STOCK PURCHASE AGREEMENT
dated as of October 24, 2003
by and among
EMPLOYERS REINSURANCE CORPORATION,
SCOTTISH HOLDINGS, INC.
and
SCOTTISH RE GROUP LIMITED
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS..................................................1
Section 1.01. Certain Defined Terms........................................1
ARTICLE II. PURCHASE AND SALE............................................1
Section 2.01. Purchase and Sale of the Transferred Shares..................1
Section 2.02. Closing......................................................1
Section 2.03. Purchase Price...............................................2
Section 2.04. Transactions; Closing Deliveries.............................2
Section 2.05. Post-Closing Adjustment......................................3
Section 2.06. Payments and Computations....................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.....................6
Section 3.01. Incorporation, Qualification and Authority of the Seller.....6
Section 3.02. Incorporation, Qualification and Authority of the Company....6
Section 3.03. Capital Structure of the Company; Ownership of the
Transferred Shares; Subsidiaries.............................7
Section 3.04. No Conflict..................................................7
Section 3.05. Consents and Approvals.......................................8
Section 3.06. Financial Information; Absence of Undisclosed Liabilities....8
Section 3.07. Absence of Certain Changes or Events.........................9
Section 3.08. Absence of Litigation.......................................10
Section 3.09. Compliance with Laws........................................10
Section 3.10. Governmental Licenses and Permits...........................11
Section 3.11. Title to the Assets; Real Property..........................11
Section 3.12. Intellectual Property.......................................12
Section 3.13. Environmental Matters.......................................13
Section 3.14. Material Contracts..........................................13
Section 3.15. Retroceded Reinsurance Agreements...........................14
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Section 3.16. Reinsurance Assumed.........................................15
Section 3.17. Employment and Employee Benefits Matters....................15
Section 3.18. Brokers.....................................................17
Section 3.19. Investment Company..........................................17
Section 3.20. Direct Insurance Contracts..................................17
Section 3.21. Reserves....................................................17
Section 3.22. Required Capital............................................17
Section 3.23. Investments.................................................18
Section 3.24. Insurance...................................................18
Section 3.25. Bank Accounts...............................................18
Section 3.26. Books and Records...........................................18
Section 3.27. Full Disclosure.............................................19
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND PARENT...19
Section 4.01. Incorporation and Authority of the Acquiror and Parent......19
Section 4.02. Qualification of the Acquiror...............................19
Section 4.03. No Conflict.................................................19
Section 4.04. Consents and Approvals......................................20
Section 4.05. Absence of Litigation; Compliance with Laws.................20
Section 4.06. Securities Matters..........................................20
Section 4.07. Financial Ability...........................................21
Section 4.08. Brokers.....................................................21
Section 4.09. Investment Company..........................................21
ARTICLE V. ADDITIONAL AGREEMENTS.......................................21
Section 5.01. Conduct of Business Prior to the Closing....................21
Section 5.02. Access to Information.......................................23
Section 5.03. Maintenance, Transfer and Preservation of Books and Records.23
Section 5.04. Confidentiality.............................................24
Section 5.05. Regulatory and Other Authorizations; Consents...............25
Section 5.06. Intercompany Obligations....................................26
Section 5.07. No Solicitation of Employees................................27
Section 5.08. Termination of Rights to the Seller Marks...................27
Section 5.09. No Termination of Assumed Reinsurance Agreements............28
Section 5.10. Services....................................................28
Section 5.11. Competition; Solicitation...................................28
Section 5.12. Seller Guarantees...........................................29
Section 5.13. Transfer of Stock of GE Investments, Inc.; Dividends........29
Section 5.14. No Employees................................................30
Section 5.15. Long Term Care Business.....................................30
Section 5.16. Confidentiality Agreements..................................30
Section 5.17. Conversion of Preferred Stock...............................30
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Section 5.18. Further Action..............................................30
Section 5.19. Premium Overpayment Receivables.............................31
Section 5.20. Joint and Several Obligations...............................33
Section 5.21. Disclaimer Regarding Representations and Warranties of Selle33
Section 5.22. Health Insurance Business...................................33
Section 5.23. Third Party Communications, Payments, Etc...................33
Section 5.24. Unauthorized Reinsurers Indemnification.....................33
Section 5.25. GAAP Financial Information..................................37
Section 5.26. Preparation of 2003 Statutory Statement.....................37
Section 5.27. Assignment of Non-Admitted Accounts Receivable..............37
ARTICLE VI. OWNERSHIP AND TRANSFER OF EQUITY SHARES.....................38
Section 6.01. Equity Shares...............................................38
ARTICLE VII. TAX MATTERS.................................................38
Section 7.01. Tax Matters Agreement.......................................38
ARTICLE VIII. CONDITIONS TO CLOSING AND RELATED MATTERS...................38
Section 8.01. Conditions to Obligations of Seller.........................38
Section 8.02. Conditions to Obligations of the Acquiror...................39
ARTICLE IX. TERMINATION AND WAIVER......................................40
Section 9.01. Termination.................................................40
Section 9.02. Notice of Termination.......................................41
Section 9.03. Effect of Termination.......................................41
ARTICLE X. INDEMNIFICATION.............................................41
Section 10.01. Indemnification by Seller...................................41
Section 10.02. Indemnification by the Acquiror.............................42
Section 10.03. Notification of Claims......................................43
Section 10.04. Exclusive Remedies..........................................44
Section 10.05. Additional Indemnification Provisions.......................44
Section 10.06. Mitigation..................................................45
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Section 10.07. Indemnification for Taxes...................................45
ARTICLE XI. GENERAL PROVISIONS..........................................45
Section 11.01. Survival....................................................45
Section 11.02. Expenses....................................................45
Section 11.03. Notices.....................................................45
Section 11.04. Public Announcements........................................46
Section 11.05. Severability................................................46
Section 11.06. Entire Agreement............................................47
Section 11.07. Assignment..................................................47
Section 11.08. No Third-Party Beneficiaries................................47
Section 11.09. Amendment...................................................47
Section 11.10. Disclosure Schedules........................................47
Section 11.11. Dispute Resolution..........................................47
Section 11.12. Governing Law; Submission to Jurisdiction; Waivers..........48
Section 11.13. Rules of Construction.......................................49
Section 11.14. Counterparts................................................49
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This STOCK PURCHASE AGREEMENT, dated as of October 24, 2003, is made by and
among EMPLOYERS REINSURANCE CORPORATION, a Missouri corporation ("Seller"),
SCOTTISH HOLDINGS, INC., a Delaware corporation (the "Acquiror"), and SCOTTISH
RE GROUP LIMITED (f/k/a Scottish Annuity & Life Holdings, Ltd.), a holding
company organized under the laws of the Cayman Islands (the "Parent").
PRELIMINARY STATEMENTS
A. Seller owns all of the issued and outstanding Capital Stock of ERC
LIFE REINSURANCE CORPORATION, a Missouri-domiciled insurance company (the
"Company");
B. Seller wishes to sell to the Acquiror, and the Acquiror wishes to
purchase from Seller, 95% of the outstanding shares of Capital Stock of the
Company, as set forth on Exhibit A hereto (the "Transferred Shares");
C. Seller wishes to retain the remaining 5% of the outstanding shares
of Capital Stock of the Company, as set forth on Exhibit A hereto (the "Retained
Shares"), in accordance with the terms and conditions of this Agreement; and
D. In addition, the parties to this Agreement are entering into an
agreement with respect to tax matters (the "Tax Matters Agreement") on the date
of this Agreement.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement shall have the meanings specified in Exhibit B to, or elsewhere in,
this Agreement.
ARTICLE II.
PURCHASE AND SALE
Section 2.01. Purchase and Sale of the Transferred Shares. On the terms and
subject to the conditions set forth in this Agreement, at the Closing, Seller
shall sell, convey, assign, transfer and deliver to the Acquiror, free and clear
of all Liens, and the Acquiror shall purchase, acquire and accept from Seller,
the Transferred Shares.
Section 2.02. Closing. On the second Business Day following the
satisfaction or waiver of the conditions set forth in Sections 8.01(b) and
8.02(b) (or if such conditions are satisfied or waived on December 30 or 31,
2003, on December 31, 2003 to the extent reasonably practicable), or on such
other date as the Seller and the Acquiror may mutually agree in writing, the
transactions contemplated by this Agreement shall take place at a closing (the
"Closing") that will be held at the offices of Stinson Morrison Hecker LLP, 9200
Indian Creek Parkway, 9 Corporate Woods, Suite 450,
Overland Park, Kansas, or such other place as the Seller and the Acquiror may
agree in writing (the date on which the Closing takes place being the "Closing
Date").
Section 2.03. Purchase Price.
(a) The purchase price for the Transferred Shares (the "Purchase
Price") shall be an amount in cash equal to One Hundred Fifty One Million One
Hundred Forty Eight Thousand and no/100 Dollars ($151,148,000). The Purchase
Price shall be subject to Post-Closing Adjustment as set forth in Section 2.05.
Section 2.04. Transactions; Closing Deliveries.
(a) To document the transactions contemplated by this Agreement, at
the Closing:
(i) subject to any post-Closing adjustments set forth in Section
2.05, Acquiror will transfer to Seller, by wire transfer of
immediately available funds, the Purchase Price; and
(ii) Seller shall deliver to Acquiror the certificates or other
applicable instruments evidencing the Transferred Shares, duly
endorsed in blank or accompanied by powers duly executed in blank in
proper form for transfer and accompanied by all requisite stock
transfer Tax stamps.
(b) In addition to the foregoing, at or prior to the Closing, Seller
shall enter into and deliver to Acquiror, and Acquiror shall enter into and
deliver to Seller, the Transition Services Agreement.
(c) In addition to the foregoing, at the Closing, Seller shall deliver
to Acquiror:
(i) a receipt for the Purchase Price;
(ii) a certificate of the Secretary, Assistant Secretary or other
duly authorized representative of the Seller, dated the Closing Date,
as to the resolutions duly and validly adopted by the Board of
Directors of the Seller evidencing its authorization of the execution,
delivery and performance of this Agreement and the Ancillary
Agreements to which Seller is a party;
(iii) written resignations of each of the directors and officers
of the Company; and
(iv) such other agreements, instruments and documents as are
required under this Agreement to be executed and delivered by Seller
at Closing.
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(d) In addition to the foregoing, at the Closing, Acquiror and Parent
shall deliver to Seller:
(i) a receipt for the Transferred Shares;
(ii) a certificate of the Secretary or Assistant Secretary of the
Acquiror, dated the Closing Date, as to the resolutions duly and
validly adopted by the Board of Directors of the Acquiror evidencing
its authorization of the execution, delivery and performance of this
Agreement and the Ancillary Agreements to which the Acquiror is a
party;
(iii) a certificate of the Secretary or Assistant Secretary of
the Parent, dated the Closing Date, as to the resolutions duly and
validly adopted by the Board of Directors of the Parent evidencing its
authorization of the execution, delivery and performance of this
Agreement and the Ancillary Agreements to which the Parent is a party;
and
(iv) such other agreements, instruments and documents as are
required under this Agreement to be executed and delivered by Acquiror
at Closing.
(e) In addition to the foregoing, promptly after the Closing, Seller
shall deliver all tangible Assets of the Company to Acquiror at Acquiror's
principal executive office in the United States or at such other location of
Acquiror in the United States that Acquiror shall specify to Seller in writing
at least 3 Business Days prior to the Closing Date.
Section 2.05. Post-Closing Adjustment.
(a) At or within two Business Days prior to Closing, the Seller shall
prepare and deliver to Acquiror an unaudited estimated balance sheet of the
Company as of December 31, 2003 (the "Estimated Initial Balance Sheet"). To the
extent reasonably practicable, the Estimated Initial Balance Sheet shall be
prepared in accordance with the standards set forth in Section 2.05(b) for the
Initial Balance Sheet, except the audit requirement. If the estimated Closing
Pro Forma Surplus of the Company set forth in the Estimated Initial Balance
Sheet is less than $107,803,000, the Seller shall contribute the amount of the
difference in cash or immediately available funds to the Company at or prior to
Closing.
(b) Prior to March 31, 2004, the Seller shall prepare and deliver to
Acquiror a balance sheet of the Company as of December 31, 2003, audited by KPMG
LLP or such other auditor selected by Seller as shall be reasonably approved by
Acquiror (the "Initial Balance Sheet"). The Initial Balance Sheet shall be
prepared in accordance with SAP applied consistently with its application in
connection with the preparation of the Reference Date Pro Forma Balance Sheet,
including use of the same principles, policies, practices, procedures, methods
and estimates, with consistent assumptions, classifications, judgments and
valuation and estimation methods, and shall present fairly, in all material
respects, the financial condition of the Company at December 31, 2003 in
accordance with SAP applied consistently. The reserves set forth in the Initial
Balance
3
Sheet shall be determined in accordance with generally recognized actuarial
methods and standards, consistently applied, and shall be fairly stated in
accordance with sound actuarial principles using prescribed morbidity and
mortality tables and interest rates that are in accordance with the nature of
the benefits specified, and meet the applicable requirements of the insurance
laws and regulations of the Company's state of domicile. In connection with
Seller's preparation of the Initial Balance Sheet, to the extent Seller does not
have all relevant information in its possession, Seller and its Representatives
will be permitted to review the books, records and other relevant information of
the Company relating to its operations and finances and the work papers of the
Company's independent accountants, and Acquiror shall make reasonably available
the individuals in the employ of Acquiror and its Affiliates, if any,
responsible for and knowledgeable about the information used in, and the
preparation of, the Statutory Statements and the Reference Date Pro Forma
Balance Sheet in order to respond to the reasonable inquiries of Seller;
provided, however, that the independent accountants of the Company shall not be
obliged to make any work papers available to Seller unless and until Seller
shall have signed a customary agreement relating to such access to work papers
in form and substance reasonably acceptable to such accountants. Seller shall
pay all out-of-pocket costs incurred by Seller in connection with the
preparation and audit of the Initial Balance Sheet.
(c) During the 45 calendar days immediately following Acquiror's
receipt of the Initial Balance Sheet (the "Balance Sheet Review Period"),
Acquiror and its Representatives will be permitted to review the Seller's work
papers and the work papers of the Seller's independent accountants relating to
the Initial Balance Sheet, and the Seller shall make reasonably available the
individuals in the employ of Seller and its Affiliates responsible for and
knowledgeable about the information used in, and the preparation of, the Initial
Balance Sheet in order to respond to the reasonable inquiries of Acquiror;
provided, however, that the independent accountants of the Seller shall not be
obliged to make any work papers available to Acquiror unless and until Acquiror
shall have signed a customary agreement relating to such access to work papers
in form and substance reasonably acceptable to such accountants.
(d) The Acquiror agrees that, following the Closing through the date
that the Final Balance Sheet becomes final and binding, it will not take any
actions with respect to any accounting books, records, policies or procedures on
which the Reference Date Pro Forma Balance Sheet is based or on which the
Initial Balance Sheet or the Final Balance Sheet is to be based that would
impede or delay the determination of the Closing Pro Forma Surplus of the
Company or the preparation of the Notice of Balance Sheet Disagreement or the
Final Balance Sheet in the manner and utilizing the methods required by this
Agreement. The Acquiror agrees that if the Closing occurs prior to December 31,
2003, the Company will not take any actions that would have an adverse impact on
the Closing Pro Forma Surplus and that are outside the ordinary course of
business consistent with past practice following the Closing through the close
of business on December 31, 2003.
