hand, and of Stockholder, on the
other, in connection with the Misstatement/Omission which resulted in such
Losses, taking into account any other relevant equitable considerations. The
amount paid or payable by a party as a result of the Losses referred to above
shall be deemed to include, subject to the limitations set forth in Section 7(c)
above, any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation, lawsuit or legal or administrative action or
proceeding.
The relative fault of the Company, on the one hand, and of Stockholder, on
the other, shall be determined by reference to, among other things, whether the
relevant Misstatement/Omission relates to information supplied by the Company or
by Stockholder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Misstatement/Omission.
The Company and Stockholder agree that it would not be just and equitable
if contribution pursuant to this Section 7(e) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 7(e), Stockholder shall not be required to contribute any amount
in excess of the amount by which (i) the amount (net of payment of all expenses)
at which the securities that were sold by Stockholder and distributed to the
public were offered to the public exceeds (ii) the amount of any damages which
Stockholder has otherwise been required to pay by reason of such
Misstatement/Omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
Section 8. Rules l44 and 144A.
The Company shall timely file the reports required to be filed by it under
the Securities Act and the Exchange Act (including but not limited to the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act)
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of
Stockholder, make publicly available other information) and will take such
13
further action as Stockholder may reasonably request, all to the extent required
from time to time to enable Stockholder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission.
Section 9. Underwritten Registrations.
In the case of any underwritten offering pursuant to a Demand Registration
under Section 2 hereof, the lead underwriters thereof shall be selected by
Stockholder and shall be reasonably satisfactory to the Company.
Section 10. Covenants of Stockholder.
Stockholder hereby agrees (a) to cooperate with the Company and to furnish
to the Company all such information in connection with the preparation of any
Registration Statement and any filings with any state securities commissions as
the Company may reasonably request, (b) to the extent required by the Securities
Act, to deliver or cause delivery of the prospectus contained in any
Registration Statement, and any amendment or supplement thereto, to any
purchaser from such Stockholder of the Registrable Securities covered by the
Registration Statement and (c) to notify the Company within ten days after any
sale of Registrable Securities by Stockholder.
Section 11. Miscellaneous.
(a) Consent to Jurisdiction and Service of Process. Any legal action, suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby may be instituted in any United States Federal court located
in the Southern District of New York, State of New York, and each party hereto
agrees not to assert as a defense in any such action, suit or proceeding, any
claim that it is not subject personally to the jurisdiction of such court, that
its property is exempt or immune from attachment or execution, that the action,
suit or proceeding is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court. Each party further
irrevocably submits to the jurisdiction of such court in any such action, suit
or proceeding. The Company and its subsidiaries hereby appoint CT Corporation
System of New York as their authorized agent to accept and acknowledge on such
parties' behalf service of any and all process that may be served in any such
action suit or proceeding. Any and all service of process and any other notice
in any such action, suit or proceeding shall be effective against any party if
given properly pursuant to the United States Federal Rules of Civil Procedure or
other applicable rules. Nothing herein contained shall be deemed to affect the
right of any party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any other party in any
jurisdiction other than New York.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
14
(c) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable air courier guaranteeing overnight
delivery (charges prepaid), mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid or sent by telecopier:
If to the Company:
Scottish Annuity & Life Holdings Ltd.
Grand Pavilion Commercial Centre
802 West Bay Road
Grand Cayman, Cayman Islands BWI 75201
Attention: Scott E. Willkomm
President and Chief Financial Officer
Fax: (345) 949-0276
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Hugh T. McCormick, Esq.
Fax: (212) 424-8500
If to Stockholder:
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, CA 92660-6397
Attention: General Counsel
Fax: (949) 219-3706
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Karen E. Bertero
Fax: 213-229-6360
or to such other address or to the attention of such other personas the
recipient party has specified by prior written notice to the sending party. Any
notice, demand or other communication given hereunder will be deemed to have
been given as of the date so delivered; as of the first business day after being
delivered to an overnight air courier guaranteeing overnight delivery; on the
fifth business day after being mailed; or when transmission has been completed,
if telecopied; as the case may be.
15
(d) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(e) No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with,
adversely effects or violates the rights granted to Stockholder in this
Agreement. To the extent that this Agreement is inconsistent with, adversely
effects or violates the rights granted to Other Security Holders under any other
agreement previously entered into by and between the Company and such Other
Security Holders, such inconsistency, adverse effect or violation shall be
remedied, to the extent necessary and possible, by granting such Other Security
Holders the rights afforded to Stockholder under this Agreement.
(f) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights provided in the Share Purchase Agreement or granted by
law. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and hereby
agree to waive the defense in any action for specific performance or injunctive
relief that a remedy at law would be adequate. Accordingly, any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(g) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement, including the provisions of this sentence, may be
amended, modified, supplemented or waived only upon the prior written consent of
the parties hereto.
(h) Successors and Assigns. This Agreement shall not be assigned, in whole
or in part, by any party hereto without the written consent of the other party;
provided, however, that Stockholder may, without written consent of the Company,
assign its rights and delegate its duties hereunder to any Pacific Life Entity.
Notwithstanding the foregoing, the rights and duties of a party hereto may only
be assigned to a third party, including a Pacific Life Entity, if such third
party agrees in writing to be bound by this Agreement.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected, it
being intended that the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
(j) Descriptive Headings; Interpretation. The descriptive headings of this
Agreement are inserted for convenience of reference only and shall not limit or
16
otherwise affect the meaning hereof. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
(k) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(l) Counterparts. This Agreement may be executed in any number of
counterparts, any one of which need not contain the signatures of more than one
party, but each of which when so executed shall be deemed to be an original and
all such counterparts taken together shall constitute one and the same
Agreement.
17
IN WITNESS WHEREOF the parties hereto have or have caused this Registration
Rights Agreement to be duly executed as of the date first above written.
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
By:
Name:
------------------------------------------
Title:
-----------------------------------------
PACIFIC LIFE INSURANCE COMPANY
By:
Name:
------------------------------------------
Title:
-----------------------------------------
By:
Name:
------------------------------------------
Title:
-----------------------------------------
18
Exhibit B
FORM OF
STOCKHOLDER AGREEMENT
by and between
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
AND
PACIFIC LIFE INSURANCE COMPANY
--------- ---, 200-
TABLE OF CONTENTS
Page
ARTICLE I Definitions.............................................1
ARTICLE II Agreements of Stockholder...............................3
Section 2.1 Restrictions on Purchase................................3
Section 2.2 Stockholder Change of Control...........................4
Section 2.3 Standstill Provisions...................................4
ARTICLE III Board and Committee Representation......................5
Section 3.1 Board Representation....................................5
Section 3.2 Committees..............................................6
ARTICLE IV Effectiveness and Termination...........................6
Section 4.1 Effectiveness...........................................6
ARTICLE V Representations and Warranties..........................6
Section 5.1 Representations and Warranties of the Company...........6
Section 5.2 Representations and Warranties of the Stockholder.......7
ARTICLE VI Miscellaneous...........................................7
Section 6.1 Injunctive Relief.......................................7
Section 6.2 Successors and Assigns..................................7
Section 6.3 Amendments; Waiver......................................7
Section 6.4 Notices.................................................8
Section 6.5 Governing Law...........................................9
Section 6.6 Headings................................................9
Section 6.7 Integration.............................................9
Section 6.8 Severability............................................9
Section 6.9 Consent to Jurisdiction.................................9
Section 6.10 Counterparts............................................9
i
This STOCKHOLDER AGREEMENT (this "Agreement"), dated ------- --, 200-, is
entered into by Pacific Life Insurance Company, a California corporation
("Stockholder"), and Scottish Annuity & Life Holdings, Ltd., a Cayman Islands
corporation (the "Company").