(e) Acquiror shall notify Seller in writing (the "Notice of Balance
Sheet Disagreement") prior to the expiration of the Balance Sheet Review Period
if Acquiror disagrees with any one or more line items of the Initial Balance
Sheet. The Notice of Balance Sheet Disagreement shall set forth in reasonable
detail the basis for such dispute, the amounts involved and Acquiror's
determination of the amount of Closing Pro Forma Surplus. If no Notice of
Balance
4
Sheet Disagreement is received by Seller prior to the expiration of the Balance
Sheet Review Period, then the Initial Balance Sheet shall be deemed to have been
accepted by Acquiror and shall become final and binding upon the parties in
accordance with Section 2.05(g).
(f) During the 30 calendar days immediately following the delivery of
a Notice of Balance Sheet Disagreement (the "Balance Sheet Consultation
Period"), Seller and the Acquiror shall seek in good faith to resolve any
differences that they may have with respect to the matters specified in the
Notice of Balance Sheet Disagreement.
(g) If at the end of the Balance Sheet Consultation Period Seller and
the Acquiror have been unable to resolve any differences that they may have with
respect to the matters specified in the Notice of Balance Sheet Disagreement,
Seller and the Acquiror shall submit all matters that remain in dispute with
respect to the Notice of Balance Sheet Disagreement (along with a copy of the
Initial Balance Sheet marked to indicate those line items that are not in
dispute) to PricewaterhouseCoopers LLP (the "Accounting Arbitrator") within 10
calendar days after the end of the Balance Sheet Consultation Period. Each party
agrees to execute a reasonable engagement letter if requested by the Accounting
Arbitrator. Within 30 calendar days after the submission of matters in dispute
to the Accounting Arbitrator, or as soon as practicable thereafter, the
Accounting Arbitrator shall make a final determination, binding on the parties
to this Agreement, of the appropriate amount of each of the line items in the
Initial Balance Sheet as to which Seller and the Acquiror disagree as set out in
the Notice of Balance Sheet Disagreement. Such determination shall be in
accordance with the standards set forth in Section 2.05(b) and shall be final
and binding with respect to the matter of the Seller's compliance with the
standards set forth in Section 2.05(b). With respect to each disputed line item,
such determination, if not in accordance with the position of either Seller or
the Acquiror, shall not be in excess of the higher, nor less than the lower, of
the amounts advocated by Acquiror in the Notice of Balance Sheet Disagreement or
the Seller in the Initial Balance Sheet with respect to such disputed line item.
Any determination or award of the Accounting Arbitrator pursuant to this Section
may be entered and enforced in any court of competent jurisdiction. The balance
sheets of the Company and the determination of the Closing Pro Forma Surplus of
the Company that are final and binding on the parties, as determined either
through agreement of the parties pursuant to Sections 2.05(b), 2.05(e) or
2.05(f) or through the action of the Accounting Arbitrator pursuant to this
Section 2.05(g), are referred to as the "Final Balance Sheet" and the "Final
Closing Pro Forma Surplus", respectively.
(h) The cost of the Accounting Arbitrator's review and determination
shall be shared equally by Seller and the Acquiror. During the review by the
Accounting Arbitrator, the Acquiror and Seller will each make available to the
Accounting Arbitrator interviews with such individuals, and such information,
Books and Records and work papers, as may be reasonably required by the
Accounting Arbitrator to fulfill its obligations under Section 2.05(g);
provided, however, that the independent accountants of Seller or the Acquiror
shall not be obliged to make any work papers available to the Accounting
Arbitrator unless and until such firm has signed a customary agreement relating
to such access to work papers in form and substance reasonably acceptable to
such accountants. In acting under this Agreement, the Accounting Arbitrator will
be entitled to the privileges and immunities of an arbitrator. Nothing herein
shall be construed to require the Accounting Arbitrator to follow the rules or
procedures of any arbitration association.
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(i) The "Post-Closing Adjustment" shall be equal to the aggregate
amount of the Final Closing Pro Forma Surplus of the Company set forth in the
Final Balance Sheet less $107,803,000. If the Post-Closing Adjustment is a
positive amount, then the Acquiror shall pay in cash to Seller 95% of the amount
of the Post-Closing Adjustment. If the Post-Closing Adjustment is a negative
amount, then Seller shall pay in cash to the Acquiror 95% of the absolute value
of the amount of the Post-Closing Adjustment. Any such payment shall be made
within three Business Days after the determination of the Final Balance Sheet
becomes such, together with interest thereon from the Closing Date until the
date of payment at the Interest Rate calculated and payable in cash in
accordance with Section 2.06.
Section 2.06. Payments and Computations. Each party shall make each payment
due to the other party to this Agreement not later than 11:00 a.m., New York
City time, on the day when due. All payments shall be paid by wire transfer in
immediately available funds to the account or accounts designated by the party
receiving such payment. All computations of interest shall be made on the basis
of a year of 365 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest is payable. Whenever any payment under this Agreement shall be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
payment of interest.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to the Acquiror as follows:
Section 3.01. Incorporation, Qualification and Authority of the Seller.
Seller is a corporation duly incorporated, validly existing and in good standing
under the Laws of the State of Missouri and is duly qualified as a foreign
corporation to do business, and, to the extent legally applicable, is in good
standing, in each jurisdiction where the character of its owned, operated or
leased properties or the nature of its activities makes such qualification
necessary, except to the extent that the failure to so qualify or be in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect or impair or delay the ability of Seller to consummate the transactions
contemplated by, or to perform Seller's obligations under, the Transaction
Agreements. Seller has all requisite corporate power and corporate authority to
carry on its business and to own, lease and operate its properties and assets
and to enter into, consummate the transactions contemplated by and carry out its
obligations under, the Transaction Agreements to which it is a party. The
execution and delivery by the Seller of the Transaction Agreements to which it
is a party and the consummation by the Seller of the transactions contemplated
by, and the performance by the Seller of its obligations under, the Transaction
Agreements have been duly authorized by all requisite action on the part of the
Seller. This Agreement and the Tax Matters Agreement have been, and upon
execution and delivery, the other Ancillary Agreements to which Seller is a
party will be, duly executed and delivered by Seller, and (assuming due
authorization, execution and delivery by the Acquiror) this Agreement and the
Tax Matters Agreement constitute, and upon execution and delivery, the other
Ancillary Agreements will constitute, legal, valid and binding obligations of
Seller, enforceable against it in accordance with their terms, except in each
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case as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to or
affecting creditors' rights generally, including the effect of statutory and
other Laws regarding fraudulent conveyances and preferential transfers, and
subject to the limitations imposed by general equitable principles (regardless
of whether such enforceability is considered in a proceeding at law or in
equity).
Section 3.02. Incorporation, Qualification and Authority of the Company.
The Company is a corporation duly incorporated, validly existing and in good
standing under the Laws of the State of Missouri and has the requisite corporate
power and corporate authority to operate its business as now conducted. The
Company is duly qualified as a foreign corporation to do business and, to the
extent legally applicable, is in good standing in each jurisdiction where the
character of its owned, operated or leased properties or the nature of its
activities makes such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect or impair or delay the ability of
Seller to consummate the transactions contemplated by, or to perform Seller's
obligations under, the Transaction Agreements.
Section 3.03. Capital Structure of the Company; Ownership of the
Transferred Shares; Subsidiaries.
(a) Section 3.03(a) of the Disclosure Schedule sets forth the
authorized Capital Stock of the Company and the number of Equity Shares of each
class of Capital Stock of the Company that are issued and outstanding. All of
the outstanding Equity Shares of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and free of any preemptive
rights. Except as set forth in Section 3.03(a) of the Disclosure Schedule, there
are no options, warrants or rights of conversion or other rights, agreements,
arrangements or commitments obligating the Company to issue or sell any of its
Equity Shares or securities convertible into or exchangeable for its Equity
Shares.
(b) Seller owns, directly or indirectly, all of the Equity Shares,
free and clear of all Liens, except any Liens arising out of, under or in
connection with this Agreement, and has the full and unrestricted power to sell,
assign, transfer and deliver the Transferred Shares to the Acquiror upon the
terms and subject to the conditions of this Agreement free and clear of any
Liens. At Closing, Acquiror will acquire good, valid and marketable title to the
Transferred Shares free and clear of any Liens, except Liens created by or
through Acquiror or any of its Affiliates. Except as contemplated by this
Agreement, there are no options or warrants or other rights, agreements,
arrangements or commitments obligating Seller to sell any of the Equity Shares.
Except as contemplated by this Agreement, there are no voting trusts,
stockholder agreements, proxies or other agreements in effect with respect to
the voting or transfer of the Equity Shares (including the Transferred Shares)
of the Company.
(c) Except as set forth in Section 3.03(c)(i) of the Disclosure
Schedule and except for portfolio investments made in the ordinary course of
business consistent with past practice, the Company does not own, of record or
beneficially, any direct or indirect equity interest, any security convertible
into or exchangeable for any such equity interest or any right or obligation
(contingent or otherwise) to acquire any such equity interest or convertible or
exchangeable
7
security of any corporation, partnership, limited liability company, joint
venture or other business enterprise. Except as set forth in Section 3.03(c)(ii)
of the Disclosure Schedule, the Company does not have any continuing obligations
or duties in connection with any purchase by the Company of any business
enterprise or business unit (whether through the purchase of stock or assets or
through a merger or other business combination), any acquisition or sale by the
Company of rights under reinsurance agreements outside the ordinary course of
business (through bulk reinsurance or otherwise) or sale by the Company of any
business enterprise, business unit, stock or assets outside of the ordinary
course of business.
Section 3.04. No Conflict. Except as set forth in Section 3.04 of the
Disclosure Schedule and except as may result from any facts or circumstances
relating to the Acquiror or its Affiliates, the execution, delivery and
performance by the Seller of the Transaction Agreements and the consummation by
the Seller of the transactions contemplated by the Transaction Agreements do not
and will not (a) violate or conflict with the organizational documents of Seller
or the Company, (b) assuming that the consents and approvals described in
Section 3.05 have been obtained, conflict with or violate any Law or
Governmental Order applicable to the Seller or the Company or any agreement
with, or condition imposed by, any Governmental Authority upon the Seller or the
Company, or (c) assuming that the consents and approvals described in Section
3.05 have been obtained, result in any breach of, or constitute a default (or
event which, with the giving of notice or lapse of time, or both, would become a
default) under, or give to any Person any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Lien (other
than a Permitted Lien) on any of the assets of the Company or Seller pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other material instrument to which the Company or the
Seller is a party or by which any asset of the Company is bound or affected,
except, in the case of clauses (b) and (c), any such conflicts, violations,
breaches, defaults, rights or Liens as would not impair or delay the ability of
Seller to consummate the transactions contemplated by, or to perform Seller's
obligations under, the Transaction Agreements.
Section 3.05. Consents and Approvals. The execution and delivery by the
Seller of the Transaction Agreements do not, and the performance by the Seller
of, and the consummation by Seller of the transactions contemplated by, the
Transaction Agreements will not require on the part of Seller or the Company any
consent, approval, authorization or other action by, or any filing with or
notification to, any Governmental Authority or any other Person, except (a) in
connection, or in compliance with, the notification and waiting period
requirements of the HSR Act, (b) as may be necessary as a result of any facts or
circumstances relating to the Acquiror or its Affiliates not known to Seller, or
(c) those consents and approvals the failure of which to obtain would not
reasonably be expected to (i) materially interfere with the business of the
Company, (ii) result in any loss, fine or penalty in excess of $50,000 in the
aggregate or (iii) result in any injunction or equitable relief that materially
interferes with the business of the Company or the Acquiror.
Section 3.06. Financial Information; Absence of Undisclosed Liabilities.
(a) Section 3.06(a) of the Disclosure Schedule sets forth (i) the
annual audited statutory statements of the Company as of and for the years ended
December 31, 2002 and 2001, including the exhibits, schedules and notes thereto
and (ii) the unaudited statutory statements of the
8
Company as of and for the six months ended June 30, 2003 and 2002, including the
exhibits, schedules and notes thereto (collectively, the "Statutory
Statements"). The Statutory Statements were prepared in accordance with SAP and
present fairly, in all material respects, the financial condition and results of
operations of the Company at their respective dates and for the periods covered
by such statements in conformity with SAP applied consistently, subject in the
case of the unaudited statutory statements to normal recurring year-end
adjustments.
(b) Section 3.06(b) of the Disclosure Schedule sets forth the
unaudited pro forma statement of admitted assets, liabilities and capital and
surplus of the Company as of June 30, 2003, determined in accordance with SAP
applied consistently with its application in connection with the preparation of
the Statutory Statements, including use of the same principles, policies,
practices, procedures, methods and estimates, with consistent assumptions,
classifications, judgments and valuation and estimation methods, subject to
normal recurring year-end adjustments, except for the adjustments described
therein (the "Reference Date Pro Forma Balance Sheet"). The Reference Date Pro
Forma Balance Sheet presents fairly, in all material respects, the financial
condition of the Company on a pro forma basis, including the adjustments set
forth therein, as of June 30, 2003 in conformity with SAP applied consistently,
subject to normal recurring year-end adjustments.
(c) Except as set forth in the Statutory Statements, except for
Ordinary Course Liabilities under the terms of Assumed Reinsurance Agreements,
except for obligations (other than financial obligations) arising after the date
hereof in the ordinary course of business under contracts or commitments
identified in Sections 3.14 and 3.15 of the Disclosure Schedule and except for
any Liabilities which are or have been incurred in the ordinary course of
business and consistent with past practice since June 30, 2003 and which are or
will be discharged or repaid prior to the Closing Date or reflected in the Final
Balance Sheet, the Company does not have any Liabilities (whether accrued,
absolute, contingent or otherwise) in excess of $200,000 in the aggregate,
provided that no representation or warranty is hereby made that the Company's
reserves will prove to be sufficient or adequate for the purposes for which they
were established or that amounts now or hereafter payable from retrocessionaires
will be collectible and nothing in this subsection shall be deemed to constitute
such a representation or warranty.
Section 3.07. Absence of Certain Changes or Events. Except as set forth in
Section 3.07 of the Disclosure Schedule, except for transfers by the Company of
the Distributed Assets or as contemplated by this Agreement, from June 30, 2003
to the date of this Agreement, the Seller and the Company have conducted the
business of the Company in the ordinary course consistent with past practice,
there has not occurred any event that has had, or would reasonably be expected
to have, a Material Adverse Effect or that would impair or delay the ability of
Seller to consummate the transactions contemplated by, or to perform Seller's
obligations under, the Transaction Agreements, and there has not been with
respect to the Company:
(a) any incurrence of any Debt by the Company, issuance of any debt
securities or any loans or advances made by the Company;
(b) any redemption, repurchase or other acquisition of Capital Stock
of the Company;
9
(c) any declaration, setting aside or payment of any dividend or other
distribution in respect of shares of Capital Stock of the Company;
(d) any material transaction, commitment or Contract entered into
between the Company and any of its Affiliates, other than reinsurance
transactions in the ordinary course of business consistent with past practice;
(e) any issuance or sale of any additional shares of, or other equity
interests in, the Company, or securities convertible into or exchangeable for
such shares or equity interests, or issuance or grant of any options, warrants,
calls, subscription rights or other rights of any kind to acquire additional
shares, such other equity interests or such securities;
(f) any amendment of the articles of incorporation or by-laws of the
Company;
(g) any acquisition (by merger, consolidation, acquisition of stock or
assets or otherwise) of any corporation, partnership or other business
organization or division;
(h) any change in the policies, practices, principles or standards
other than in the ordinary course of business consistent with past practice, or
any material change in the procedures or systems, of the Company, in either case
with respect to the Company's accounting, reserving, actuarial determinations,
underwriting or retrocession, other than changes required by SAP or applicable
Law;
(i) any authorization, commitment to make or making of any capital
expenditures in an aggregate amount in excess of $200,000;
(j) any material write-off or write-down of, or any determination to
take a material write-off or write-down of, any assets of the Company, except
for write-offs or write-downs in the ordinary course of business consistent with
past practice;
(k) any Lien, other than a Permitted Lien, granted by the Company on
any Assets;
(l) to the Knowledge of Seller, damages, thefts or casualty losses to
the assets or properties of the Company, without regard to insurance coverage,
in an aggregate amount in excess of $200,000;
(m) any loss of any Material Permit; or
(n) any agreement or commitment (contingent or otherwise) to do any of
the foregoing.