WITNESSETH:
WHEREAS, the Company has entered into a Share Purchase Agreement with
Stockholder, dated as of August 6, 2001 (the "Share Purchase Agreement")
pursuant to which the Stockholder will acquire ----- Shares, as set forth in the
Share Purchase Agreement; and
WHEREAS, in connection with the consummation of the transactions
contemplated by the Share Purchase Agreement (the "Closing"), the Company and
the Stockholder desire to establish in this Agreement certain terms and
conditions concerning the acquisition and disposition by the Stockholder of the
Shares and other Securities of the Company, as applicable, and related
provisions concerning the Stockholder's rights to designate certain members of
the Board.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
Company and Stockholder hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 As used in this Agreement, the following terms shall have the
meanings set forth below:
"Affiliate" shall mean, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such Person, but shall not include
officers and directors of a Person solely as a result of such relationship. For
the purposes of this definition, "control," when used with respect to any
particular Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of Voting
Securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Beneficial Owner" (and, with correlative meanings, "Beneficially Own" and
"Beneficial Ownership") of any interest means a Person who, together with his or
its Affiliates, is or may be deemed a beneficial owner of such interest for
purposes of Rule 13d-3 or 13d-5 under the Exchange Act, or who, together with
his or its Affiliates, has the right to become such a beneficial owner of such
interest (to the extent such right is exercisable) pursuant to any agreement,
arrangement or understanding, or upon the exercise, conversion or exchange of
any option, warrant, right or other instrument, or otherwise.
"Board" shall mean the board of directors of the Company.
1
"Closing" shall have the meaning assigned in the second recital of this
Agreement.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Company" shall have the meaning assigned in the preamble to this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Nominating Committee" shall mean the committee comprised of members of the
Board whose functions include recommendations to the Board of nominees for
election as directors. In the event there shall not be such a committee,
"Nominating Committee" shall mean the Board itself.
"Pacific LifeCorp" shall mean Pacific LifeCorp, a Delaware corporation
domiciled in California that is the wholly-owned subsidiary of PMHC and the
direct parent corporation of Stockholder.
"Pacific Life Entity" shall mean (a) PMHC, (b) Pacific LifeCorp and/or (c)
any direct or indirect wholly-owned subsidiary of PMHC.
"Person" shall mean any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"PMHC" shall mean Pacific Mutual Holding Company, a California mutual
holding company, which is the indirect parent corporation of Stockholder.
"Redemption Date" shall have the meaning set forth in Section 2.2 to this
Agreement.
"Securities" shall mean any stock or other equity securities of a Person,
including in the case of mutual insurance companies, insurance policies with the
power to vote with respect to the election of directors generally.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the ordinary shares, par value $.01 per share, of the
Company.
"Stockholder" shall have the meaning assigned in the preamble to this
Agreement, and shall also mean (i) any successor of Stockholder to the rights
and obligations to the holder of Shares hereunder and (ii) any Pacific Life
Entity then holding Shares.
"Stockholder Affiliate" shall mean Pacific LifeCorp, PMHC, and any other
Affiliate of the Stockholder.
"Stockholder Change of Control" shall mean the occurrence of an event in
which any Person becomes the Beneficial Owner, directly or indirectly, of Voting
Securities entitled to vote with respect to the election of directors or any
similar governing body of the Stockholder or any Pacific Life Entity then
holding Shares representing more than 9.9% of the Voting Securities of the
2
Company, pursuant to the consummation of a reorganization, merger, consolidation
or liquidation of, or sale of all or substantially all of the assets of,
Stockholder or such Pacific Life Entity, or a share exchange or similar form of
corporate transaction involving the Stockholder or such Pacific Life Entity as
permitted by Article 9(b) of the Company's Articles of Association, so as to
cause such Person's direct or indirect ownership percentage to exceed 50% of all
Voting Securities of Stockholder or such Pacific Life Entity; provided, however,
that the event described in this paragraph shall not be deemed to be a
Stockholder Change of Control if it occurs as the result of any of the following
acquisitions: (A) by any employee benefit plan sponsored or maintained by the
Company or any Pacific Life Entity then holding any Shares; (B) by any
underwriter temporarily holding securities pursuant to an offering of such
securities; or (C) as a result of the demutualization of PMHC (excluding a
"sponsored" demutualization, which shall be deemed a Stockholder Change of
Control).
"Stockholder Nominee Notice" shall have the meaning assigned in Section
3.1(a) of this Agreement.
"13D Group" shall mean any group of Persons acquiring, holding, voting or
disposing of any Voting Security which would be required under Section 13(d) of
the Exchange Act and the rules and regulations thereunder to file a statement on
Schedule 13D with the Commission as a "person" within the meaning of Section
13(d)(3) of the Exchange Act.
"Transfer" shall mean any sale, transfer, pledge, encumbrance or other
disposition to any Person, and to "Transfer" shall mean to sell, transfer,
pledge, encumber or otherwise dispose of to any Person.
"Transferee" shall mean any person to whom Securities are Transferred.
"Voting Securities" shall mean Securities with the power to vote with
respect to the election of directors generally. For purposes of this Agreement,
any options and warrants with respect to Voting Securities, and any Securities
that are convertible or exchangeable for Voting Securities, shall be treated as
Voting Securities only to the extent such instruments are currently exercisable
or "in the money."
ARTICLE II
Agreements of Stockholder
Section 2.1 Restrictions on Purchase. Each of Stockholder, Pacific LifeCorp
and PMHC agrees that, without the prior written consent of the Company (the
granting of which shall be at the Company's sole discretion), none of
Stockholder, Pacific LifeCorp and PMHC shall, and each of Stockholder, Pacific
LifeCorp and PMHC shall cause each of their respective Affiliates not to, singly
or as part of a partnership, limited partnership, syndicate or other 13D Group,
directly or indirectly, acquire, propose to acquire, or publicly announce or
otherwise disclose an intention to propose to acquire, or offer or agree to
acquire, by purchase or otherwise (including by exercising control over a Person
it did not previously control), Beneficial Ownership of any Security so as to
cause Stockholder's Beneficial Ownership percentage in the Company to exceed
24.9% of the issued and outstanding Securities of the Company (or such other
percentage as is necessary to prevent the Company from being treated as a
controlled foreign corporation as a result of amendments to Section 951 et seq.
3
of the United States Internal Revenue Code of 1986, as amended, or any successor
provisions thereto). For the purposes of this Section 2.1 only, a "Beneficial
Owner" of an interest shall also include a Person who, together with his or its
Affiliates, has the right to become a beneficial owner of an interest (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding, or upon the exercise,
conversion or exchange of any option, warrant, right or other instrument, or
otherwise.
Section 2.2 Stockholder Change of Control. Notwithstanding any provision
herein to the contrary, in connection with the occurrence of a Stockholder
Change of Control, the Company shall have the option, in its sole discretion, to
redeem all of the Shares Beneficially Owned by Stockholder (or, if the
Stockholder Change of Control relates to any other Pacific Life Entity, such
other Pacific Life Entity), at a price equal to the greater of (x) the product
obtained by multiplying (i) the average of the final closing trading prices of
the Shares on the NASDAQ National Market, or the New York Stock Exchange, as
appropriate, as reported in the Wall Street Journal, Eastern Addition (or such
other sources as the parties agree to in writing), for the twenty consecutive
trading days ending on the fifth business day immediately preceding the
Redemption Date, by (ii) the number of Shares Beneficially Owned by Stockholder
or such other Pacific Life Entity, as applicable, and (y) the value of
Stockholders' (or such other Pacific Life Entity's, if applicable) Shares,
according to the following formula:
Value = A x B x C, where
A is the Company's earnings per share for the most recently completed
fiscal year;
B is the multiple of earnings used by the acquiring person in such
Stockholder Change of Control to determine the acquisition price of the
Stockholder or such other Pacific Life Entity, as applicable; and
C is the number of Shares Beneficially Owned by Stockholder or such other
Pacific Life Entity, as applicable.
Stockholder or such other Pacific Life Entity shall provide written notice
to the Company regarding a potential Stockholder Change of Control at least 60
days prior to the planned date of consummation of such Stockholder Change of
Control. The Company shall give written notice of its intention to exercise the
option provided for in this Section 2.2 not later than 30 days after receiving
written notice of such potential Stockholder Change of Control and shall
consummate the redemption of the Shares Beneficially Owned by the Stockholder or
such other Pacific Life Entity, as applicable, at least 10 days prior to the
date on which the Stockholder Change of Control is scheduled to occur (the
"Redemption Date").
Section 2.3 Standstill Provisions. Until the second anniversary of the
Closing, Stockholder agrees that Stockholder will not, and will cause
Stockholder Affiliates not to alone or with a third party, take any of the
following actions:
(a) deposit (either before or after the date of the execution of this
Agreement) any Security of the Company in a voting trust or subject any Security
of the Company to any similar arrangement or proxy with respect to the voting of
such Security; or
4
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies," or become a "Participant" in a "solicitation" (as
such terms are used in Regulation 14A under the Exchange Act) to seek to advise
or influence any person to vote against any proposal or director nominee
recommended to the stockholders of the Company; or
(c) form, join or in any way participate in a 13D Group with respect to any
Security of the Company or any Securities of its subsidiaries; or
(d) commence (including by means of proposing or publicly announcing or
otherwise disclosing an intention to propose, solicit, offer, seek to effect or
negotiate) a merger, acquisition or other business combination transaction
relating to the Company; or
(e) initiate a "proposal," as such term is used in Rule 14a-8 under the
Exchange Act, "propose," or otherwise solicit the approval of, one or more
Stockholders for a "proposal" or induce or attempt to induce any other person to
initiate a "proposal"; or
(f) otherwise act to seek to control or influence the management, the Board
or the policies of the Company other than pursuant to its right to nominate
directors pursuant to Article III hereof; or
(g) take any other action to seek or effect control of the Company other
than in a manner consistent with the terms of this Agreement or;
(h) make a public request to the Company (or its directors, officers,
Stockholders, employees or agents) to take any action in respect of the
foregoing materials; or
(i) disclose any intention, plan or arrangement inconsistent with the
foregoing.
ARTICLE III
Board and Committee Representation
Section 3.1 Board Representation. (a) Effective as of the Closing, for such
period of time as Stockholder continues to Beneficially Own Shares that
constitute not less than 15% of all of the issued and outstanding Shares, the
Company shall cause such number of persons, equaling not less than 20% of the
total number of directors on the Board and designated by Stockholder in a
written Stockholder Nominee Notice (a "Stockholder Nominee Notice") delivered to
the Company not less than 60 days prior to the annual meeting of the
Stockholders of the Company, to be nominated by the Nominating Committee for
election or reelection to the Board at the next annual meeting of the
Stockholders of the Company.
(b) In the event that Stockholder ceases to Beneficially Own at least 15%,
but continues to Beneficially Own more than 10%, of the Shares, the Company
agrees to cause the Nominating Committee to nominate one person designated by
Stockholder in a Stockholder Nominee Notice, delivered to the Company not less
than 60 days prior to the annual meeting of the Stockholders of the Company, for
election or reelection to the Board at the next annual meeting of the
Stockholders of the Company; provided, however, that in the event that
Stockholder ceases to Beneficially Own at least 15% of the Shares, the directors
5
who were not designated by Stockholder may, by majority vote of such directors
at any time, request such number of directors designated by Stockholder to
resign from the Board so only one director designated by Stockholder remains on
the Board, and Stockholder shall immediately cause such director or directors to
resign from the Board.
(c) In the event that Stockholder ceases to Beneficially Own more than 5%
of the Shares, the directors who were not designated by Stockholder may, by
majority vote of such directors at any time, request any or all of the directors
designated by Stockholder to resign from the Board, and Stockholder shall
immediately cause such director or directors to resign from the Board.
Section 3.2 Committees. As long as Stockholder Beneficially Owns at least
15% of the Shares, the Company shall cause the Audit and Finance and Investment
Committees of the Board and, if in existence, the Compensation Committee, to
each include as a voting member on such committee at least one director
designated by Stockholder pursuant to the most recent Stockholder Nominee
Notice.
ARTICLE IV
Effectiveness and Termination
Section 4.1 Effectiveness. This Agreement shall take effect immediately
upon the Closing and shall remain in effect until it is terminated by the mutual
written agreement of the parties.
ARTICLE V
Representations and Warranties
Section 5.1 Representations and Warranties of the Company. The Company
represents and warrants to the Stockholder as of the date hereof as follows:
(a) The Company has all necessary corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder.
(b) This Agreement has been duly and validly authorized by the Company and
all necessary and appropriate action has been taken by the Company to execute
and deliver this Agreement and to perform its obligations hereunder.
(c) This Agreement has been duly executed and delivered by the Company and
assuming due authorization and valid execution and delivery by the Stockholder,
this Agreement is a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
Section 5.2 Representations and Warranties of the Stockholder. Stockholder
represents and warrants to the Company as of the date hereof as follows:
(a) Stockholder has all necessary corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder.
6
(b) This Agreement has been duly and validly authorized by Stockholder and
all necessary and appropriate action has been taken by Stockholder to execute
and deliver this Agreement and to perform its obligations hereunder.
(c) This Agreement has been duly executed and delivered by the Stockholder
and assuming due authorization and valid execution and delivery by the Company,
this Agreement is a legal, valid and binding obligation of Stockholder,
enforceable in accordance with its terms.
(d) As of the Closing, neither Stockholder nor any Pacific Life Entity
Beneficially Owns any Shares other than those Shares acquired pursuant to the
Share Purchase Agreement.
ARTICLE VI
Miscellaneous
Section 6.1 Injunctive Relief. Each party hereto acknowledges that it would
be impossible to determine the amount of damages that would result from any
breach of any of the provisions of this Agreement and that the remedy at law for
any breach, or threatened breach, of any of such provisions would likely be
inadequate and, accordingly, agrees that each other party shall, in addition to
any other rights or remedies which it may have, be entitled to seek such
equitable and injunctive relief as may be available from any court of competent
jurisdiction to compel specific performance of, or restrain any party from
violating, any of such provisions. In connection with any action or proceeding
for injunctive relief, each party hereto hereby waives the claim or defense that
a remedy at law alone is adequate and agrees, to the maximum extent permitted by
law, to have each provision of this Agreement specifically enforced against him
or it, without the necessity of posting bond or other security against him or
it, and consents to the entry of injunctive relief against him or it enjoining
or restraining any breach or threatened breach of such provisions of this
Agreement.
Section 6.2 Successors and Assigns. This Agreement shall not be assigned,
in whole or in part, by any party hereto without the written consent of the
other party; provided, however, that Stockholder may, without the written
consent of the Company, assign its rights and delegate its duties hereunder to a
Pacific Life Entity. Notwithstanding the foregoing, the rights and duties of a
party hereto may only be assigned to a third party, including a Pacific Life
Entity, if such third party agrees in writing to be bound by this Agreement.
Section 6.3 Amendments; Waiver. (a) This Agreement may only be amended by
an agreement in writing executed by the parties hereto.
(b) Either party may waive in whole or in part any benefit or right
provided to it under this Agreement, such waiver being effective only if
contained in a writing executed by the waiving party. No failure by any party to
insist upon the strict performance of any covenant, duty, agreement or condition
of this Agreement or to exercise any right or remedy consequent upon breach
thereof shall constitute a waiver of any such breach or of any other covenant,
duty, agreement or condition, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
7
Section 6.4 Notices. Except as otherwise provided in this Agreement, all
notices, requests, claims, demands, waivers and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand, when delivered personally or by courier, three days after being
deposited in the mail (registered or certified mail, postage prepaid, return
receipt requested), or when received by facsimile transmission if promptly
confirmed by one of the foregoing means, as follows:
If to the Company:
Scottish Annuity & Life Holdings, Ltd.
Grand Pavilion Commercial Centre
802 West Bay Road
Grand Cayman, Cayman Islands, BWI
Attention: Scott E. Willkomm
Fax: (345) 949-0276
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Hugh T. McCormick, Esq.