Section 3.08. Absence of Litigation. Except as set forth in Section 3.08 of
the Disclosure Schedule, as of the date of this Agreement (a) there are no
Actions against the Company arising
10
under the Reinsurance Agreements in the ordinary course of business that are
pending and (b) there are no other Actions (including Actions arising under the
Reinsurance Agreements other than in the ordinary course of business) pending
or, to the Knowledge of Seller, threatened against the Company. Except as set
forth in Section 3.08 of the Disclosure Schedule, the Company is not a plaintiff
in any Action, and the Company does not intend to commence or threaten any
Action against any Person excluding Actions arising under the Reinsurance
Agreements. The Seller will deliver to Acquiror at the Closing a schedule dated
as of a date not earlier than five (5) Business Days prior to the Closing
disclosing any such Actions that became subject to disclosure after the date
hereof.
Section 3.09. Compliance with Laws. Excluding Environmental Laws (which are
covered in Section 3.13), the Company is not in material violation of any Laws
or Governmental Orders. Except as set forth in Section 3.09 of the Disclosure
Schedule, as of the date of this Agreement, there are no outstanding
Governmental Orders against the Company or against the Seller relating to the
transactions contemplated hereby. Except as set forth in Section 3.09 of the
Disclosure Schedule, the Company has filed all material reports, statements,
documents, registrations, filings or submissions required to be filed with any
Governmental Authority. Except as set forth in Section 3.09 of the Disclosure
Schedule, all such material reports, statements, documents, registrations,
filings and submissions were in compliance in all material respects with all
applicable Laws when filed or as amended or supplemented, and no material
deficiencies that remain unsatisfied have been asserted in writing by any
Governmental Authority with respect to such material reports, statements,
documents, registrations, filings or submissions. Except as set forth in Section
3.09 of the Disclosure Schedule, all Reinsurance Agreements to which the Company
is a party, and all amendments, applications, brochures, illustrations and
certificates pertaining thereto comply in all material respects with applicable
Laws and have, where required by applicable Laws, been approved by all
applicable Governmental Authorities or filed with and not objected to by such
Governmental Authorities within the period provided by applicable Laws for
objection. Except as set forth in Section 3.09 of the Disclosure Schedule, the
Company has not received, at any time between December 31, 1999 and the date of
this Agreement, any notice or communication from any Governmental Authority
regarding any actual, alleged, or potential violation of, or failure to comply
with, any applicable Law in any material respect or directing the Company to
take any remedial action with respect to any applicable Law.
Section 3.10. Governmental Licenses and Permits.
(a) Excluding Environmental Permits (which are covered in Section
3.13), Section 3.10(a) of the Disclosure Schedule sets forth all governmental
qualifications, registrations, filings, privileges, franchises, licenses,
permits, approvals or authorizations that are material to the operation of the
business of the Company as conducted on the date of this Agreement
(collectively, "Material Permits"). Except as set forth on Section 3.10(a) of
the Disclosure Schedule, the Company has all Material Permits required by Law.
(b) Excluding Environmental Permits (which are covered in Section
3.13), neither the Seller nor the Company is in material violation of any of the
Material Permits. All such Material Permits are valid and in full force and
effect. Except as set forth in Section 3.10(b) of the Disclosure Schedule, as of
the date of this Agreement there is no pending, or to the knowledge of
11
the Seller, threatened, revocation, cancellation, suspension, limitation,
amendment, modification, restriction or nonrenewal of any Material Permit held
by the Company and there is no Action which is pending or, to the knowledge of
Seller, threatened that would be likely to lead to the revocation, cancellation,
suspension, limitation, amendment, modification, restriction or non-renewal of
any such Material Permit. The Company is not operating under any formal or
informal agreement or understanding with any Governmental Authority which
restricts its ability to do business or requires it to take, or refrain from
taking, any action otherwise permitted by applicable Law.
Section 3.11. Title to the Assets; Real Property.
(a) Except for assets transferred as contemplated by this Agreement or
the Reference Date Pro Forma Balance Sheet or pursuant to the transactions set
forth in Section 3.11(a) of the Disclosure Schedule, and except for other assets
disposed of since June 30, 2003 in the ordinary course of business and
consistent with past practice, the Company has good title to, a valid leasehold
interest in or a valid license or other right to use, the assets, properties,
rights and privileges reflected on the June 30, 2003 balance sheet of the
Company, free and clear of all Liens other than Permitted Liens and Liens
created by or through Acquiror or any of its Affiliates.
(b) The Company does not own or lease any real property. Section
3.11(b) of the Disclosure Schedule sets forth a true and complete list of all
locations at which the Company conducts operations or has employees on the date
hereof.
Section 3.12. Intellectual Property.
(a) The Company owns or has the right to use all material Intellectual
Property in use by it that is necessary to the operation of the Company's
business as conducted on the date of this Agreement.
(b) Except as provided in Section 3.12(b) of the Disclosure Schedule,
the Company has no registrations for copyrights, patents, domain names and
trademarks and service marks, and no applications to register any unregistered
copyrights, patents, trademarks, or service marks.
(c) The Company has no licenses or sublicenses pursuant to which
Intellectual Property is licensed to the Company by any third party (other than
Seller or any of its Affiliates), excluding licenses for off the shelf software
licensed to the Company. With respect to each license or sublicense pursuant to
which Intellectual Property is licensed to the Company that will remain in
effect after Closing, each such license and sublicense is a legal, valid and
binding obligation of Seller or its Affiliates and, to the Knowledge of Seller,
each other party to such license or sublicense, and is enforceable against the
Seller or its Affiliates and, to the best Knowledge of Seller, each other party
in accordance with its terms, except in each case as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Laws now or hereafter in effect relating to or affecting creditors' rights
generally, including the effect of statutory and other Laws regarding fraudulent
conveyances and preferential transfers, and subject to the
12
limitations imposed by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity). Neither
Seller, its Affiliates nor, to the Knowledge of Seller, any other party to any
license or sublicense pursuant to which Intellectual Property is licensed to the
Company is in default or breach or has failed to perform any material obligation
under such license or sublicense and, to the Knowledge of Seller, there does not
exist any event, condition or omission that would constitute a material breach
or material default (whether by lapse of time or notice or both). The Company
has not licensed or sublicensed for use by any third party (including but not
limited to Seller or any other Affiliate of Seller) any Intellectual Property
owned by or licensed to the Company.
(d) To the Knowledge of Seller, no Person is engaging in any activity
that infringes in any material respect upon any Intellectual Property owned by
the Company.
(e) (i) The Company has not received any claim or notice from any
Person that the Company is engaging in any activity that infringes in any
respect upon or misappropriates any Intellectual Property of any Person, (ii)
there are no infringement suits, actions or proceedings pending or, to the
Knowledge of Seller, threatened against the Company with respect to any
Intellectual Property used by the Company, and (iii) the operations of the
Company's business do not infringe any Intellectual Property right of any
Person.
(f) The Company has taken efforts that are reasonable under the
circumstances to protect and preserve the confidentiality of all Intellectual
Property as to which it has a duty of confidentiality from a third party and
which is not otherwise protected by patents, patent applications or copyright
("Confidential IP"). Except with respect to Confidential IP of Affiliates of the
Company, all use, disclosure or appropriation of Confidential IP not owned by
the Company has been pursuant to the terms of a written agreement between the
Company and the owner of such Confidential IP, or is otherwise lawful.
(g) As of the date of this Agreement, the Company has implemented and
is in compliance with commercially reasonable practices regarding (i) the
security of its internal and external computer networks and (ii) disaster
recovery and business continuity.
Section 3.13. Environmental Matters. The Company has operated in compliance
in all material respects with applicable Environmental Laws. There has been no
release or, to the Knowledge of Seller, threatened release, discharge or
disposal of Hazardous Materials on, at or under, from or affecting any real
property (including any improvement thereon) currently or previously used or
previously owned or leased by the Company which would reasonably be expected to
result in the imposition of any material liability on the Company under any
Environmental Law. The Company has obtained and maintained in good standing all
material Environmental Permits necessary to conduct the operation of the
business of the Company. No Action is pending or, to the Knowledge of Seller,
threatened by any Governmental Authority or any other Person against the Company
relating to any Environmental Law.
Section 3.14. Material Contracts.
13
(a) Section 3.14(a) of the Disclosure Schedule lists each of the
Material Contracts as in effect on the date of this Agreement.
(b) Except as set forth in Section 3.14(b) of the Disclosure Schedule,
each Material Contract is a legal, valid and binding obligation of the Company
and, to the Knowledge of Seller, each other party to such Material Contract, and
is enforceable against the Company and, to the Knowledge of Seller, each such
other party in accordance with its terms, except in each case as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar Laws now or hereafter in effect relating to or affecting creditors'
rights generally, including the effect of statutory and other Laws regarding
fraudulent conveyances and preferential transfers, and subject to the
limitations imposed by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity), and neither
the Company nor, to the Knowledge of Seller, any other party to a Material
Contract is in material default or material breach or has failed to perform any
material obligation under a Material Contract, and, to the Knowledge of Seller,
there does not exist any event, condition or omission that would constitute such
a material breach or material default (whether by lapse of time or notice or
both). Neither Seller nor the Company has received any notice, whether written
or oral, of termination or intention to terminate any Material Contract from any
party thereto.
(c) Sections 3.14(a) and 3.14(b) of the Disclosure Schedule do not
include and this Section 3.14 does not apply to the Assumed Reinsurance
Agreements, Retroceded Reinsurance Agreements, the Transaction Agreements, the
Business Employee Plans, the Company Employee Plans, Intellectual Property
license agreements, agency, brokerage or commission agreements and agreements
between the Company, on the one hand, and Seller or any of its Affiliates, on
the other hand, that will be terminated prior to or as of Closing. Except as set
forth in Section 3.14(c) of the Disclosure Schedule, the Company does not have
any liability or obligation under any agency, brokerage or commission agreement
with respect to Reinsurance Agreements previously in effect or in effect on the
date of this Agreement or as of Closing.
Section 3.15. Retroceded Reinsurance Agreements.
(a) Set forth in Section 3.15(a) of the Disclosure Schedule is a list
of each Retroceded Reinsurance Agreement (i) that, in the reasonable opinion of
Seller, constitutes 1% or more of the in-force face amount of reinsurance ceded
pursuant to the Retroceded Reinsurance Agreements on an individual basis and 90%
of the in-force face amount of reinsurance ceded pursuant to the Retroceded
Reinsurance Agreements on an aggregate basis and (ii) between the Company, on
the one hand, and Seller on any Affiliate of Seller, on the other hand. For each
Retroceded Reinsurance Agreement listed in Section 3.15(a) of the Disclosure
Schedule, Section 3.15(a) of the Disclosure Schedule includes the name of the
retrocessionaire, type of contract and inception date. The Seller will deliver
to Acquiror at the Closing a schedule showing any Retroceded Reinsurance
Agreement entered into by the Company with respect to the Long-Term Care
Business and Health Reinsurance Business after the date of this Agreement.
(b) Except as set forth in Section 3.15(b) of the Disclosure Schedule,
(i) to the Knowledge of Seller, none of the retrocessionaires under any
Retroceded Reinsurance Agreement
14
is insolvent or the subject of a rehabilitation, liquidation, conservatorship,
receivership, bankruptcy or similar proceeding, (ii) to the Knowledge of Seller,
the financial condition of any such retrocessionaire is not impaired to the
extent that a default thereunder is reasonably anticipated, (iii) each
Retroceded Reinsurance Agreement complies in all material respects with all
relevant provisions of the Missouri Insurance Law and regulations thereunder, as
well as the Insurance Laws and regulations of all states in which the Company is
authorized to conduct its business relating to credit for reinsurance and (iv)
the Company is entitled under relevant SAP to take full credit in its Statutory
Statements for all amounts recoverable by it pursuant to such Retroceded
Reinsurance Agreements in the aggregate, and all such amounts have been properly
recorded in the Company's books and records of account and are properly
reflected in its Statutory Statements. No Retroceded Reinsurance Agreement
contains any provision providing that any such party thereto may commute the
same by reason of the transactions contemplated by this Agreement.
(c) Except as set forth in Section 3.15(c) of the Disclosure Schedule,
with respect to any Retroceded Reinsurance Agreement, (i) as of the date hereof,
neither the Company nor, to the Knowledge of Seller, any relevant
retrocessionaire has given notice of termination (provisional or otherwise) in
respect of such Retroceded Reinsurance Agreement, (ii) neither the Company nor,
to the Knowledge of Seller, any such retrocessionaire is in default in any
material respect under any such Retroceded Reinsurance Agreement, and (iii) on
the date hereof, each such Retroceded Reinsurance Agreement is in full force and
effect and is valid and enforceable against the Company, and, to the Knowledge
of Seller, each such other party in accordance with its terms, except in each
case as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to or
affecting creditors' rights generally, including the effect of statutory and
other Laws regarding fraudulent conveyances and preferential transfers, and
subject to the limitations imposed by general equitable principles (regardless
of whether such enforceability is considered in a proceeding at law or in
equity).
Section 3.16. Reinsurance Assumed.
(a) Set forth in Section 3.16(a) of the Disclosure Schedule is a list
of each Assumed Reinsurance Agreement (i) that, in the reasonable opinion of
Seller, constitutes 1% or more of the gross in-force face amount of reinsurance
assumed pursuant to the Assumed Reinsurance Agreements on an individual basis
and 90% of the gross in-force face amount of reinsurance assumed pursuant to the
Assumed Reinsurance Agreements on an aggregate basis and (ii) between the
Company, on the one hand, and Seller or any Affiliate of Seller, on the other
hand. For each Assumed Reinsurance Agreement listed in Section 3.16(a) of the
Disclosure Schedule, Section 3.16(a) of the Disclosure Schedule further includes
the name of the Ceding Company, type of contract, and inception date, true and
complete copies of each such Assumed Reinsurance Agreement has been made
available to the Acquiror. Seller will deliver to the Acquiror at the Closing a
supplement to Section 3.16(a) of the Disclosure Schedule as of a date not
earlier than five (5) Business Days prior to the Closing Date showing any
Assumed Reinsurance Agreements recaptured after the date hereof.
(b) Except as set forth in Section 3.16(b) of the Disclosure Schedule,
with respect to any Assumed Reinsurance Agreement, (i) to the Knowledge of
Seller, no Ceding Company is insolvent or the subject of a rehabilitation,
liquidation, conservatorship, receivership,
15
bankruptcy or similar proceeding, (ii) as of the date hereof neither the Company
nor, to the Knowledge of Seller, any Ceding Company has given notice of
termination (provisional or otherwise) in respect of any such Assumed
Reinsurance Agreement, (iii) neither the Company nor, to the Knowledge of
Seller, any Ceding Company is in default in any material respect under any such
Assumed Reinsurance Agreements, (iv) each Assumed Reinsurance Agreement complies
in all material respects with all relevant provisions of the Missouri Insurance
Law and regulations thereunder, as well as the Insurance Laws and regulations of
all states in which the Company is authorized to conduct its business relating
to credit for reinsurance and (v) as of the date hereof each such Assumed
Reinsurance Agreement is in full force and effect and is valid and enforceable
against the Company, and, to the Knowledge of Seller, each such other party in
accordance with its terms, except in each case as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or
hereafter in effect relating to or affecting creditors' rights generally,
including the effect of statutory and other Laws regarding fraudulent
conveyances and preferential transfers, and subject to the limitations imposed
by general equitable principles (regardless of whether such enforceability is
considered in a proceeding at law or in equity). Except as set forth in Section
3.16(b)(vi) of the Disclosure Schedule, no Assumed Reinsurance Agreement
contains any provision providing that the Ceding Company may recapture the risk
thereunder by reason of the transactions contemplated by this Agreement. Except
as set forth in Section 3.16(b)(vii) of the Disclosure Schedule, the Company is
not currently providing any trust, escrow, letter of credit or other type of
security with respect to any Assumed Reinsurance Agreement.