Fax: (212) 424-8500
If to the Stockholder:
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, CA 92660-6397
Attention: General Counsel
Fax: (949) 219-3706
with a copy to:
Gibson Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Karen E. Bertero
Fax: (213) 229-6360
or to such other address or facsimile number as either party may, from time to
time, designate in a written notice given in a like manner.
Section 6.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
8
Section 6.6 Headings. The descriptive headings of the several sections in
this Agreement are for convenience only and do not constitute a part of this
Agreement and shall not be deemed to limit or affect in any way the meaning or
interpretation of this Agreement.
Section 6.7 Integration. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings with respect to its
subject matter other than those expressly set forth or referred to herein.
Section 6.8 Severability. If any term or provision of this Agreement or any
application thereof shall be declared or held invalid, illegal or unenforceable,
in whole or in part, whether generally or in any particular jurisdiction, such
provision shall be deemed amended to the extent, but only to the extent,
necessary to cure such invalidity, illegality or unenforceability, and the
validity, legality and enforceability of the remaining provisions, both
generally and in every other jurisdiction, shall not in any way be affected or
impaired thereby.
Section 6.9 Consent to Jurisdiction. In connection with any suit, claim,
action or proceeding arising out of this Agreement, the Stockholder and the
Company each hereby consent to the in personam jurisdiction of the United States
federal courts and state courts located in New York, New York; the Stockholder
and the Company each agree that service in the manner set forth in Section 6.4
hereof shall be valid and sufficient for all purposes; and the Stockholder and
the Company each agree to, and irrevocably waive any objection based on forum
non conveniens or venue not to, appear in any United States federal court state
court located in New York, New York.
Section 6.10 Counterparts. This Agreement may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
9
IN WITNESS WHEREOF, the Company and the Stockholder have caused this
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
THE COMPANY:
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
By:-----------------------------
Name:
Title:
STOCKHOLDER:
PACIFIC LIFE INSURANCE COMPANY
By:-----------------------------
Name:
Title:
By:-----------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED:
solely with respect to Section 2.1 hereof:
PMHC:
PACIFIC MUTUAL HOLDING COMPANY
By:-----------------------------
Name:
Title:
By:-----------------------------
Name:
Title:
10
PACIFIC LIFECORP:
PACIFIC LIFECORP
By:-----------------------------
Name:
Title:
By:-----------------------------
Name:
Title:
11
Exhibit C
Form of Tax Deed Covenant
==============================================================================
WORLD-WIDE HOLDINGS LIMITED
DATED [ 200 ]
PACIFIC LIFE INSURANCE COMPANY
and
SCOTTISH LIFE AND ANNUITY HOLDINGS LIMITED
TAX DEED OF COVENANT
relating to the sale and purchase
of the whole of the issued share capital
of WORLD-WIDE HOLDINGS LIMITED
==============================================================================
Reference - ACT
TAX DEED OF COVENANT
This deed is made on [ 200 ]
Between
(1) PACIFIC LIFE INSURANCE COMPANY a company registered in California, United
States at 700 Newport Center Drive, Newport Beach, California CA92660-6397,
United States (the "Seller"); and
(2) SCOTTISH LIFE AND ANNUITY HOLDINGS LIMITED a company registered in the
Cayman Islands at Grand Pavilion Commercial Centre, 801 West Bay Road,
Grand Cayman, Cayman Islands, BW1 75201 ("the Buyer").
Recitals
By an agreement (the "Agreement") dated August 6, 2001 and made between the
Seller and the Buyer, the Seller agreed to sell the whole of the issued share
capital of World-Wide Holdings Limited, a company registered and incorporated in
accordance with the laws of England and Wales having registration number 2145545
and its registered address at Old Bank House, Thames Street, Windsor, Berkshire
SL4 1PZ, United Kingdom, to the Buyer and the Seller agreed on the Closing Date
of such sale to enter into this Deed.
It is agreed as follows:
1. Interpretation
1.1 In this Deed words and expressions defined in the Agreement have the
same meaning except where otherwise provided or unless there is
something in the subject matter or context which is inconsistent with
them.
1.2 "Auditors" means the auditors for the time being of the relevant Group
Company;
1.3 "Covenantors' Reliefs" means any Relief or right to repayment of
Taxation which is or becomes available to any Group Company in respect
of or by reference to any period or part of a period prior to the
Closing Date other than a Purchaser's Relief;
1.4 "Group Company" means either Holdings or the Company, and "Group"
means both of them.
1.5 "Event" means the existence of any state of affairs and any payment,
transaction, act, omission or occurrence of whatever nature whether or
not a Group Company or the Buyer is a party thereto and for the
avoidance of doubt includes:
2
1.5.1 the execution of the Agreement and closing of the sale of the
Shares to the Buyer; and
1.5.2 the death of any person; and
references to an Event occurring on or before the Closing Date shall
include an Event deemed, pursuant to any Taxation Statute, to occur or
which is otherwise treated or regarded as occurring on or before the
Closing Date. References to an Event which occurred on or before the
Closing Date include the combined result of two or more Events all of which
occurred on or before the Closing Date.
1.6 "Liability for Taxation" means any liability of a Group Company to
make an actual payment of or in respect of Taxation whether or not the
same is primarily payable by the Group Company and whether or not the
Group Company has or may have any right of reimbursement against any
other person or persons and shall also include:
1.6.1 the Loss of any Relief where such Relief has been taken into
account in computing and so reducing or eliminating any provision
for deferred Tax which appears in the 2000 Company Financials (or
which but for such Relief would have appeared in the 2000 Company
Financials) or where such Relief was treated as an asset of the
Group in the 2000 Company Financials or was taken into account in
computing any deferred Tax asset which appears in the 2000
Company Financials in which case the amount of the Liability for
Taxation shall be the amount of Taxation which would (on the
basis of Tax rates current at the Balance Sheet Date) have been
saved but for such Loss assuming for this purpose that the
Company had sufficient profit or was otherwise in a position to
use the relief;
1.6.2 the Loss of any right to repayment of Taxation (including any
repayment supplement) which was treated as an asset in the 2000
Company Financials in which case the amount of the Liability for
Taxation shall be the amount of the right to repayment and any
related repayment supplement; and
1.6.3 the set off or use against income, profits or gains earned,
accrued or received or against any Tax chargeable in respect of
an event occurring on or before the Closing Date of any Relief or
right to repayment of taxation (including any repayment
supplement) which is not available before the Closing Date but
arises after the Closing Date in circumstances where, but for
such set off or use, a Group Company would have had a liability
to make an actual payment of or in respect of Taxation for which
the Buyer would have been able to make a claim against the Seller
under this Deed in which case the amount of the Liability for
Taxation shall be the amount of Taxation saved by a Group Company
as a result of such set off or use.
1.7 "Loss" means any reduction, modification, loss, counteraction,
nullification, utilisation, disallowance or claw back for whatever
reason.
1.8 "Purchaser's Relief" means any Relief or right to repayment of
Taxation as is mentioned in clauses 1.6.1 to 1.6.3.
3
1.9 "Relevant Company" means any company other than a Group Company, the
Buyer and any company that may be treated as being a member of the
same group of companies as the Buyer or as being associated with the
Buyer for the purposes of the Tax that has given rise to the Liability
for Taxation under clause 2.1.2.
1.10 "Relief" means any loss, relief, allowance, credit, exemption or set
off in respect of Taxation or any deduction in computing income,
profits or gains for the purposes of Taxation.
1.11 "Tax" or "Taxation" means:
1.11.1 all forms of Taxation (both direct and indirect) including and
without limitation any charge, tax, duty, levy, impost,
withholding or liability wherever chargeable imposed for support
of national, state, federal, municipal or local government or any
other person and whether of the UK or any other jurisdiction; and
1.11.2 any penalty, fine, surcharge, interest, charges or costs
payable in connection with any taxation within clause 1.11.1
above.
1.12 "Tax Claim" means any assessment, self assessment, notice, demand,
letter or other document issued or action taken by or on behalf of any
Taxation Authority from which it appears that a Group Company or the
Buyer is or may be subject to a Liability for Taxation or other
liability in respect of which the Seller are or may be liable under
this Deed.
1.13 "Taxation Authority" means the Inland Revenue, Customs & Excise,
Department of Social Security and any other governmental or other
authority whatsoever competent to impose any Taxation whether in the
United Kingdom or elsewhere.
1.14 "Taxation Statute" means any directive, statute, enactment, law or
regulation wheresoever enacted or issued, coming into force or entered
into providing for imposing any Taxation and shall include orders,
regulations, instruments, by-laws or other subordinate legislation
made under the relevant statute or statutory provision and any
directive, statute, enactment, law, order, regulation or provision
which amends, extends, consolidates or replaces the same or which has
been amended, extended, consolidated or replaced by the same.
1.15 Headings are for convenience only and shall not affect the
construction of this Deed.
1.16 References to gross receipts, income, profits or gains earned, accrued
or received shall include any gross receipts, income, profits or gains
deemed pursuant to the relevant Taxation Statute to have been or
treated or regarded as earned, accrued or received.
1.17 Unless the context otherwise requires the singular shall include the
plural and vice versa, the masculine shall include the feminine and
references to persons shall include bodies corporate, unincorporated
associations and partnerships in each case whether or not having
separate legal personality.
4
2. Covenant
2.1 Subject as hereinafter provided the Seller hereby covenants to pay to
the Buyer an amount equal to:
2.1.1 any Liability for Taxation resulting from or by reference to any
Event occurring on or before the Closing Date or in respect of
any gross receipts, income, profits or gains earned, accrued or
received by the Group Company in question on or before the
Closing Date;
2.1.2 any Liability for Taxation for which the Group Company in
question would not have been liable but for being treated as
being or having been a member of the same group as or associated
with any Relevant Company on or prior to the Closing Date for the
purposes of any Tax; and
2.1.3 all costs and expenses reasonably and properly incurred and
payable by a Group Company or the Buyer in connection with any
action taken to avoid, resist or settle any Tax Claim, Liability
for Taxation or otherwise taking or defending any action under
this Deed.
3. Limitation of Sellers Liability
3.1 The covenant given by clause 2 above shall not cover any Liability for
Taxation:
3.1.1 to the extent that a provision or reserve in respect thereof was
made in the 2000 Company Financials;
3.1.2 to the extent that such Liability for Taxation arises from any
gross receipts, income, profits or gains earned, accrued or
received, Event, act or transaction of a Group Company to which
the Liability for Taxation relates in the ordinary course of its
trading of the Group Company since the Balance Sheet Date;
3.1.3 to the extent that such Liability for Taxation arises or is
increased wholly as a result of any decision of any court or
tribunal or the coming into force of or any change in any
enactment, law, regulation, directive, requirement or any
published practice of any government, government department or
agency or regulatory body (including but not limited to extra
statutory concessions of any Taxation Authority) after the date
hereof;
3.1.4 to the extent recovery (less costs and expenses) has been made
by the Buyer or a Group Company under the Agreement in respect of
the same subject matter;
3.1.5 to the extent that such Liability for Taxation would not have
arisen but for a voluntary act or transaction carried out by the
Buyer or a Group Company after the date hereof otherwise than in
the ordinary course of business or otherwise than pursuant to a
legally binding obligation created on or before the date hereof,
wherein either such case such act or transaction was carried out
without the consent of the Seller and where the Buyer or a Group
Company knew or ought reasonably to have known that such act or
transaction would give rise to such Liability for Taxation;
5
3.1.6 except in the case of fraudulent conduct unless written notice
of such Liability for Taxation or any Tax Claim which may give
rise to such Liability for Taxation specifying in reasonable
detail the circumstances giving or which may give rise to such
Liability for Taxation and the amount thereof has been served on
the Seller on or prior to the seventh anniversary of the Closing
Date;
3.1.7 in respect of stamp duty or stamp duty reserve Tax payable on
the transfer or agreement to transfer the Shares pursuant to the
Agreement;
3.1.8 to the extent that the Liability for Taxation has been made good
or otherwise compensated for or extinguished at no expense to the
Buyer or a Group Company;
3.1.9 where the Liability for Taxation is attributable to a Group
Company ceasing to be entitled to the small companies' rate of
corporation tax;
3.1.10 to the extent that the Liability for Taxation arises or is
increased as a consequence of the failure of the Buyer to comply
with or procure the compliance of a Group Company with their
respective obligations under clauses 4 (disputes and conduct of
Tax claims), 7 (recovery from other persons),and 8 (corporation
Tax returns);
3.1.11 to the extent that the Auditors of the relevant Group Company
confirm that a specific amount in respect of that Liability for
Taxation was taken into account in computing any provision or
reserve for deferred Taxation in the 2000 Company Financials;
3.1.12 to the extent that the Liability for Taxation has been paid or
otherwise extinguished on or before the Closing Date;
3.1.13 to the extent that the Liability for Taxation can be discharged
at no cost to the Group Company in question by the surrender of a
Relief by the Seller to the Group Company in question;
3.1.14 to the extent that any Covenantors' Reliefs are available to
relieve or mitigate that Liability for Taxation or would have
been available but for the application of any of sections 245,
245A, 245B or 768 ICTA 1988 in so far as the Loss of any of the
Covenantors' Reliefs arises as a result of an Event occurring
after Completion and any Relief that is so available in relation
to more than one Liability for Taxation to which this Deed
applies shall be deemed, so far as possible, to be used in such a
way as to reduce to the maximum extent possible the Seller's
total liability hereunder;
3.1.15 the Liability for Taxation arises or is increased as a result
of any increase in the rates of Taxation or variation in the
method of applying or calculating the rate of Taxation made after
the Closing Date with retrospective effect;
6
3.1.16 the Liability for Taxation comprises interest or penalties
arising by virtue of an underpayment of Tax prior to Completion,
insofar as such underpayment would not have been an underpayment
but for any event or events occurring wholly after the Closing
Date;
3.1.17 the Liability for Taxation arises or is increased as a result
of any change made after Completion to the accounting period or
the accounting policy or practice of or applicable to the Buyer
or any Group Company after the Closing Date;
3.1.18 the Liability for Taxation would not have arisen or would have
been reduced or eliminated but for:
(i) the making of a claim, election, surrender or disclaimer or
the giving of a notice or consent or the doing of any other
thing by any Group Company or any other person connected
with any of them (other than the making giving or doing of
which was taken in to account in computing any provision or
reserve for Taxation in the 2000 Company Financials under or
in connection with a provision of an enactment of regulation
relating to Taxation otherwise than at the written direction
of the Seller; or
(ii) the failure or omission on the part of any Group Company or
any other person connected with any of them to make any such
valid claim, election, surrender or disclaimer or give any
notice or consent or do any other thing the making or giving
or doing of which was disclosed to the Buyer as taken into
account in computing any provision or reserve for Taxation
in 2000 Company Financials;
3.1.19 the matter giving rise to the Liability for Taxation is an
amount for which the Buyer or relevant Group Company has a right
of recovery against, or an indemnity from, a person other than
the Seller or a Relevant Company;
3.1.20 the Liability for Taxation arises or is increased by any
voluntary act of the Buyer or a Group Company after the Closing
Date which has the result that any instalment of corporation Tax
(within the meaning of section 6 of the Taxes Act 1988) paid
prior to the Closing Date pursuant to the Corporation Tax
(Instalment Payments) (Large Companies) Regulations 1998 is
insufficient.
and for the purposes of this clause 3 only "Liability for Taxation"
shall be deemed to include a liability or loss falling within clause
2.1.3 above.
3.2 The Seller shall have no liability to the Buyer under any part of this
Deed in respect of any non-availability, inability to use, or loss or
restriction of any Relief ("failure of relief") where such failure of
relief does not give rise to a Tax liability to which clause 2
applies.
7
4. Disputes and Conduct of Tax Claims
4.1 If the Buyer or a Group Company shall become aware of a Tax Claim of
which the Seller is not then aware, the Buyer shall or shall procure
that a Group Company shall within 14 days thereafter give written
notice thereof to the Seller.