Section 3.17. Employment and Employee Benefits Matters.
(a) Section 3.17(a) of the Disclosure Schedule sets forth a true and
complete list of the employees of the Company and any other employees of Seller
or its Affiliates (in each case without naming them) who spend substantially all
of their business time providing services to the Company (collectively, the
"Business Employees"). Section 3.17(a) of the Disclosure Schedule includes each
Business Employee's job title, employer, job location and classification. Except
as set forth in Section 3.17(a) of the Disclosure Schedule, as of the date of
this Agreement there are no Actions pending or, to the Knowledge of Seller,
threatened against the Company by any Business Employee. From and after the
Closing the Company shall have no liability for any compensation or benefits
payable to any Business Employee or for any Losses arising out of the acts or
omissions of the Company, Seller or any Affiliate prior to the Closing and
relating to the employment or termination of any Business Employee by the
Company, Seller or any Affiliate prior to Closing that will not be satisfied by
Seller.
(b) Section 3.17(b)(i) of the Disclosure Schedule sets forth a list of
all Business Employee Plans. Section 3.17(b)(ii) of the Disclosure Schedule sets
forth a list of all Company Employee Plans.
(c) None of the Business Employee Plans or Company Employee Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
or a single employer plan (within the meaning of Section 4001(a)(15) of ERISA)
for which the Company would reasonably be expected to incur liability under
Section 4063 or 4064 of ERISA.
16
(d) Each Business Employee Plan and Company Employee Plan that is
intended to be qualified under Section 401(a) of the Code is the subject of a
favorable determination letter from the IRS that it is so qualified, and each
related trust that is intended to be exempt from federal income tax pursuant to
Section 501(a) of the Code is subject to a determination letter from the IRS
that it is so exempt, and no fact or event has occurred since the date of such
determination letter that would reasonably be expected to adversely affect such
qualification or exemption, as the case may be.
(e) With respect to each Business Employee Plan and Company Employee
Plan, the Company is not currently liable for any material Tax arising under
Section 4971, 4972, 4975, 4979, 4980 or 4980B of the Code, and no fact or event
exists that would give rise to any such material Tax liability. The Company has
not incurred any material liability under or arising out of Title IV of ERISA,
and no fact or event exists that would reasonably be expected to result in such
a liability that will not be satisfied by Seller.
(f) Except as set forth on Section 3.17(f) of the Disclosure Schedule,
none of the Business Employee Plans or Company Employee Plans provides for
post-employment life or health insurance, benefits or coverage for any
participant or any beneficiary of a participant, except as may be required under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
and at the expense of the participant or the participant's beneficiary.
(g) The Company is not a party to any collective bargaining agreement
or other labor union contract applicable to Business Employees.
(h) As of or prior to the Closing Date, the Company's participation in
all Business Employee Plans and Company Employee Plans maintained by the Company
or any ERISA Affiliate prior to the Closing Date for the benefit of Business
Employees shall be terminated without liability to the Company. After the
Closing Date, neither the Company nor the Acquiror will have any liability or
obligations to any Person or Governmental Authority (including, without
limitation, the Department of Labor, the Internal Revenue Service or the Pension
Benefits Guaranty Corporation) under or in respect of any Business Employee Plan
or Company Employee Plan or any employee benefit plan of an ERISA Affiliate or
for any action taken or omitted to be taken by the Company or any ERISA
Affiliate prior to Closing with respect to any Business Employee Plan or Company
Employee Plan, or any employee benefit plan of an ERISA Affiliate that will not
be satisfied by Seller.
Section 3.18. Brokers. Except for Morgan Stanley & Co. Incorporated
("Seller's Banker"), no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by the Transaction Agreements based upon arrangements
made by or on behalf of Seller or the Company. Seller is solely responsible for
the fees and expenses of Seller's Banker.
Section 3.19. Investment Company. The Company is not an investment company
subject to registration and regulation under the Investment Company Act of 1940,
as amended.
17
Section 3.20. Direct Insurance Contracts. The Company has not written any
direct policies of insurance that are in force or under which any party has any
existing rights, obligations or liabilities.
Section 3.21. Reserves. Except as set forth in Section 3.21 of the
Disclosure Schedule, the reserves of the Company reflected in the Statutory
Statements and the Reference Date Pro Forma Balance Sheet (a) were determined in
accordance with generally recognized actuarial methods and standards,
consistently applied, and as of their respective dates were fairly stated in
accordance with sound actuarial principles using prescribed morbidity and
mortality tables and interest rates that are in accordance with the nature of
the benefits specified, and (b) as of their respective dates met the applicable
requirements of the insurance laws and regulations of the Company's state of
domicile, including applicable statutory accounting principles. No
representation or warranty is hereby made that the reserves will be sufficient
or adequate for the purposes for which they were established or that amounts now
or hereafter payable from retrocessionaires will be collectible and nothing in
this Agreement (including without limitation Sections 2.05, 3.06, 3.07, 3.11,
3.15, 3.16 and 3.26) shall be deemed to constitute such a representation or
warranty, provided that the provisions of this Section shall not be deemed to
limit the indemnification provisions of Section 10.01(a)(vi) and Sections 5.19
and 5.24. Without limiting the generality of the foregoing, nothing in Section
2.05 shall be deemed a representation, warranty or agreement that the reserves
set forth in the Estimated Initial Balance Sheet, Initial Balance Sheet or Final
Balance Sheet shall prove to be sufficient or adequate for the purposes for
which they were established or that amounts now or hereafter payable from
retrocessionaires shall be collectible.
Section 3.22. Required Capital. The Company's ratio of "Total Adjusted
Capital" to "Company Action Level RBC," as those terms are defined in the
insurance laws of the State of Missouri as of June 30, 2003, calculated on a pro
forma basis based upon the Reference Date Pro Forma Balance Sheet, is at least
175% as of June 30, 2003. Section 3.22 of the Disclosure Schedule sets forth the
Company's calculation of such ratio.
Section 3.23. Investments.
(a) Section 3.23 of the Disclosure Schedule sets forth a complete and
accurate list of all bonds, stocks, mortgages and other investments of any type
owned by the Company as of October 14, 2003 (collectively, the "Investments").
The Company has good and marketable title to each of the Investments as of
October 14, 2003.
(b) Except as set forth in Section 3.23 of the Disclosure Schedule,
none of the Investments is in default on the date hereof in the payment of
principal or interest, and no event has occurred as of the date hereof which
reasonably could be expected to result in a diminution of the value of any
nonpublicly traded security owned by the Company.
(c) Except as set forth in Section 3.23 of the Disclosure Schedule,
there are no Liens on any of the Investments.
18
(d) Neither Seller nor the Company has taken, or omitted to take, any
action which causes any Investment to be subject to any valid offset, defense or
counterclaim against the right of the Company to enforce the terms of such
Investment that is not reflected in the Statutory Statements.
Section 3.24. Insurance. Section 3.24 of the Disclosure Schedule contains a
true and complete list and description of all liability, property, workers
compensation, and directors and officers liability insurance contracts currently
in force that insure the business, operations, or affairs of the Company or
affect or relate to the ownership, use, or operation of any assets of the
Company and that have been issued to the Company (including without limitation
the type of insurance, the names and addresses of the insurers, deductible and
policy limits and the expiration dates thereof). Neither the Seller nor the
Company is in breach of or default under any such insurance policy and all
premiums due thereunder have been paid in full. Each of such policies is in full
force and effect and is valid and enforceable in accordance with its terms. To
the Knowledge of Seller, there are no claims relating to the Company under any
of such insurance policies as to which the insurers have denied coverage.
Section 3.25. Bank Accounts. Section 3.25 of the Disclosure Schedule sets
forth a list of the bank names, locations and account numbers of all bank and
safe deposit box accounts of the Company, including any custodial accounts for
securities owned by the Company, and the names of all persons authorized to draw
thereon or to have access thereto.
Section 3.26. Books and Records. The books of account and other accounting
records of the Company (a) have been maintained in accordance with sound
business practices and generally accepted accounting practices and applicable
Law on a consistent basis and (b) contain in all material respects true and
accurate records of all information required to be recorded therein. The Books
and Records are in Seller's possession or under its control and constitute in
the aggregate all of the files and data necessary for the Company to operate its
business.
Section 3.27. Full Disclosure. To the Knowledge of Seller, none of the
representations or warranties made by Seller in this Agreement, in the
Disclosure Schedule or in any certificate furnished or required to be furnished
to the Acquiror pursuant hereto contains any untrue statement of a material fact
or, omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading in light of the circumstances in
which they were made.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND PARENT
The Acquiror and Parent represent and warrant to Seller as follows:
Section 4.01. Incorporation and Authority of the Acquiror and Parent. Each
of the Acquiror and Parent is a corporation or other organization duly
incorporated or organized, validly existing and in good standing under the Laws
of the jurisdiction of its incorporation or organization and has all necessary
corporate power and corporate authority to enter into the Transaction
19
Agreements and to consummate the transactions contemplated by, and to carry out
its obligations under, the Transaction Agreements. The execution and delivery of
the Transaction Agreements by each of the Acquiror and Parent, the consummation
by each of the Acquiror and Parent of the transactions contemplated by, and the
performance by each of the Acquiror and Parent of its respective obligations
under, the Transaction Agreements have been duly authorized by all requisite
action on the part of the Acquiror and Parent. This Agreement and the Tax
Matters Agreement have been, and upon execution and delivery, the other
Ancillary Agreements will be, duly executed and delivered by the Acquiror and
Parent, as the case may be, and (assuming due authorization, execution and
delivery by the Seller) this Agreement and the Tax Matters Agreement constitute,
and upon execution and delivery, the other Ancillary Agreements will constitute,
legal, valid and binding obligations of the Acquiror and Parent enforceable
against each of them in accordance with their terms, except in each case as may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws now or hereafter in effect relating to or affecting
creditors' rights generally, including the effect of statutory and other Laws
regarding fraudulent conveyances and preferential transfers, and subject to the
limitations imposed by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
Section 4.02. Qualification of the Acquiror. The Acquiror has all requisite
power and authority to operate its business as now conducted. Each of the
Acquiror and Parent is duly qualified as a foreign corporation or other
organization to do business and, to the extent legally applicable, is in good
standing in each jurisdiction where the character of its owned, operated or
leased properties or the nature of its activities makes such qualification
necessary, except for jurisdictions where the failure to be so qualified or in
good standing would not impair or delay the ability of the Acquiror or Parent to
consummate the transactions contemplated by, or perform its obligations under,
the Transaction Agreements.
Section 4.03. No Conflict. Except as may result from any facts or
circumstances relating to the Seller or the Company, the execution, delivery and
performance by the Acquiror and Parent of, and the consummation by the Acquiror
and Parent of the transactions contemplated by, the Transaction Agreements do
not and will not (a) violate or conflict with the organizational documents of
the Acquiror or Parent, (b) assuming that the consents and approvals described
in Section 4.04 have been obtained, conflict with or violate any Law or
Governmental Order applicable to the Acquiror or Parent or any agreement with,
or condition imposed by, any Governmental Authority upon the Acquiror or Parent
or (c) assuming that the consents and approvals described in Section 4.04 have
been obtained, result in any breach of, or constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, or give to any Person any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of any Lien on any of the assets
or properties of the Acquiror or Parent pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
material instrument to which either the Acquiror or Parent or any of its
Subsidiaries is a party or by which any of such assets or properties is bound or
affected, except, in the case of clauses (b) and (c), any such conflicts,
violations, breaches, defaults, rights or Liens as would not impair or delay the
ability of the Acquiror or Parent to consummate the transactions contemplated
by, or perform its obligations under, the Transaction Agreements.
20
Section 4.04. Consents and Approvals. The execution and delivery by the
Acquiror and Parent of the Transaction Agreements do not, and the performance by
the Acquiror and Parent of, and the consummation by the Acquiror and Parent of
the transactions contemplated by, the Transaction Agreements will not, require
any material consent, approval, authorization or other action by, or any
material filing with or notification to, any Governmental Authority or any other
Person, except (a) in connection, or in compliance, with the notification and
waiting period requirements of the HSR Act, (b) in connection or in compliance
with the insurance laws of the jurisdictions set forth in Section 4.04 of the
Acquiror Disclosure Schedule, or (c) as may be necessary as a result of any
facts or circumstances relating to the Seller or its Affiliates.
Section 4.05. Absence of Litigation; Compliance with Laws.
(a) As of the date of this Agreement, no Action is pending or, to the
best knowledge of the Acquiror and Parent, threatened that seeks to, or would
reasonably be expected to, impair or delay the ability of either the Acquiror or
Parent to consummate the transactions contemplated by, or to perform its
obligations under, the Transaction Agreements. As of the date of this Agreement,
neither Acquiror nor Parent is aware of any state of facts or condition that
would reasonably be expected to impair or delay the ability of either the
Acquiror or Parent to consummate the transactions contemplated by, or to perform
its obligations under, the Transaction Agreements.
(b) Neither the Acquiror nor Parent is in violation of any Laws or
Governmental Orders applicable to it or by which any of its material assets is
bound or affected, except for violations the existence of which would not
reasonably be expected to impair or delay the ability of either the Acquiror or
Parent to consummate the transactions contemplated by, or to perform its
obligations under, the Transaction Agreements.
Section 4.06. Securities Matters. The Transferred Shares are being acquired
by the Acquiror for its own account and without a view to the public
distribution or sale of the Transferred Shares or any interest in them. The
Acquiror has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Transferred Shares, and the Acquiror is capable of bearing the economic
risks of such investment, including a complete loss of its investment in the
Transferred Shares. The Acquiror understands and agrees that it may not sell or
dispose of any of the Transferred Shares other than pursuant to a registered
offering in compliance with, or in a transaction exempt from, the registration
requirements of the Securities Act and applicable state securities laws.
Acquiror understands and agrees that the certificates representing the
Transferred Shares may bear legends to the effect that the Transferred Shares
have not been registered under the Securities Act, or such other state
securities laws, and that no interest therein may be transferred or otherwise
disposed of in violation of the provisions thereof.
Section 4.07. Financial Ability. The Acquiror has, and will have at the
Closing, the financial ability to consummate the transactions contemplated by
the Transaction Agreements and has furnished to Seller evidence thereof.
21
Section 4.08. Brokers. Except for Bear, Stearns & Co. Inc. (the "Acquiror's
Banker"), no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by the Transaction Agreements based upon arrangements made by or on
behalf of the Acquiror. The Acquiror is solely responsible for the fees and
expenses of the Acquiror's Banker.
Section 4.09. Investment Company. Acquiror is not an investment company
subject to registration and regulation under the Investment Company Act of 1940,
as amended.
ARTICLE V.
ADDITIONAL AGREEMENTS
Section 5.01. Conduct of Business Prior to the Closing. Except as otherwise
contemplated by or necessary to effectuate the Transaction Agreements, except
for transfers of employees from the Company, and except for matters identified
in Schedule 5.01, from the date of this Agreement through the Closing, unless
the Acquiror otherwise consents in advance in writing (which consent shall not
be unreasonably withheld, conditioned or delayed), Seller will, and will cause
the Company to, (a) conduct the business and operations of the Company in the
ordinary course consistent with past practice and maintain its books, accounts
and records in the ordinary course consistent with past practice, (b) use
commercially reasonable efforts to preserve intact the Company's business
organization and to preserve the current significant business relationships with
the customers of the Company and (c) not do any of the following:
(i) except to evidence Liens created by or under this Agreement
or by or through Acquiror or any of its Affiliates, grant any Lien
(other than granting a Permitted Lien) on any Asset of the Company;
(ii) acquire (by merger, consolidation, acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division;
(iii) incur any Debt, issue any debt securities or make any loans
or advances;
(iv) issue or sell any additional shares of, or other equity
interests in, the Company, or securities convertible into or
exchangeable for such shares or equity interests, or issue or grant
any options, warrants, calls, subscription rights or other rights of
any kind to acquire such additional shares, such other equity
interests or such securities;
(v) redeem, repurchase or acquire any of the Capital Stock of the
Company;
(vi) declare, set aside or pay any dividend or other distribution
in respect of shares of Capital Stock of the Company;
22
(vii) amend the articles of incorporation or by-laws of the
Company;
(viii) make or authorize or commit to make any capital
expenditures in excess of an aggregate of $200,000;
(ix) sell, transfer, lease, sublease or otherwise dispose of any
Assets of the Company other than in the ordinary course of business
consistent with past practice;
(x) enter into any commutation of or recapture of any risks under
any Retroceded Reinsurance Agreement or Assumed Reinsurance Agreement,
except to the extent required by the other party thereto in accordance
with the terms of such agreement;
(xi) make or change any election concerning any Taxes, change an
annual accounting period or adopt or change any accounting method,
enter into any Closing Agreement with respect to Taxes, settle any Tax
Claim or assessment or surrender any right to claim a refund of any
Taxes or obtain or enter into any Tax Ruling, in each case, to the
extent such action would affect the Taxes of Company in any Tax period
(or portion thereof) following the Closing Date;
(xii) enter into any new Reinsurance Agreements (other than the
binding of new risks under the terms of existing life reinsurance
treaties);
(xiii) make any change in any of the policies, practices,
principles or standards other than in the ordinary course of business
consistent with past practice or any material change in any of the
procedures or systems of the Company, in each case with respect to the
Company's accounting, reserving, actuarial determinations,
underwriting or retrocession, other than such changes as are required
by SAP or applicable Law;
(xiv) enter into any material transaction, commitment or Contract
between the Company and any of its Affiliates, other than reinsurance
transactions in the ordinary course of business consistent with past
practice;
(xv) from October 14, 2003 through the Closing, purchase or sell
any Investments except in accordance with the Company's investment
guidelines in effect as of October 14, 2003 and in the ordinary course
of business consistent with past practice; or
(xvi) enter into any legally binding commitment with respect to
any of the foregoing.
23
Section 5.02. Access to Information. From the date of this Agreement until
the Closing Date, and with respect to clause (ii) below, until termination of
all services provided under the Transition Services Agreement, upon reasonable
prior notice, and except as prohibited by applicable Law and subject to any
applicable privileges (including the attorney-client privilege) and contractual
confidentiality obligations, Seller shall (i) afford the Representatives of the
Acquiror reasonable access, during normal business hours, to the offices,
properties, Books and Records of the Company and of the Seller relating to the
Company and to the Business Employees and the agents and Representatives of the
Company, (ii) afford the Representatives of the Acquiror reasonable access,
during normal business hours, to the offices, properties, Books and Records of
the Company, the Seller and entities controlled by Seller relating to the
provision of transition services under the Transition Services Agreement and to
the key personnel of the Company, the Seller and entities controlled by Seller
charged with delivery of transition services under the Transition Services
Agreement and (iii) furnish to the Representatives of the Acquiror such
additional financial and operating data and other information regarding the
Company as the Acquiror may from time to time reasonably request and that is
available to the Seller or the Company or may be prepared or compiled by Seller
or the Company without undue burden or expense; provided, however, that such
investigation shall not unreasonably interfere with any of the businesses or
operations of the Seller, the Company or any of their Affiliates; and provided,
further, that the auditors and accountants of the Seller, the Company or any of
their Affiliates shall not be obliged to make any work papers available to any
Person unless and until such Person has signed a customary agreement relating to
such access to work papers in form and substance reasonably acceptable to such
auditors or accountants. If so requested by Seller, the Acquiror shall enter
into a customary joint defense agreement with Seller and the Company with
respect to any information to be provided to the Acquiror pursuant to this
Section 5.02. For a period of six years after Closing, upon reasonable notice
and as reasonably necessary to comply with reporting and other obligations under
applicable Laws, subject to any applicable privileges (including the
attorney-client privilege) and contractual confidentiality obligations,
Representatives of Acquiror shall have access during normal business hours to
examine, inspect and copy the Books and Records of the Seller relating to the
Company; provided, however, that such investigation shall not unreasonably
interfere with any of the businesses or operations of the Seller or any of its
Affiliates; and provided, further, that the auditors and accountants of the
Seller or its Affiliates shall not be obligated to make any work papers
available to any Person unless and until such Person has signed a customary
agreement relating to such access to work papers in form and substance
reasonably acceptable to such auditors or accountants.
Section 5.03. Maintenance, Transfer and Preservation of Books and Records.
(a) Through the Closing Date, Seller shall, and shall cause the
Company to, maintain the Books and Records in all material respects in the same
manner and with the same care that the Books and Records have been maintained
prior to the execution of this Agreement. On or prior to the Closing, Seller
shall, or shall cause its Affiliates, to deliver to the Acquiror (i) all
original corporate records of the Company, including but not limited to any such
corporate records relating to the Company's legal existence, stock ownership and
corporate governance, (ii) all Material Permits of the Company and (iii) any
other Books and Records that Acquiror reasonably requests be delivered at
Closing; provided that such request is in writing and is received by Seller no
later than 10 calendar days prior to the Closing. As soon as practicable after
the Closing Date,
24
the Seller shall, or shall cause its Affiliates, to deliver to the Acquiror all
other original Books and Records not previously delivered.
(b) Seller and its Affiliates shall have the right to retain copies of
all Books and Records of the Company relating to periods ending on or prior to
the Closing Date. The Acquiror agrees that it shall preserve and keep, or cause
to be preserved and kept, all original Books and Records in respect of the
Company in the possession of the Acquiror or its Affiliates for the longer of
any applicable statute of limitations and a period of six years from the Closing
Date. During such six-year or longer period, upon reasonable notice and for any
reasonable business purpose, including the preparation of regulatory and
statutory filings and financial statements and the conduct or defense of any
regulatory inquiry or other Action, except as determined in good faith to be
appropriate to ensure compliance with any applicable Laws and subject to any
applicable privileges (including the attorney-client privilege) and contractual
confidentiality obligations, Representatives of Seller shall have access during
normal business hours to examine, inspect and copy the Books and Records of the
Company; provided, however, that such investigation shall not unreasonably
interfere with any of the businesses or operations of the Seller, the Company or
any of their Affiliates; and provided, further, that the auditors and
accountants of the Acquiror or its Affiliates shall not be obligated to make any
work papers available to any Person unless and until such Person has signed a
customary agreement relating to such access to work papers in form and substance
reasonably acceptable to such auditors or accountants. After such six-year or
longer period, before the Acquiror or any Affiliate shall dispose of any of such
Books and Records, the Acquiror shall give at least 90 days' prior written
notice of its intention to dispose of such Books and Records to Seller, and
Seller shall be given an opportunity, at its cost and expense, to remove and
retain all or any part of such Books and Records as Seller may elect. If so
requested by the Acquiror, Seller shall enter into a customary joint defense
agreement with the Acquiror or such Affiliate with respect to any information to
be provided to Seller pursuant to this Section.
Section 5.04. Confidentiality.
(a) The terms of the letter agreement dated December 23, 2002 (the
"Confidentiality Agreement") between Scottish Re (U.S.), Inc. and Seller and its
Affiliates together with the amendment dated June 12, 2003 are incorporated into
this Agreement by reference and shall continue in full force and effect until
the Closing, at which time such confidentiality obligations under the
Confidentiality Agreement and hereunder shall terminate; provided, however, that
the Acquiror's confidentiality obligations shall terminate only in respect of
that portion of the Confidential Information (as defined in the Confidentiality
Agreement) exclusively relating to the Company. If, for any reason, the
transactions contemplated by this Agreement are not consummated, the
Confidentiality Agreement shall nonetheless continue in full force and effect in
accordance with its terms.
(b) Anything in this Agreement to the contrary notwithstanding, the
confidentiality obligations contained in this Agreement or in any other
agreement between the parties hereto (or their Affiliates), including without
limitation the Confidentiality Agreement, as they relate to the transactions
contemplated by the Transaction Agreements (collectively, "Transaction"), shall
not (i) limit any parties' ability to consult with any tax advisor regarding the
federal tax treatment or federal tax structure of the Transaction and (ii) apply
to the federal tax
25
structure or federal tax treatment of the Transaction, and each party hereto
(and any affiliate or Representative of either party hereto) may disclose to any
and all Persons, without limitation of any kind, the federal tax structure and
federal tax treatment of the Transaction; provided, that this sentence shall not
apply to any such disclosure as referenced in clause (ii) above made before the
earliest of (x) the date of the public announcement of discussions relating to
the Transaction, (y) the date of the public announcement of the Transaction, or
(z) the date of the execution of this Agreement. The preceding sentence is
intended to cause the Transaction to be treated as not having been offered under
conditions of confidentiality for purposes of Section 1.6011-4(b)(3) (or any
successor provision) of the regulations promulgated under Section 6011 of the
Code, and shall be construed in a manner consistent with such purpose. Subject
to the proviso with respect to disclosure in the first sentence of this
subsection, each party hereto acknowledges that it has no proprietary or
exclusive rights to the federal tax structure of the Transaction or any federal
tax matter or federal tax idea related to the Transaction.
Section 5.05. Regulatory and Other Authorizations; Consents.
(a) Each of the Acquiror and Parent shall use its reasonable best
efforts to obtain as promptly as practicable all authorizations, consents,
orders and approvals of all federal, state, local and non-U.S. Governmental
Authorities that may be or become necessary for the execution and delivery by
Acquiror and Parent of, and the performance of the obligations of Acquiror and
Parent pursuant to, and the consummation of the transactions contemplated by,
the Transaction Agreements. Seller will cooperate with the reasonable requests
of the Acquiror and Parent in promptly seeking to obtain all such
authorizations, consents, orders and approvals. Neither Seller nor the Acquiror
or Parent shall take any action that such Person should be reasonably aware
would have the effect of delaying, impairing or impeding the receipt of any
required approvals.
(b) Without limiting the generality of the foregoing, Acquiror shall
make a Form A filing with the Missouri Department of Insurance no later than
October 31, 2003, and any other required filings as promptly as practicable
after the date hereof with state insurance departments in the United States with
respect to the transactions contemplated hereby, including those listed in
Section 4.04 of the Acquiror Disclosure Schedule. Acquiror shall as promptly as
practicable make any and all other filings and submissions of information with
such insurance departments which are required or requested by such insurance
departments in order to obtain the approvals required by such insurance
departments to consummate the transactions contemplated hereby. If any such
insurance department, requires that a hearing be held in connection with any
such approval, Acquiror shall use its reasonable best efforts to arrange for
such hearing to be held as promptly as practicable. Seller agrees to furnish
Acquiror with such necessary information and reasonable assistance as Acquiror
may reasonably request in connection with its preparation of such Form A filings
and other filings or submissions. Acquiror shall keep Seller reasonably apprised
of its actions with respect to all such filings, submissions and scheduled
hearings and shall provide Seller with copies of such Form A filings and other
filings or submissions (except to the extent that such information would be, or
relates to information that would be, filed under a claim of confidentiality).
(c) Without limiting the generality of the provisions of subsection
(a), Seller and the Acquiror and Parent each agree to make an appropriate filing
of a notification and report form
26
pursuant to the HSR Act with respect to the transactions contemplated by this
Agreement promptly after the date of this Agreement, but no later than November
7, 2003, and to supply promptly any additional information and documentary
material that may be requested pursuant to the HSR Act. In addition, each party
agrees to make promptly any filing that may be required under any other
antitrust or competition law or by any other antitrust or competition authority.
Each party shall have responsibility for its respective filing fees associated
with the HSR filings and any other similar filings required in any other
jurisdictions. Subject to the Confidentiality Agreement, Seller and the Acquiror
will coordinate and cooperate fully with each other in exchanging such
information and providing such assistance as the other party may reasonably
request in connection with any communication from any Governmental Authority
relating to the matters that are the subject of this Agreement and in seeking
early termination of any applicable waiting periods under the HSR Act.
(d) Each of Seller, on the one hand, and the Acquiror and Parent, on
the other hand, shall promptly notify one another of any communication it
receives from any Governmental Authority relating to the matters that are the
subject of this Agreement and permit the other party to review in advance any
proposed communication by such party to any Governmental Authority and shall
promptly provide each other with copies of all correspondence, filings or
communications between such party or any of its Representatives, on the one
hand, and any Governmental Authority or members of its staff, on the other hand,
subject to any confidentiality restrictions of such Governmental Authority.
Neither Seller nor the Acquiror or Parent shall agree to participate in any
meeting with any Governmental Authority in respect of any such filings,
investigation or other inquiry unless it consults with the other party in
advance and, to the extent permitted by such Governmental Authority, gives the
other party the opportunity to attend and participate at such meeting. Subject
to the Confidentiality Agreement, Seller on the one hand and the Acquiror and
Parent on the other hand will coordinate and cooperate fully with each other in
exchanging such information and providing such assistance as the other party may
reasonably request in connection with the foregoing and in seeking early
termination of any applicable waiting periods under the HSR Act.
Section 5.06. Intercompany Obligations. Except as contemplated by the
Transition Services Agreement, on or prior to the Closing Date, all data
processing, accounting, insurance (including coverage under insurance policies
issued to, or under self-insured programs of, Seller and its Affiliates (other
than the Company)), banking, personnel, legal, communications, software,
software services, research and development, pooled sourcing and purchasing and
other products, benefits or services provided by the Seller or its Affiliates to
the Company, and any agreements, obligations or understandings (written or oral)
between the Company, on the one hand, and Seller and its Affiliates (other than
the Company), on the other hand, shall be terminated, provided that all
obligations arising or accruing prior to termination or relating to the period
prior to termination (including all payables, receivables and accrued expenses
arising in the ordinary course of business and all amounts reflected in the
Final Balance Sheet) shall not be affected by such termination.
Section 5.07. No Solicitation of Employees.
(a) For a period of 24 months from the Closing Date, none of Seller or
any entity controlled by Seller shall, directly or indirectly, induce or attempt
to induce any employee of
27
the Acquiror listed in Schedule 5.07(a) to leave the employ of the Acquiror or
violate the terms of such employee's contract, or any employment arrangement,
with the Acquiror; provided, however, that nothing in this Section 5.07 shall
prohibit Seller and its Affiliates from employing or soliciting the employment
of any such employee after such employee shall have been discharged by the
Acquiror; and provided, further, that nothing in this Section 5.07 shall
prohibit Seller and its Affiliates from employing any person as a result of a
general solicitation to the public or general advertising. For a period of 24
months from the Closing Date, none of Acquiror or its Affiliates shall, directly
or indirectly, induce or attempt to induce any employee of Seller or its
Affiliates listed in Schedule 5.07(b) or any employee of Seller or its
Affiliates who provides services to the Company after the Closing to leave the
employ of the Seller or its Affiliates or violate the terms of such Person's
contract, or any employment arrangement, with the Seller or its Affiliates;
provided, however, nothing in this Section 5.07 shall prohibit Acquiror and its
Affiliates from employing or soliciting the employment of any such employee
after such employee shall have been discharged by the Seller or any Affiliate;
and provided, further, that nothing in this Section 5.07 shall prohibit Acquiror
and its Affiliates from employing any person as a result of a general
solicitation to the public or general advertising.