4.2 If the Seller shall indemnify a Group Company and/or (as the case
shall require) the Buyer to the Buyer's reasonable satisfaction
against all liabilities, reasonable costs, damages or reasonable
expenses which may be incurred thereby including any additional
Liability for Taxation, the Buyer shall and shall procure that a Group
Company shall take such action as the Seller may reasonably request by
notice in writing given to a Group Company and the Buyer to avoid,
dispute, defend, resist, appeal, postpone or compromise any Tax Claim
(such a Tax Claim where action is so requested being hereinafter
referred to as a "Dispute"). Provided that neither a Group Company nor
the Buyer shall be obliged to appeal or procure an appeal against any
assessment to Taxation raised on either of them if, the Seller has
been given written notice of the receipt of such assessment the Buyer
has not at least 5 Business Days prior to the last day for filing
notice of appeal received instructions in writing from the Seller to
do so.
4.3 If the Seller does not request the Buyer or a Group Company to take
any action under clause 4.2 of this Deed or fails to indemnify the
Buyer and a Group Company to the Buyer's reasonable satisfaction
within a period of time (commencing with the date of the notice given
to the Seller) that is reasonable having regard to the nature of the
Tax Claim and the existence of any time limit in relation to avoiding,
disputing, defending, resisting, appealing or compromising such Tax
Claim and which period shall not in any event exceed a period of 90
days or the Dispute concerns fraudulent conduct, the Buyer or Company
shall have the conduct of the Dispute absolutely (without prejudice to
its rights under this Deed) and shall be free to pay or settle the Tax
Claim on such reasonable terms as the Buyer or a Group Company may in
its absolute discretion consider fit.
4.4 Subject to sub-clause 4.3, if the Seller indemnifies the Buyer and a
Group Company in accordance with clause 4.2, the conduct of a Dispute
shall be delegated to the Seller upon the following terms (or such
other terms as may be agreed from time to time between the Buyer and
the Seller):
4.4.1 the Buyer shall promptly be kept fully informed of all matters
pertaining to a Dispute and shall be entitled to see and keep
copies of all correspondence and notes or other written records
of telephone conversations or meeting and, in the event that
there is no written record, shall be given a report of all
telephone conversations with any Taxation Authority to the extent
that it relates to a Dispute;
4.4.2 the appointment of solicitors or other professional advisers to
any Group Company shall be subject to the approval of the Buyer,
such approval not to be unreasonably withheld;
4.4.3 all written communications pertaining to the Dispute which are
to be transmitted to the relevant Taxation Authority shall first
be submitted to the Buyer and a Group Company for approval and
8
shall only be finally transmitted if such approval is given,
which approval is not to be unreasonably withheld or delayed; and
4.4.4 the Seller shall make no settlement or compromise of the Dispute
or agree any matter in the conduct of the Dispute which is likely
to affect the amount of any material future Liability for
Taxation of a Group Company or of the Buyer without the prior
approval of a Group Company and the Buyer (as may be
appropriate), such approval not to be unreasonably withheld or
delayed.
4.5 Neither the Buyer nor a Group Company shall be subject to any claim by
or liability to the Seller for non-compliance with any of the
foregoing provisions of this clause 4 if the Buyer or a Group Company
has bona fide acted in accordance with the instructions of the Seller.
5. Payment Date and Interest
5.1 Where the Seller is liable to make any payment under clause 2, the due
date for the making of that payment (the "Due Date") shall be the
later of the date falling seven days after the Buyer has served a
notice on the Seller demanding that payment and:
5.1.1 in a case that involves an actual payment of Taxation by a Group
Company, the date on which the Taxation in question would have
had to have been paid to the relevant Taxation Authority in order
to prevent a liability to a fine, surcharge or penalty from
arising in respect of the Liability for Taxation in question; or
5.1.2 in any case that involves a Liability for Taxation falling
within clause 1.6.1 the last date upon which the Taxation is or
would have been required to be paid to the relevant Taxation
Authority in respect of the period in which the Loss of the
Relief occurs (assuming for this purpose that a Group Company had
sufficient profits or was otherwise in a position to use the
Relief); or
5.1.3 in any case that involves a Liability for Taxation falling
within Clause 1.6.2 the date upon which the repayment was due
from the relevant Taxation Authority; or
5.1.4 in any case that involves a Liability for Taxation falling
within clause 1.6.3 the date upon which the Taxation saved by a
Group Company is or would have been required to be paid to the
relevant Taxation Authority.
5.2 Any dispute as to the amount specified in any notice served on the
Seller under clause 5.1.2, 5.1.3 or 5.1.4 shall be determined by the
Auditors of a Group Company for the time being, acting as experts and
not as arbitrators (the costs of that determination being shared
equally the Seller and the Buyer).
5.3 If any sums required to be paid by the Seller under this Deed are not
paid on the Due Date, then, except to the extent that the Seller's
liability under clause 2 compensates the Buyer for the late payment by
virtue of it extending to interest and penalties, such sums shall bear
9
interest (which shall accrue from day to day after as well as before
any judgment for the same) at the rate equal to the base rate from
time to time of Buyer's bank or (in the absence thereof) at such
similar rate as the Buyer shall select from the day following the Due
Date up to and including the day of actual payment of such sums such
interest to be compounded quarterly.
6. Taxation of Payments
6.1 Any sum payable by the Seller to the Buyer under this Deed shall be
paid free and clear of any deduction or withholding whatsoever, save
only as may be required by law.
6.2 If any deduction or withholding is required by law to be made from any
payment by the Seller under this Deed (other than a payment made
pursuant to clause 5.3) or if (ignoring any Relief) the Buyer is
subject to Taxation in respect of such payment the Seller shall
increase the amount of the payment by such additional amount as is
necessary to ensure that the net amount received and retained by the
Buyer (after taking account of all deductions or withholdings or
Taxation) is equal to the amount which it would have received and
retained had the payment in question not been subject to any
deductions or withholdings or Taxation.
7. Recovery from other persons
7.1 Where the Buyer or a Group Company is or becomes entitled to recover
from some other person not being the Buyer a Group Company or any
other company within the same group of companies as the Buyer or a
Group Company (i) any amount or Relief which is referable to a
Liability for Taxation which has resulted in a payment being made by
the Seller under this Deed; or (ii) any amount or Relief which is
referable to any deduction or withholding under clause 6.2, the Buyer
shall or procure that a Group Company shall:
7.1.1 notify the Seller of its entitlement; and
7.1.2 if required by the Seller and, subject to the Buyer and a Group
Company being secured and indemnified by the Seller against any
Taxation that may be suffered on receipt of that amount and any
costs and expenses incurred in recovering that amount or
obtaining that Relief, take or procure that a Group Company takes
all reasonable steps to enforce that recovery or right.
7.2 If the Buyer or a Group Company recovers or obtains any amount or
Relief referred to in clause 7.1 the Buyer shall account to the Seller
for:
7.2.1 any amount recovered (including any related interest or related
repayment supplement) less any Taxation suffered in respect of
that amount and any costs and expenses incurred in recovering
that amount (save to the extent that that amount has already been
made good by the Seller under sub-clause 7.1.2) within five
Business Days of the date of recovery; and
7.2.2 in the case of a Relief, the Purchaser shall, within five
Business Days of the date on which Taxation would otherwise have
10
been payable had such credit not been available, pay to the
Covenantor an amount equal to the amount of such Taxation;
subject to a maximum of the aggregates of the amounts paid by the
Seller under clause 2 and clause 6 in respect of the Liability for
Taxation in question.
8. Over-provisions and Savings
8.1 If the Buyer discovers (or is made aware) that any provision for
Taxation in the 2000 Company Financials (excluding any provision for
deferred tax) may prove to be an over-provision (an "Over-provision")
or any Liability for Taxation which may result in a payment under this
Deed by the Seller may give rise to a saving of Taxation by any Group
Company (a "Saving"), it shall or shall procure that the Group Company
give full details to the Seller. The Buyer shall (at the Seller's
request and expense) procure that the Auditors certify the amount of
the Over-provision or the value of the Saving.
8.2 In the case of a Saving, the Buyer will as soon as reasonably
practicable after the amount of the Saving is certified by the
Auditors in accordance with clause 8.1 repay to the Sellers the lesser
of:
8.2.1 the amount of the Saving (as determined by the Auditors) less
any costs incurred by the Group Companies or the Buyer; and
8.2.2 the amount paid by the Seller under clause 2 in respect of the
Liability for Taxation which gave rise to the Saving less any
part of the amount previously repaid to the Seller under any
provision of this Deed or otherwise.
8.3 In the case of an Over-provision, the Buyer shall as soon as
reasonably practicable after the amount of the Over-provision is
certified by the Auditors in accordance with clause 8.1:
8.3.1 set off the Over-provision against any payment then due from the
Sellers under this Deed;
8.3.2 to the extent there is an excess, refund to the Sellers any
previous payment or payments made by the Sellers under this Deed;
and
8.3.3 to the extent the excess referred to in clause 8.3.2 is not
exhausted under that clause, the remainder of that excess shall
be carried forward and set off against any future payment or
payments which become due from the Covenantors under this Deed.
8.4 Where any such certification as is mentioned in clause 8.1 has been
made, the Seller or the Buyer (in either case at the expense of the
person requesting the review) may request the Auditors to review such
certification in the light of all relevant circumstances, including
any facts which have become known only since such certification, and
to certify whether such certification remains correct or whether, in
the light of those circumstances, the amount that was the subject of
such certification should be amended.
11
8.5 If the Auditors certify under clause 8.4 that an amount previously
certified should be amended, that amended amount shall be substituted
for the purposes of clauses 8.2 and 8.3 as the amount of the
Over-provision or Saving (as appropriate) in respect of the
certification in question in place of the amount originally certified,
and such adjusting payment (if any) as may be required by virtue of
the above-mentioned substitution shall be made as soon as practicable
by the Buyer or (as the case may be) to the Seller.
8.6 For the purposes of this clause, an Over-provision is a provision for
Taxation in the 2000 Company Financials (excluding a provision for
deferred taxation) which is or proves to be an Over-provision.
9. Corporation Tax Returns
9.1 The Seller or its authorised agent shall at the Seller's cost and
expense prepare the corporation Tax returns and computations of a
Group Company for all accounting periods ended on or prior to the
Balance Sheet Date, to the extent that the same shall not have been
prepared before the Closing Date, and submit them to the Buyer.
9.2 The Buyer shall procure that the returns and computations mentioned in
clause 9.1 shall be authorised, signed and submitted to H.M. Inspector
of Taxes without amendment or with such amendments as the Buyer
reasonably considers to be necessary and shall give the Seller or its
agents all such assistance as may reasonably be required (at the
Seller's cost and expense) to agree those returns and computations
with H.M. Inspector of Taxes provided that the Buyer shall not be
obliged to take any such action as is mentioned in this clause 8.2 in
relation to any return that is not full, true and accurate in all
material respects.
9.3 The Seller or its duly authorised agents shall at the Seller's cost
and expense prepare all documentation and shall have conduct of all
matters (including correspondence) relating to the corporation Tax
returns and computations of a Group Company for all accounting periods
ended on or prior to the Balance Sheet Date provided that the Seller
shall not without the prior written consent of the Buyer (not to be
unreasonably withheld or delayed) transmit any communication (written
or otherwise) to H.M. Inspector of Taxes or agree any matter with H.M.
Inspector of Taxes.
9.4 The Buyer shall procure that a Group Company, affords such access to
its books, accounts and records as is necessary and reasonable to
enable the Seller or its duly authorised agents to prepare the
corporation Tax returns and computations of a Group Company for all
accounting periods ended on or before the Balance Sheet Date and
conduct matters relating to them in accordance with this clause 9.
9.5 The Seller shall take all reasonable steps to ensure that the
corporation Tax returns and computations of a Group Company for all
accounting periods ended on or before the Balance Sheet Date are
prepared and agreed with H.M. Inspector of Taxes as soon as possible.
10. General
10.1 The provisions of clauses 9.1 (Coordination of Tax Deed Covenant and
the Agreement), 11.1 (Consent to Jurisdiction and Service of Process),
12
11.2 (Notices), 11.8 (Interpretation) and 11.11 (Counterparts) of the
Agreement shall apply mutatis mutandis to this Deed.
10.2 The benefit of this Deed may be assigned by the Buyer only with the
prior written consent of the Covenantors (such consent not to be
unreasonably withheld or delayed).
10.3 The Buyer hereby covenants with the Seller to pay to the Seller by way
of adjustment to the consideration for the sale of the Shares, an
amount equivalent to any Taxation for which the Seller or any other
person falling within section 767A(2) of Taxes Act 1988 ("ICTA")
become liable by virtue of the operation of sections 767A, 767AA and
767B of ICTA in circumstances where the taxpayer company (as referred
to in section 767A(1)) is any Group Company. The covenant contained in
this clause 10.3 shall:
10.3.1 extend to any reasonable costs incurred by the Seller or such
person in connection with such taxation or a claim under clause
10.3;
10.3.2 not apply to Taxation to the extent that the Buyer could claim
payment in respect of it under clause 2; and 10.3.3 not apply to
Taxation which has been recovered under section 767B(2) of ICTA
(and the Seller shall procure that no such recovery is sought to
the extent that payment is made hereunder).
10.4 This Deed shall be governed by and construed in accordance with the
laws of New York. The parties irrevocably submit to the exclusive
jurisdiction of the Courts of New York in respect of any claim,
dispute or difference arising out of or in connection with this Deed
13
This deed has been entered into on the date stated at the beginning of this
document.
Signed as a Deed by : )
Pacific Life Insurance Company )
presence of : )
--------------------------
--------------------------
Signed as a Deed by : )
Scottish Life and Annuity )
Holdings Limited )
presence of : )
--------------------------
14
Exhibit D
By this POWER OF ATTORNEY made the [ ] day of [ ] 2001, we, Pacific Life
Insurance Company (a California Corporation) HEREBY APPOINT Scottish Annuity &
Life Holdings, Ltd. (a Cayman Islands Company) (hereinafter called the
"Attorney") to be our Attorney for us and on our behalf to exercise and benefit
from all rights in respect of all the shares registered in our name in
World-Wide Holdings Limited (the "Company") save for the right to receive the
Dividend (as defined in the Share Purchase Agreement relating to the purchase by
the Attorney from us of the entire issued share capital of the Company dated 6
August, 2001), including the right to receive any notices of and attend and vote
at all meetings of the members of the Company in respect of the shares
registered in our name in the Company with effect from the date hereof up to (i)
the date on which the Attorney is entered into the register of members of the
Company as the holder of those shares; or (ii) one month from the date hereof,
whichever is the earlier with full power to complete and return any proxy cards,
consents to short notice and any other documents required to be signed by us in
our capacity as a member, in each case in such manner as the Attorney thinks
fit.
WE HEREBY RATIFY AND CONFIRM and AGREE TO RATIFY AND CONFIRM whatsoever the
Attorney shall do or purport to do in furtherance of or in relation to this
Power of Attorney.
This Power of Attorney is executed to secure the interest of the Attorney in the
said shares and accordingly shall be irrevocable and shall be construed in
accordance with the laws of England.
IN WITNESS whereof this Deed has been duly executed and delivered the day and
year first above written.
Executed as a deed by )
Pacific Life Insurance )
Company acting by [name of )
duly authorised signatories] )
being duly authorised signatories )
of such company acting in )
accordance with the Bylaws of such )
company and the laws of its state of )
incorporation )
in the presence of:
Witness' Signature: -------------------------------
Witness' Name: -------------------------------
Witness' Address: -------------------------------
-------------------------------
-------------------------------
Exhibit E
The Board of Directors
World-Wide Holdings Limited (the "Company")
Old Bank House
Thames Street
Windsor
Berkshire
SL4 1PZ
[Date]
Dear Sirs
I hereby resign as a director of the Company effective as of Closing of the
Share Purchase Agreement made between Scottish Annuity & Life Holdings, Ltd. (1)
and Pacific Life Insurance Company (2). I confirm that I have no outstanding
claims against the Company whatsoever in respect of loss of office or otherwise
and that any claim to which I may otherwise be entitled is hereby completely,
unconditionally and irrevocably waived and renounced and the Company is hereby
redeemed from any liability relating thereto.