(b) The parties hereto acknowledge that any damage caused to a party
or any of its Affiliates by reason of the breach by the other party of this
Section 5.07 would cause irreparable harm that could not be adequately
compensated for in monetary damages alone; therefore, each party agrees that, in
addition to any other remedies, at law or otherwise, the other party and any of
its Affiliates shall be entitled to injunctive relief, without posting a bond or
other security, in order to enforce or prevent any violation of the provisions
of this Section 5.07. Nothing in this subsection shall be construed as
prohibiting a party from pursuing any other rights or remedies available for any
breach of this Section 5.07.
Section 5.08. Termination of Rights to the Seller Marks.
(a) The Acquiror, for itself and its Affiliates (which, for the
purposes of this Section 5.08, shall include the Company), acknowledges and
agrees that, except as otherwise expressly provided in this Section 5.08,
neither the Acquiror nor any of its Affiliates shall have any rights in the
Seller Marks and neither the Acquiror nor any of its Affiliates shall contest
the ownership or validity of any rights of Seller or any of its Affiliates in or
to the Seller Marks. The Acquiror, for itself and its Affiliates, acknowledges
and agrees that the rights of the Company to use the Seller Marks pursuant to
the terms of agreements between Seller and its Affiliates (other than the
Company) on the one hand and the Company on the other hand shall terminate on
the Closing Date. The Acquiror acknowledges and agrees that, except as otherwise
provided in this Section 5.08 or as permitted in writing by Seller, following
the Closing Date, the Acquiror and its Affiliates shall cease and discontinue
all uses of the Seller Marks, provided, however, that (i) Acquiror and its
Affiliates may use the names of Seller and its Affiliates for a period not to
exceed ninety (90) days following Closing for the limited purpose of notifying
ceding insurers, retrocessionaires and other parties having a contractual
relationship with the Company regarding the Transaction and making public
announcements of the consummation of the Transaction in accordance with this
Agreement, including press releases and notices to customers, potential
customers, employees, brokers and other intermediaries and regulatory
authorities and (ii) Acquiror and its Affiliates shall have the right to
identify the Company by its corporate name in agreements
28
and official documents until changed as provided herein. The Company will
transfer to Seller effective upon the Closing all internet addresses and domain
names containing the Seller Marks owned by the Company. The Acquiror shall take
all necessary action to ensure that other users of the Seller Marks through the
Company, whose rights terminate upon the Closing pursuant to this Section 5.08,
shall cease use of the Seller Marks, except as expressly authorized thereafter
in writing by Seller. The Acquiror, for itself and its Affiliates, agrees that
after the Closing Date the Acquiror and its Affiliates (i) will not expressly,
or by implication, do business as or represent themselves as the Seller or its
Affiliates and (ii) will promptly notify ceding insurers, retrocessionaires,
customers, brokers, other intermediaries and other parties having a contractual
relationship with the Company of the sale of the Transferred Shares to Acquiror.
The Acquiror, for itself and its Affiliates, agrees that to the extent that
Acquiror or its Affiliates use the Seller Marks as permitted under this Section,
Acquiror and its Affiliates will make clear in using the Seller Marks that the
Company is no longer affiliated with Seller or its Affiliates. The Acquiror
agrees that as promptly as practicable, but in any event within 90 days after
the Closing Date, Acquiror will change the corporate name of the Company to a
name that does not include any of the Seller Marks. The parties acknowledge and
agree that General Electric Company is an intended third party beneficiary of
the agreements of Acquiror contained in this Section.
(b) The parties hereto acknowledge that any damage caused to Seller or
any of its Affiliates by reason of the breach by Acquiror or any of its
Affiliates of this Section 5.08 would cause irreparable harm that could not be
adequately compensated for in monetary damages alone; therefore, each party
agrees that, in addition to any other remedies, at law or otherwise, Seller and
any of its Affiliates shall be entitled to injunctive relief, without posting a
bond or other security, in order to enforce or prevent any violation of the
provisions of this Section 5.08. Nothing in this subsection shall be construed
as prohibiting Seller from pursuing any other rights or remedies available for
any breach of this Section 5.08.
Section 5.09. No Termination of Assumed Reinsurance Agreements. Seller
shall not and shall cause entities that it controls to not knowingly induce or
persuade any of the ceding companies under any of the Assumed Reinsurance
Agreements to exercise any recapture or termination rights available under any
of the Assumed Reinsurance Agreements that are, or may become, subject to
recapture or termination.
Section 5.10. Services. At or prior to the Closing, Seller or an Affiliate
of Seller, and the Acquiror and the Company shall execute and deliver the
transition services agreement in the form set forth in Exhibit C (the
"Transition Services Agreement").
Section 5.11. Competition; Solicitation. Each party acknowledges that
Seller, the Company, Acquiror and their respective Affiliates conduct business
in the same industries, offer and provide similar products and services and
solicit business from the same classes of existing and potential customers.
Acquiror acknowledges that (i) Seller and its Affiliates intend to continue to
develop, offer and sell products and services related to insurance, reinsurance
and financial services, (ii) the products and services offered and sold will be
substantially similar to products and services offered and sold by the Company,
and (iii) Seller and its Affiliates intend to continue to solicit business from
the same classes of existing and potential customers as Acquiror and the
Company. Acquiror further acknowledges that Seller and its Affiliates (other
than the Company)
29
own and utilize proprietary information and trade secrets that are substantially
similar to those which may be owned by the Company, including without limitation
information regarding ceding companies, retrocessionaires, brokers,
intermediaries, existing and potential customers and information regarding the
underwriting, reserving, accounting, pricing and claims processing policies and
procedures and products and services of the Company and its Affiliates.
Accordingly, anything in this Agreement to the contrary notwithstanding,
Acquiror agrees that Seller and its Affiliates shall not be prohibited or
restricted, under the Transaction Agreements or as a result of the transactions
contemplated by the Transaction Agreements or otherwise, from (w) competing with
Acquiror and its Affiliates (including the Company) in providing financial,
insurance and reinsurance products and services, (x) soliciting new or
recaptured business from existing or potential customers of Acquiror and its
Affiliates (including the Company) or from ceding companies, retrocessionaires,
brokers or intermediaries having a relationship with Acquiror and its Affiliates
(including the Company), including without limitation business from Persons who
were customers of or had relationships with Seller and its Affiliates (including
the Company) prior to Closing, (y) developing, offering or selling products or
services that are substantially similar to or compete with the products and
services offered or sold by Acquiror and its Affiliates (including the Company)
and (z) using for its own benefit proprietary information and trade secrets
relating to the Company, which may include without limitation information
regarding ceding companies, retrocessionaires, brokers, intermediaries, existing
and potential customers of the Company and the relationships of all of such
Persons to the Company, and information regarding the underwriting, reserving,
accounting, pricing and claims processing policies and procedures and products
and services offered by the Company; provided, however, that Seller shall not
and shall cause entities that it controls to not knowingly induce or persuade
any of the ceding companies under any of the Assumed Reinsurance Agreements to
exercise any recapture or termination rights available under any of the Assumed
Reinsurance Agreements that are, or may become, subject to recapture or
termination; provided further, that for a period of one (1) year after Closing
Seller may not solicit or bid for any business that is recaptured or terminated
under any of the Assumed Reinsurance Agreements. Seller agrees that Seller and
entities that it controls will not disclose or use for their own benefit
proprietary information and trade secrets relating to Acquiror and its
Affiliates (other than the Company) of which any of them becomes aware in
connection with the provision of services under the Transition Services
Agreement, except to the extent required by applicable Law.
Section 5.12. Seller Guarantees. All indemnities, guaranties and guaranty
obligations of Seller and its Affiliates relating to the obligations of the
Company or otherwise relating to or for the benefit of the Company, including
without limitation the indemnities, guaranties and guaranty obligations of
Seller and its Affiliates relating to the Company listed in Schedule 5.12 (the
"Guarantees"), shall terminate and be of no further force and effect as of
Closing. Acquiror agrees that Seller may provide written notice after Closing to
all beneficiaries of such Guarantees, notifying such Persons that Seller has
terminated the Guarantees. Acquiror agrees to (and to cause the Company to)
indemnify, defend and hold harmless the Seller against, and reimburse the Seller
for, any and all amounts paid after Closing, including costs or expenses, by
Seller pursuant to those Seller's Guarantees listed in Schedule 5.12.
Section 5.13. Transfer of Stock of GE Investments, Inc.; Dividends. The
Acquiror shall not cause or permit the Company, prior to January 31, 2004, (a)
to Transfer or otherwise cease to own (or to enter into any agreement to
Transfer or otherwise cease to own) the 50,000 shares of
30
Class B Preferred Stock of GE Investments, Inc. owned by the Company on the date
hereof or (b) to declare or pay any dividend or other distribution. No such
Transfer or cessation of ownership or declaration or payment of any dividend or
other distribution shall be made effective prior to January 31, 2004. This
Section 5.13 does not prohibit (x) a sale of the GEI Preferred Stock after
January 31, 2004, if there has been no agreement prior to January 31, 2004, to
sell or otherwise cease to own such stock and such sale is not made effective
prior to January 31, 2004, or (y) a declaration or payment of dividends or other
distributions after January 31, 2004, if there have been no declarations of
dividends or other distributions prior to January 31, 2004, and neither the
declaration nor the payment is made effective prior to January 31, 2004.
Section 5.14. No Employees. Prior to the Closing Date, the employment of
all employees of the Company shall either be terminated or transferred to the
Seller or any of its Affiliates. After the Closing Date, Seller agrees that
neither the Company nor the Acquiror shall have any liability or obligations
with respect to any such employees, including, but not limited to, any
obligation to provide severance or COBRA coverage that will not be satisfied by
Seller. Any and all such liabilities and obligations shall be the responsibility
of Seller or Affiliate.
Section 5.15. Long Term Care Business. Prior to and after the Closing Date,
Seller shall and shall cause the Company to use its reasonable best efforts to
effectuate a novation of the Assumed Reinsurance Agreements relating to the Long
Term Care Business, provided that such novation shall not be a condition to
Closing. Prior to Closing, Seller shall cause the Company to cede to Seller, to
Employers Reassurance Corporation or to one or more third party
retrocessionaires reasonably acceptable to the Acquiror all Liabilities under
Assumed Reinsurance Agreements relating to the Long Term Care Business. With
respect to the transfer of assets relating to the reserves transferred in
connection with such transaction, Seller shall cause the Company to transfer the
relevant amount from the assets listed in Schedule 5.15, and to the extent such
assets are not sufficient, Seller shall cause the Company to transfer cash or
immediately available funds.
Section 5.16. Confidentiality Agreements. Seller will, to the extent
provided by the terms of any confidentiality agreements entered into with
potential bidders for the stock of the Company, request the return or
destruction of any and all confidential information provided to such bidders
pursuant to such confidentiality agreements. To the extent reasonably requested
by Acquiror, Seller shall enforce its rights under such confidentiality
agreements on Acquiror's behalf and at Acquiror's cost, provided that nothing
herein shall be deemed to require Seller to disclose to Acquiror the terms of
any confidentiality agreements or the Persons with whom Seller entered into such
agreements.
Section 5.17. Conversion of Preferred Stock. Seller shall, prior to the
Closing, convert all of the shares of the cumulative, convertible, redeemable,
preferred stock, par value $1.00 per share of the Company (the "Preferred
Stock") into common stock, par value $10.00 per share, of the Company.
Section 5.18. Further Action. Seller and the Acquiror (a) shall execute and
deliver, or shall cause to be executed and delivered, such documents and other
papers and shall take, or shall cause to be taken, such further actions as may
be reasonably required to carry out the provisions of
31
the Transaction Agreements and give effect to the transactions contemplated by
the Transaction Agreements, provided, however, that any such additional
documents must be reasonably satisfactory to each of the parties and not impose
upon either party any material liability, risk, obligation, loss, cost or
expense not contemplated by this Agreement or the other Transaction Agreements,
(b) shall refrain from taking any actions that could reasonably be expected to
impair, delay or impede the Closing and (c) without limiting the foregoing,
shall use their respective reasonable best efforts to cause all of the
conditions to the obligations of the other party to consummate the transactions
contemplated by this Agreement to be met as promptly as practicable.
Section 5.19. Premium Overpayment Receivables.
(a) Subject to the terms and conditions of this Section, Seller hereby
guarantees to Acquiror the collection of the Premium Overpayment Receivables
outstanding on the Closing Date to the extent reflected as an asset of the
Company on the Final Balance Sheet (the "Guaranteed Premium Overpayment
Receivables"). If any amount of the Guaranteed Premium Overpayment Receivables
remain uncollected as of December 1, 2004 and Acquiror shall have complied in
all material respects with clause (c) below, Seller shall pay to the Company
prior to December 31, 2004 an amount (the "Guarantee Amount") equal to such
uncollected portion of the Guaranteed Premium Overpayment Receivables, and the
Company's right to receive such uncollected portion of the Guaranteed Premium
Overpayment Receivables from any retrocessionaires, as represented by specific
receivables designated by Seller, shall thereupon automatically be deemed
assigned to Seller such that Seller shall be able to directly enforce such
collection rights against any such retrocessionaire in its own name or by
identifying itself as assignee of the Company, provided that Seller may obtain
assignment of all or any portion of the Guaranteed Premium Overpayment
Receivables prior to December 1, 2004 as designated by Seller by paying to the
Company the Guarantee Amount relating thereto. Acquiror shall cause the Company
to execute and deliver such documents and other papers as may be reasonably
required to assign the right to receive the uncollected portion of such
receivables to the Seller. The parties agree that the payment by Seller of the
Guarantee Amount to the Company shall not be deemed collection of the underlying
Guaranteed Premium Overpayment Receivables by the Company for purposes of the
Settlement Agreement, and that any amount subsequently collected by Seller or
the Company with respect to the Premium Overpayment Receivables shall be applied
first to the Guaranteed Premium Overpayment Receivables until collected in full.
Following payment to the Company of the Guarantee Amount, Acquiror agrees to
cause the Company to pay to the Seller all or any portion of the Guaranteed
Premium Overpayment Receivables subsequently collected by the Company. Seller
may retain any Guaranteed Premium Overpayment Receivables collected by Seller to
the extent that Seller has paid to the Company the Guarantee Amount relating
thereto. Upon payment of the Guarantee Amount or collection of the full amount
of the Guaranteed Premium Overpayment Receivables, Acquiror agrees that upon the
request of Seller it will cause the Company to assign the remaining Premium
Overpayment Receivables to Seller upon Seller's agreement to attempt to collect
such amounts in accordance with the Settlement Agreement and to distribute any
amounts collected in accordance with the Settlement Agreement.
(b) Prior to the Closing, Seller agrees to send, or to cause the
Company to send, a written notice (a "Collection Notice") to each of the
retrocessionaires owing Premium Overpayment Receivables informing each such
retrocessionaire of the following: (i) the nature of
32
the claims surrounding the Settlement Agreement; (ii) the amount of Premium
Overpayment Receivables owing from such retrocessionaire; and (iii) the
Company's request for immediate payment of such Premium Overpayment Receivables
from such retrocessionaire and, when applicable, its intention to apply its
contractual rights of offset in the event such Premium Overpayment Receivable is
not paid promptly. Such Collection Notice shall also request that each such
retrocessionaire provide the Company with a written notice acknowledging the
Company's right to collect such Premium Overpayment Receivable, including
through the use of contractual rights of offset (an "Acknowledgement"). The
Collection Notice shall have attached to it a form of Acknowledgement. Seller
agrees to provide Acquiror at or prior to Closing the contact information for
each retrocessionaire owing Premium Overpayment Receivables, the status of the
Collection Notice and Acknowledgement with respect to such retrocessionaire, the
amount of Premium Overpayment Receivables then owed by such retrocessionaire and
any other information relating to the Premium Overpayment Receivables reasonably
requested by Acquiror.