I request that you convene a board meeting to record my resignation, record its
fact in the necessary statutory registers of the Company and file all necessary
forms with the Registrar of Companies.
Executed as a Deed by )
[o] in the presence of: )
Witness' Signature: ----------------------------
Witness' Name: ----------------------------
Witness' Address ----------------------------
----------------------------
----------------------------
1
The Board of Directors
World-Wide Reassurance Company Limited (the "Company")
Old Bank House
Thames Street
Windsor
Berkshire
SL4 1PZ
[Date]
Dear Sirs
I hereby resign as a director of the Company effective as of Closing of the
Share Purchase Agreement made between Scottish Annuity & Life Holdings, Ltd. (1)
and Pacific Life Insurance Company (2). I confirm that I have no outstanding
claims against the Company whatsoever in respect of loss of office or otherwise
and that any claim to which I may otherwise be entitled is hereby completely,
unconditionally and irrevocably waived and renounced and the Company is hereby
redeemed from any liability relating thereto.
I request that you convene a board meeting to record my resignation, record its
fact in the necessary statutory registers of the Company and file all necessary
forms with the Registrar of Companies.
Executed as a Deed by )
[o] in the presence of: )
Witness' Signature: ----------------------------
Witness' Name: ----------------------------
Witness' Address ----------------------------
----------------------------
----------------------------
2
Exhibit F
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
Amendments to Articles of Association
The following Sections of the Articles of Association shall be amended and
restated in their entirety to read as set forth below:
6. (b) Notwithstanding Article 6(a) of these Articles, the Company shall not
issue any shares in a manner that the Board of Directors of the Company believes
would cause, by reason of such issuance, the total Controlled Shares of any
Person to equal or exceed 10% of a class of the Company's shares; provided,
however, that this provision shall not apply to (i) the issuance of shares to
Pacific Life Insurance Company in such amount so that Pacific Life Insurance
Company's Controlled Shares do not exceed 24.9% of the Company's shares and (ii)
any issuance of shares to a person acting as an underwriter in the ordinary
course of its business, purchasing such shares pursuant to a purchase agreement
to which the company is a party, for resale.
9. (b) Except with respect to transfers of the Company's shares executed on the
Nasdaq National Market, the Directors shall decline to register a transfer of
shares if the Directors have reason to believe that the effect of such transfer
would be to increase the number of total Controlled Shares of any Person to ten
percent (10%) or any higher percentage of the Company's shares on an Unadjusted
Basis. However, Pacific Life Insurance Company, Pacific Mutual Holding Company,
Pacific LifeCorp and/or any direct or indirect wholly-owned subsidiary of
Pacific Mutual Holding Company (each, a "Pacific Life Entity", provided however,
that any Pacific Life Entity shall cease to be a Pacific Life Entity in the
event it is no longer a 100% direct or indirect subsidiary of Pacific Mutual
Holding Company), shall each be permitted to transfer shares of the Company to
another Pacific Life Entity, provided that the Controlled Shares of the Pacific
Life Entities in the aggregate do not exceed 24.9% of the Company's shares.
47. (a) Subject to Article 6, every Member of record present in person or by
proxy shall have one vote for each issued and outstanding Ordinary Share
registered in his name in the register; PROVIDED THAT, subject to the following
provisions of this Article 47, if and for so long as the number of Controlled
Shares of any Person other than a Pacific Life Entity would constitute 10% or
more of the total combined voting rights attaching to the issued shares of the
Company (calculated after giving effect to any prior reductions in voting rights
attaching to Controlled Shares of other persons as provided in this Article 47),
or the total number of Controlled Shares of the Pacific Life Entities would
constitute 25% or more of the total combined voting rights attaching to the
issued Shares of the Company (calculated after giving effect to any prior
reductions in voting rights attaching to Controlled Shares of other persons as
provided in this Article 47), each such issued controlled Share, regardless of
the identity of the registered holder thereof, shall confer only a fraction of a
vote as determined by the following formula (the "Formula"):
1
47. (d) The formula shall be applied successively as many times as may be
necessary to ensure that no Person other than a Pacific Life Entity shall be a
10% Shareholder at any time, and that the Controlled Shares of the Pacific Life
Entities shall not exceed 24.9% at any time. For the purposes of determining the
votes exercisable by Members as at any date, the Formula shall be applied first
to the votes of Controlled Shares attributable to the Person to whom the
greatest number of Controlled Shares are attributed and successively to the
Controlled Shares attributable to them, in each case calculations being made on
the basis of the aggregate number of votes conferred by the issued shares as at
such date as reduced by the application of the Formula to any larger number of
Controlled Shares as at such date.
47. (e) Notwithstanding the provisions of Articles 47(a) and (d) above, having
applied the provisions thereof as best as they consider reasonable practicable,
the Directors may make such final adjustments to the aggregate number of votes
attaching to the shares of any Member that they consider fair and reasonable in
all the circumstances to ensure that no Person other than a Pacific Life Entity
shall be a 10% Shareholder at any time, and that the Controlled Shares of the
Pacific Life Entities shall not exceed 24.9% at any time.
2
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
Amendments to the Memorandum of Association
The following Sections of the Memorandum of Association shall be amended and
restated in their entirety to read as set forth below:
3. The objects for which the Company is established are, subject to section (i)
of this Clause 3, unrestricted and shall include, but without limitation, the
following:
(i) (a) To own, hold, purchase or otherwise acquire equity or debt securities
in companies, firms or other persons engaged in all or any forms of
insurance or reinsurance business and to promote the establishment of such
entities.
4. Except as prohibited or limited by the Companies Law (1998 Revision), the
Company shall have full power and authority to carry out any object and shall
have and be capable of from time to time and at all times exercising any and all
of the powers at any time or from time to time exercisable by a natural person
or body corporate in doing in any part of the world whether as principal, agent,
contractor or otherwise whatever may be considered by it necessary for the
attainment of its objects and whatever else may be considered by it as
incidental or conducive thereto or consequential thereon, including, but without
in any way restricting the generality of the foregoing, the power to make any
alterations or amendments to this Memorandum of Association and the Articles of
Association of the Company considered necessary or convenient in the manner set
out in the Articles of Association of the Company, and the power to do any of
the following acts or things, viz:
to pay all expenses of and incidental to the promotion, formation and
incorporation of the Company; to register the Company to do business in any
other jurisdiction; to sell, lease or dispose of any property of the Company; to
draw, make, accept, endorse, discount, execute and issue promissory notes,
debentures, bills of exchange, bills of lading, warrants and other negotiable or
transferable instruments; to lend money or other assets and to acts as
guarantors; to borrow or raise money on the security of the undertaking or
transferable instruments; to lend money or other assets and to act as
guarantors; to borrow or raise money on the security of the undertaking or on
all or any of the assets of the Company including uncalled capital or without
security; to invest monies of the Company in such manner as the Directors
determine; to promote other companies; to sell the undertaking of the Company
for cash or any other consideration; to distribute assets in specie to Members
of the Company; to make charitable or benevolent donations; to pay pensions or
gratuities or provide other benefits in cash or kind to Directors, officers,
employees, past or present and their families; to purchase Directors and
officers liability insurance and to carry on any trade or business and generally
to do all acts and things which, in the opinion of the Company or the Directors,
may be conveniently or profitably or usefully acquired and dealt with, carried
on, executed or done by the Company in connection with the business aforesaid.
Exhibit G
Certain Holdings and Company Employees
Paul Bispham
John Greenhalgh
David Brown
Chris Znowski
Andrew Maynard
Harvey Duckers
Barbara O'Hara
Chris Fennel