(c) In the event that any Premium Overpayment Receivables remain
outstanding from any retrocessionaire after the Closing, Acquiror agrees to (i)
resend an additional Collection Notice to each such retrocessionaire from which
an Acknowledgement has not yet been received and (ii) to cause the Company to
exercise its contractual right of offset, where available, with respect to all
such retrocessionaires; provided that Company shall have no obligation to, and
the Acquiror shall have no obligation to cause the Company to, exercise its
rights of offset against any retrocessionaire that has disputed such rights of
offset in writing or that has otherwise disputed any of the amounts subject to
the right of offset in writing, nor shall the Company or the Acquiror have any
obligation to commence arbitration or legal proceedings against an obligor on
any Premium Overpayment Receivable. All billings which include the exercise of
rights of offset by the Company relating to Premium Overpayment Receivables
shall specifically refer to the exercise of contractual offset rights against
amounts included in the Premium Overpayment Receivables. Seller shall reasonably
cooperate with Acquiror in the collection of the Premium Overpayment Receivables
and shall hold harmless and indemnify each of the Acquiror and the Company for
any reasonable out-of-pocket costs and expenses (excluding overhead or
compensation of employees), losses or claims whatsoever incurred by it in
connection with collection of the Premium Overpayment Receivables, including
without limitation any reasonable out-of-pocket costs (excluding overhead or
compensation of employees) relating to any proceedings commenced by any obligors
on the Premium Overpayment Receivables or any third party. Acquiror shall
provide quarterly written updates to Seller of the Company's collection
activities relating to the Premium Overpayment Receivables or the Settlement
Agreement and the amounts of the Premium Overpayment Receivables collected.
Seller shall have the right through its Representatives to make an examination
and audit of all payment and account records of the Company relating to
retrocessionaires owing receivables included in the Premium Overpayment
Receivables. Seller may conduct such examinations and audits not more frequently
than quarterly at the Company's principal offices during normal business hours.
Seller shall provide at least 30 days written notice prior to any such
examination and audit. The parties agree to reasonably cooperate in determining
the purposes of payments received that are not identified to specific
recipients, invoices or accounts.
(d) Amounts collected with respect to the Premium Overpayment
Receivables shall be applied first to the reduction of the Guaranteed Premium
Overpayment Receivables. In the
33
event that the amount of Premium Overpayment Receivables collected by Acquiror
exceeds the amount of Guaranteed Premium Overpayment Receivables, Acquiror
agrees to promptly remit such excess (i) to the life insurance corporation
specified in Item 2 of Section 3.08 of the Disclosure Schedule if required to be
so remitted pursuant to the terms and conditions of the Settlement Agreement, or
(ii) if not required to be remitted to such life insurance corporation pursuant
to the terms and conditions of the Settlement Agreement, to Seller.
Section 5.20. Joint and Several Obligations. Parent agrees that it shall be
jointly and severally liable with Acquiror with respect to all liabilities,
obligations, representations, warranties, indemnities, covenants and agreements
of Acquiror under the Transaction Agreements.
Section 5.21. Disclaimer Regarding Representations and Warranties of
Seller. Acquiror and Parent acknowledge and agree that none of Seller, its
Affiliates or Representatives has made or makes any representation or warranty
to Acquiror or Parent except for the specific representations and warranties of
Seller contained in this Agreement, the Disclosure Schedule and any certificate
provided to Acquiror pursuant to this Agreement to the extent related to Article
III hereof.
Section 5.22. Health Reinsurance Business. Prior to Closing, Seller shall
cause the Company to cede to Seller, to Employers Reassurance Corporation or to
one or more third party retrocessionaires reasonably acceptable to the Acquiror
all Liabilities under Assumed Reinsurance Agreements relating to the Health
Reinsurance Business. With respect to the transfer of assets relating to the
reserves transferred in connection with such transaction, Seller shall cause the
Company to transfer the relevant amount from the assets listed in Schedule 5.22,
and to the extent such assets are not sufficient, Seller shall cause the Company
to transfer cash or immediately available funds.
Section 5.23. Third Party Communications, Payments, Etc. Seller agrees that
from and after Closing it shall refer to the Company as promptly as practicable
all telephone calls, letters, orders, notices, requests, inquiries and other
communications that Seller or any Affiliate receives that were directed to
Seller or any Affiliate and intended for or related to the Company. Seller
agrees that from and after Closing it shall remit to the Company with reasonable
promptness, but not less frequently than monthly, all payments received which
are on or in respect of accounts or notes receivable owned by (or are otherwise
payable to) the Company. Acquiror agrees that from and after Closing it shall
refer to Seller (or the appropriate Affiliate of Seller) as promptly as
practicable all telephone calls, letters, orders, notices, requests, inquiries
and other communications that Acquiror or any Affiliate (including the Company)
receives that were directed to Acquiror or any Affiliate (including the Company)
and intended for or related to Seller or any Affiliate. Acquiror agrees that
from and after Closing it shall remit to Seller (or the appropriate Affiliate of
Seller) with reasonable promptness, but not less frequently than monthly, all
payments received which are on or in respect of accounts or notes receivable
owned by (or are otherwise payable to) the Seller or any Affiliate. The parties
agree to reasonably cooperate in determining the intended recipients and
purposes of payments received that are not identified to specific recipients,
invoices or accounts.
34
Section 5.24. Unauthorized Reinsurers Indemnification.
(a) Certain Definitions.
(i) The "2005 Applicable Unfunded Liability Indemnification
Amount" shall mean the lesser of (A) $8,000,000 minus the amount of
any Trust Termination Payment or (B) the 2005 Aggregate Unfunded
Liability Increase.
(ii) The "Aggregate Unfunded Liability Increase" as of the end of
a period shall mean the sum of the Individual Unfunded Liability
Increases as of the end of such period for the Subject
Retrocessionaires.
(iii) The "Individual Unfunded Liability Increase" as of the end
of a period for a Subject Retrocessionaire shall mean the Applicable
Liability Increase for such Subject Retrocessionaire as of the end of
such period minus the Applicable Security Increase for such Subject
Retrocessionaire as of the end of such period.
(iv) The "Applicable Liability Increase" for a Subject
Retrocessionaire as of the end of a period shall mean the amount equal
to the Applicable Liability Amount as of the end of such period minus
the 2003 Applicable Liability Amount.
(v) The "Applicable Security Increase" for a Subject
Retrocessionaire as of the end of a period shall mean the amount equal
to the Applicable Security Amount as of the end of such period minus
the 2003 Applicable Security Amount.
(vi) The "Applicable Liability Amount" for a Subject
Retrocessionaire shall mean (A) for the end of any period other than
2003 year-end the amount equal to the lesser of (1) the liabilities
for the Subject Retrocessionaire estimated as of the end of such
period by the Company and (2) the actual liabilities for the Subject
Retrocessionaire as of the end of such period as set forth in Schedule
S, Part 4, Column 8 (or equivalent column) of the Statutory Statement
of the Company for such period and (B) for 2003 year-end the actual
liabilities for the Subject Retrocessionaire as of the end of such
year as set forth in Schedule S, Part 4, Column 8 of the Statutory
Statement of the Company for such year.
(vii) The "Applicable Security Amount" for a Subject
Retrocessionaire as of the end of any period shall mean the amount of
security provided by the Subject Retrocessionaire with respect to its
obligations to the Company as of the end of such period as set forth
in Schedule S, Part 4, Column 14 (or equivalent column) of the
Statutory Statement of the Company as of the end of such period.
(viii) The "Subject Retrocessionaires" shall mean the
retrocessionaires listed in Schedule 5.24, subject to adjustment as
provided herein, and the "Designated Retrocessionaire" shall mean the
Subject Retrocessionaire identified with an asterisk in Schedule 5.24.
If the Company takes possession of the assets in the trust maintained
by the Designated Retrocessionaire for the benefit of the Company
("Trust Termination Event") on or prior to December 31, 2005, the
35
Designated Retrocessionaire shall not be considered a Subject
Retrocessionaire for purposes of this Section 5.24. If any Person
having an A.M. Best rating of A- or above or a Standard & Poors rating
of A or above becomes directly obligated with respect to the liability
of any Subject Retrocessionaire prior to December 31, 2005, whether
through an increase in ratings, business combination or otherwise
(except by reinsurance), neither such Subject Retrocessionaire nor
such Person shall be considered a Subject Retrocessionaire for
purposes of this Section 5.24. If any Person becomes obligated with
respect to the liability of any Subject Retrocessionaire prior to
December 31, 2005 through novation with the consent of the Company,
neither such Subject Retrocessionaire nor such Person shall be
considered a Subject Retrocessionaire for purposes of this Section
5.24.
(ix) The "2006 Clawback Amount" shall mean (A) the 2005
Applicable Unfunded Liability Indemnification Amount minus (B) the
2006 Aggregate Unfunded Liability Increase; provided, however, that if
a Subject Retrocessionaire does not have any liabilities set forth in
Schedule S, Part 4, Column 8 (or equivalent column) of the 2006
Statutory Statement of the Company as a result of termination of such
liabilities upon the occurrence of an event constituting "Cause",
then, solely for purposes of determining the 2006 Clawback Amount, the
Individual Unfunded Liability Increase for each such Subject
Retrocessionaire shall be determined as of the end of the most recent
calendar quarter prior to or on the date of the termination of the
liabilities of the respective Subject Retrocessionaire for purposes of
calculating the 2006 Aggregate Unfunded Liability Increase in clause
(B) above.
(x) "Cause" shall mean either (A) the written refusal of the
Designated Retrocessionaire to fund the trust maintained by the
Designated Retrocessionaire for the benefit of the Company or of a
Subject Retrocessionaire to post required security in accordance with
the applicable retrocession agreement(s) upon any written request by
the Company in accordance with such agreement(s) or (B) the failure of
the Designated Retrocessionaire to fund such trust or of a Subject
Retrocessionaire to post required security within the later of (1)
thirty (30) days following the delivery of such written request or (2)
the period specified to fund the trust or post required security, as
the case may be, after such request in the applicable retrocession
agreement(s).
(xi) If any amount(s) computed, determined or set forth under
this Section 5.24 is less than zero, such amount(s) shall be deemed to
be zero for purposes of this Section 5.24, including for purposes of
any calculation under this Section 5.24 utilizing such amount.
(b) Determination and Payment of 2005 Applicable Unfunded Liability
Indemnification Amount. Acquiror shall provide to Seller no later than March 1,
2006 the Statutory Statement of the Company for the fiscal year ended December
31, 2005 and a reasonably detailed written computation of the 2005 Applicable
Unfunded Liability Indemnification Amount. During the 30 calendar days
immediately following Seller's receipt of such documentation, Seller and its
Representatives shall have the same access with respect to the Company and its
Affiliates
36
and independent accountants as is provided to Acquiror with respect to Seller
and its Affiliates and independent accountants under Section 2.05(c). Seller
shall notify Acquiror in writing prior to the expiration of such thirty (30) day
period if Seller disagrees with any one or more line items of Seller's
computations. If Seller provides notice of any disagreement, the disagreement
shall be resolved in the same manner, upon the same terms and conditions and
with the same effect as provided in Sections 2.05(f), 2.05(g) and 2.05(h) with
respect to the Initial Balance Sheet. Within three (3) Business Days after final
determination of the 2005 Applicable Unfunded Liability Indemnification Amount,
Seller shall pay to the Company in immediately available funds the amount of the
2005 Applicable Unfunded Liability Indemnification Amount, if greater than zero.
(c) Determination and Payment of 2006 Clawback Amount. Acquiror agrees
to provide to Seller no later than March 1, 2007 the Statutory Statement of the
Company for the fiscal year ended December 31, 2006 and a reasonably detailed
written computation of the 2006 Clawback Amount. During the 30 calendar days
immediately following Seller's receipt of such documentation, Seller and its
Representatives shall have the same access with respect to the Company and its
Affiliates and independent accountants as is provided to Acquiror with respect
to Seller and its Affiliates and independent accountants under Section 2.05(c).
Seller shall notify Acquiror in writing prior to the expiration of such thirty
(30) day period if Seller disagrees with any one or more line items of Seller's
computations. If Seller provides notice of any disagreement, the disagreement
shall be resolved in the same manner, upon the same terms and conditions and
with the same effect as provided in Sections 2.05(f), 2.05(g) and 2.05(h) with
respect to the Initial Balance Sheet. Within three (3) Business Days after final
determination of the 2006 Clawback Amount, Acquiror shall pay to Seller in
immediately available funds the amount of the 2006 Clawback Amount, if greater
than zero.
(d) Efforts to Increase Security Amount. Acquiror agrees to cause the
Company to request in writing, a reasonable period of time prior to the end of
each of calendar years 2004 and 2005, each Subject Retrocessionaire to provide
in accordance with the applicable retrocession agreement(s) between such Subject
Retrocessionaire and the Company such additional security, if any, required to
cause the total amount of security provided by such Subject Retrocessionaire to
equal the amount of Liabilities applicable to such Subject Retrocessionaire as
estimated in good faith by the Company. Acquiror agrees to cause the Company to
make additional reasonable efforts to cause each Subject Retrocessionaire to
comply with all of the terms and conditions of the applicable agreements between
such Subject Retrocessionaire and the Company; provided that nothing in this
Agreement shall require the Acquiror to commence arbitration or other
proceedings against a Subject Retrocessionaire to seek enforcement of the
provisions of such agreements requiring the provision of additional security.
(e) Trust Termination Event. If a Trust Termination Event occurs for
Cause on or prior to December 31, 2005, Seller agrees to pay the Company an
amount equal to the lesser of (i) $8,000,000 (less any amount paid under
subsection (b)) and (ii) the Individual Unfunded Liability Increase for the
Designated Retrocessionaire as of the end of the most recent calendar quarter
prior to or on the date of the Trust Termination Event ("Trust Termination
Payment"). Acquiror agrees to provide to Seller no later than 60 days after the
Trust Termination Event the Statutory Statement of the Company for the most
recently completed calendar quarter or year-end, as the case may be, and a
reasonably detailed written computation of the Trust Termination
37
Payment. During the 30 calendar days immediately following Seller's receipt of
such documentation, Seller and its Representatives shall have the same access
with respect to the Company and its Affiliates and independent accountants as is
provided to Acquiror with respect to Seller and its Affiliates and independent
accountants under Section 2.05(c). Seller shall notify Acquiror in writing prior
to the expiration of such thirty (30) day period if Seller disagrees with any
one or more line items of Seller's computations. If Seller provides notice of
any disagreement, the disagreement shall be resolved in the same manner, upon
the same terms and conditions and with the same effect as provided in Sections
2.05(f), 2.05(g) and 2.05(h) with respect to the Initial Balance Sheet. Within
three (3) Business Days after final determination of the Trust Termination
Payment, Seller shall pay to Acquiror in immediately available funds the amount
of the Trust Termination Payment, if greater than zero.
Section 5.25. GAAP Financial Information.
(a) Subject to Section 5.25(c), Seller agrees that it shall, and shall
engage its auditors to, prepare and deliver to the Acquiror audited financial
statements (and auditor's reports thereon) of the Company for the fiscal year
ended December 31, 2003 (the "GAAP Financial Statements"). In connection with
Seller's preparation of the GAAP Financial Statements, to the extent Seller does
not have all relevant information in its possession, Seller and its
Representatives will be permitted to review the books, records and other
relevant information of the Company relating to its operations and finances.
From and after the date of this Agreement, the parties acknowledge and agree
that Parent and its auditors shall have the right to participate with Seller in
the preparation and review of the GAAP Financial Statements. The GAAP Financial
Statements shall be subject to the review and approval of Parent and its
auditors. The GAAP Financial Statements shall be prepared to meet the
requirements for financial statements under generally accepted accounting
principles, consistently applied, as modified by Regulation S-X promulgated by
the Securities and Exchange Commission. The Seller shall deliver to the Parent
the GAAP Financial Statements on or before the sixtieth (60th) day after
Closing.
(b) To the extent reasonably requested by Parent, Seller shall cause
the Seller's auditors to deliver to the Parent a letter from the Seller's
auditors (in form and substance reasonably acceptable to the Parent), confirming
such auditors' independence in accordance with Independence Standards Board
Statement No. 1.
(c) All out-of-pocket costs and fees which may be incurred by the
Company, Seller or Parent for the above purposes shall be paid by Parent.
Section 5.26. Preparation of 2003 Statutory Statement. The parties agree to
reasonably cooperate and to jointly prepare and timely file the Statutory
Statement of the Company for the fiscal year ended December 31, 2003 ("2003
Statutory Statement"). Seller agrees that it shall cause the Company to engage
its auditors to audit the 2003 Statutory Statement in time for filing of audited
financial statements in accordance with applicable Law. In connection with the
parties' preparation of the 2003 Statutory Statement, to the extent Seller does
not have all relevant information in its possession, Seller and its
Representatives will be permitted to review the books, records and other
relevant information of the Company relating to its operations and finances. The
parties and acknowledge and agree that Seller will have primary responsibility
for compilation and
38
preparation of the initial draft of the information to be included in the 2003
Statutory Statement with the participation, review and approval of such
compilation and preparation by the Acquiror and the Company. The cost of the
auditor shall be paid by the Company, and such cost shall be accrued as a
liability in the Final Balance Sheet.
Section 5.27. Assignment of Non-Admitted Accounts Receivable. With respect
to any accounts receivable of the Company that are non-admitted assets of the
Company under SAP as of December 31, 2003, Seller shall have the right to
receive the proceeds of collection of any or all of such accounts receivable as
designated by Seller ("Designated Non-Admitted Receivables") by paying cash or
immediately available funds to the Company on or before December 31, 2003 in an
amount equal to the amount of the Designated Non-Admitted Receivables. Promptly
following the Closing Date, Acquiror agrees to cause the Company to assign to
Seller its rights to the Designated Non-Admitted Receivables for which such
payment has been received from Seller, such that Seller shall be able to
directly enforce such collection rights against any such retrocessionaire in its
own name or by identifying itself as assignee of the Company. If, following the
Closing Date, the Company collects any amounts in respect of such Designated
Non-Admitted Receivables, Acquiror agrees to cause the Company to promptly remit
such amounts to the Seller. After the Closing, neither the Acquiror nor the
Company shall have any obligation to enforce any collection rights against any
obligor on any Designated Non-Admitted Receivable. The parties agree to
reasonably cooperate in determining the purposes of payments received that are
not identified to specific recipients, invoices or accounts.
ARTICLE VI.
OWNERSHIP AND TRANSFER OF EQUITY SHARES
Section 6.01. Equity Shares. The parties agree as set forth in Exhibit D to
this Agreement with respect to the issuance, ownership and Transfer of
securities of the Company. Seller agrees that it will not Transfer any Retained
Shares except in accordance with Exhibit D.
ARTICLE VII.
TAX MATTERS
Section 7.01. Tax Matters Agreement. Seller and Acquiror have entered into
the Tax Matters Agreement contemporaneously with the execution and delivery of
this Agreement. All representations, warranties, covenants and agreements
between the parties with respect to Tax matters are set forth in the Tax Matters
Agreement, except to the extent set forth in Sections 3.17, 8.02(a), 9.01(d),
9.01(e), 10.05(a) and 10.07 of this Agreement.
39
ARTICLE VIII.
CONDITIONS TO CLOSING AND RELATED MATTERS
Section 8.01. Conditions to Obligations of Seller. The obligation of Seller
to consummate the transactions contemplated by this Agreement shall be subject
to the fulfillment or waiver, at or prior to the Closing, of each of the
following conditions:
(a) Representations and Warranties; Covenants. (i) The representations
and warranties of the Acquiror contained in this Agreement shall in the case of
representations and warranties qualified by materiality, be true and correct,
and in the case of representations and warranties not qualified by materiality,
be true and correct in all material respects, as of the Closing as if made on
the Closing Date, except that any such representations and warranties that are
given as of a particular date or relate solely to a particular date or period
shall be true and correct as of such date or period (subject to the same
materiality standards as are applied to representations and warranties that do
not relate solely to a particular date or period), except where the failure to
be true and correct would not impair or delay the ability of Acquiror to
consummate the transactions contemplated by, or to perform Acquiror's
obligations under, the Transaction Agreements; (ii) the covenants contained in
this Agreement to be complied with by the Acquiror at or before the Closing
shall have been complied with in all material respects; and (iii) Seller shall
have received a certificate of the Acquiror to such effect signed by a duly
authorized representative.
(b) Approvals of Governmental Authorities. The approvals of the
Governmental Authorities listed in Section 3.05 of the Disclosure Schedule and
Section 4.04 of the Acquiror Disclosure Schedule shall have been received or
deemed received. Any waiting period (and any extension of such period) under the
HSR Act applicable to the transactions contemplated by this Agreement shall have
expired or shall have been terminated.
(c) No Governmental Order. There shall be no Governmental Order in
existence that prohibits or materially restrains the sale of the Transferred
Shares or the other transactions contemplated by this Agreement.
(d) Other Agreements. The Acquiror shall have executed and delivered
to Seller the Transition Services Agreement and the Tax Matters Agreement.
Section 8.02. Conditions to Obligations of the Acquiror. The obligations of
the Acquiror to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver, at or prior to the Closing, of each of
the following conditions:
(a) Representations and Warranties; Covenants. (i) The representations
and warranties of Seller contained in this Agreement and in the Tax Matters
Agreement shall be true and correct (without giving effect to any exceptions as
to materiality or "Material Adverse Effect" set forth therein) as of the Closing
as if made on the Closing Date (other than representations and warranties made
as of another date, which representations and warranties shall have been true
and correct as of such date), except to the extent that any failure of such
representations and warranties
40
to be true and correct shall not have had or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect that shall not
have been cured to the reasonable satisfaction of Parent as of such date; (ii)
the covenants contained in this Agreement and in the Tax Matters Agreement to be
complied with by Seller on or before the Closing shall have been complied with
in all material respects; and (iii) the Acquiror shall have received a
certificate of Seller to such effect signed by a duly authorized representative.
If Acquiror is required to consummate and consummates the transactions
contemplated by this Agreement notwithstanding the failure of any representation
or warranty of Seller contained in this Agreement or in the Tax Matters
Agreement to be true and correct, Acquiror will not be deemed to have waived any
right to indemnification under Article X hereof or under the Tax Matters
Agreement, as the case may be, with respect to any breach of such representation
or warranty.
(b) Approvals of Governmental Authorities. The approvals of the
Governmental Authorities listed in Section 3.05 of the Disclosure Schedule and
Section 4.04 of the Acquiror Disclosure Schedule shall have been received or
deemed received, provided that it shall not be a condition to Closing that any
Governmental Authority approve or not disapprove of the transactions
contemplated hereby as a result any Form E filing, failure to make any Form E
filing or violation of any provision similar to Section 3.1 of the NAIC Model
Holding Company Act. Any waiting period (and any extension of such period) under
the HSR Act applicable to the transactions contemplated by this Agreement shall
have expired or shall have been terminated.
(c) No Governmental Order. There shall be no Governmental Order in
existence that prohibits or materially restrains the sale of the Transferred
Shares or the other transactions contemplated by this Agreement, except any
Governmental Order relating to any Form E filing, failure to make any Form E
filing or violation of any provision similar to Section 3.1 of the NAIC Model
Holding Company Act.
(d) Distributed Assets. The Company shall have Transferred the
Distributed Assets.
(e) Other Agreements. The Seller shall have executed and delivered, or
caused to be executed and delivered, to the Acquiror the Transition Services
Agreement and, the Tax Matters Agreement.
(f) Material Adverse Effect. There shall not have been or occurred any
change, event or circumstance that, individually or in the aggregate with all
other changes, events or circumstances, has had or would reasonably be expected
to have a Material Adverse Effect, except for any Material Adverse Effect that
shall have been cured to the reasonable satisfaction of Acquiror prior to
Closing.
ARTICLE IX.
TERMINATION AND WAIVER
Section 9.01. Termination. This Agreement may be terminated prior to the
Closing:
41
(a) by the mutual written consent of Seller and the Acquiror;
(b) by either Seller or the Acquiror if the Closing shall not have
occurred on or before December 31, 2003;
(c) by Seller if Acquiror shall fail to file by October 31, 2003 a
Form A with the Missouri Department of Insurance and by November 7, 2003 a
notification and report form pursuant to the HSR Act, provided with respect to
Acquiror's preparation of the notification and report form pursuant to the HSR
Act that Seller shall have cooperated with Acquiror in the preparation thereof
in accordance with Section 5.05;
(d) by Seller if Acquiror shall fail to comply in any material respect
with any representation, warranty, covenant or agreement contained herein or in
the Tax Matters Agreement with which it is required to comply, so as to cause a
condition to closing to be incapable of satisfaction, which failure or breach
has not been waived or is not cured within ten (10) days after Seller has
notified Acquiror in writing of its intent to terminate this Agreement pursuant
to this subsection (d) of Section 9.01;
(e) by Acquiror if Seller shall fail to comply in any material respect
with any representation, warranty, covenant or agreement contained herein or in
the Tax Matters Agreement with which it is required to comply so as to cause a
condition to closing to be incapable of satisfaction, which failure or breach
has not been waived or is not cured within ten (10) days after Acquiror has
notified Seller of its intent to terminate this Agreement pursuant to this
subsection (e) of Section 9.01; or
(f) by either Seller or the Acquiror (i) in the event of the issuance
of a final, nonappealable Governmental Order restraining or prohibiting the sale
of the Transferred Shares or (ii) if Acquiror and Seller are formally or
informally advised by any Governmental Authority that any required approval of
such Governmental Authority listed in Section 3.05 of the Disclosure Schedule or
Section 4.04 of the Acquiror Disclosure Schedule will not be granted;
Section 9.02. Notice of Termination. Any party desiring to terminate this
Agreement pursuant to Section 9.01 shall give written notice of such termination
to the other party to this Agreement.
Section 9.03. Effect of Termination. In the event of the termination of
this Agreement as provided in Section 9.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party to this
Agreement, except as set forth in Section 5.04, and Article XI; provided,
however, that no such termination of this Agreement shall relieve either Seller
or the Acquiror from liability for damages for any breach of this Agreement or
any representation or warranty made herein or failure to perform its obligations
under this Agreement.
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ARTICLE X.
INDEMNIFICATION
Section 10.01. Indemnification by Seller.
(a) Subject to Sections 10.01(b) and (c) and 10.03, Seller shall
indemnify, defend and hold harmless the Acquiror and its Affiliates and
Representatives (collectively, the "Acquiror Indemnified Parties") against, and
reimburse any Acquiror Indemnified Party for, all Losses that such Acquiror
Indemnified Party shall suffer or incur resulting from, arising out of or based
upon:
(i) the breach of or inaccuracy in any representations or
warranties made by Seller in this Agreement or in any certificate
delivered by Seller pursuant to this Agreement;
(ii) any breach by Seller of any of its covenants or agreements
contained in this Agreement;
(iii) the Company's ownership or transfer of the Distributed
Assets;
(iv) the Restructuring Transactions;
(v) any Business Employee Plan or Company Employee Plan or the
employment or termination of any Business Employee;
(vi) the Long Term Care Business and Health Reinsurance Business;
(vii) any Action against the Company resulting from, arising out
of or based upon any condition existing or action or event occurring
in respect of the assets, properties, or operations of the Company
prior to or on the Closing Date, whether or not pending or threatened,
other than in respect of Ordinary Course Liabilities under the terms
of Reinsurance Agreements; and
(viii) the matter identified in Item 1 of Section 3.08 of the
Disclosure Schedule.
For purposes of this Section 10.01(a)(i), a breach of a representation or
warranty contained in this Agreement shall be deemed to exist either if such
representation or warranty is actually inaccurate or breached or if such
representation or warranty would have been breached or been inaccurate if such
representation or warranty had not contained any limitation or qualification as
to materiality or Material Adverse Effect or Knowledge, except with respect to
the representations and warranties contained in Sections 3.06(a), 3.06(b), 3.07,
3.10(a), 3.15(b), 3.15(c), 3.16(b), 3.26 and 3.27, as to which such limitations
and qualifications contained therein shall continue to apply for purposes of
this Section 10.01(a)(i).
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(b) Notwithstanding any other provision to the contrary, (i) except
with respect to Losses suffered or incurred as a result of any breach of any
representation or warranty contained in Sections 3.01, 3.02, 3.03, 3.11, 3.17 or
3.18, Seller shall not be required to indemnify, defend or hold harmless any
Acquiror Indemnified Party against, or reimburse any Acquiror Indemnified Party
for, any Losses pursuant to Section 10.01(a)(i) and Section 10.01(a)(vii) until
the aggregate amount of the Acquiror Indemnified Parties' Losses under Section
10.01(a)(i) and Section 10.01(a)(vii) exceeds 1% of the Purchase Price, after
which Seller shall be obligated for all Losses of the Acquiror Indemnified
Parties pursuant to Section 10.01(a)(i) and Section 10.01(a)(vii) in excess of
1% of the Purchase Price (subject to clause (iii)); (ii) any claim for
indemnification under this Section 10.01 in respect of any Losses suffered by
the Company shall only be made by Acquiror and not by the Company and (iii)
except with respect to Losses suffered or incurred as a result of any breach of
any representation or warranty contained in Sections 3.01, 3.02, 3.03, 3.11,
3.17 or 3.18, the cumulative aggregate indemnification obligation of Seller
under Section 10.01(a)(i) and Section 10.01(a)(vii) shall in no event exceed 25%
of the Purchase Price.
(c) Notwithstanding any other provision to the contrary, Seller shall
be required to indemnify, defend, hold harmless or reimburse any Acquiror
Indemnified Party under Section 10.01(a)(i) only with respect to those claims as
to which the Acquiror Indemnified Party has given the Seller written notice
prior to the date which is eighteen calendar months after the Closing Date,
except in the case of claims based on Sections 3.01, 3.02, 3.03, 3.17 and 3.18,
as to which there shall be no time limit on giving written notice other than in
respect of applicable statutes of limitation.
Section 10.02. Indemnification by the Acquiror.
(a) Subject to Sections 10.02(b) and 10.03, the Acquiror and Parent
shall indemnify, defend and hold harmless Seller and its Affiliates and
Representatives (collectively, the "Seller Indemnified Parties") against, and
reimburse any Seller Indemnified Party for, all Losses that such Seller
Indemnified Party shall suffer or incur as a result of:
(i) the breach of or inaccuracy in any representations or
warranties made by the Acquiror in this Agreement or in any
certificates delivered hereto, without regard to any materiality
qualifier; or
(ii) any breach by the Acquiror of any of its covenants or
agreements contained in this Agreement.
(b) Notwithstanding any other provision to the contrary, Acquiror and
Parent shall be required to indemnify, defend, hold harmless or reimburse any
Seller Indemnified Party under Section 10.02(a)(i) only with respect to those
claims as to which the Seller Indemnified Party has given the Acquiror written
notice prior to the date which is eighteen calendar months after the Closing
Date, except in the case of claims based on Sections 4.01, 4.02 and 4.06, as to
which there shall be no time limit on giving written notice.
44
Section 10.03. Notification of Claims.
(a) A Person that may be entitled to be indemnified under this
Agreement (the "Indemnified Party"), shall promptly notify the party liable for
such indemnification (the "Indemnifying Party") in writing of any pending or
threatened claim or demand that the Indemnified Party has determined has given
or could reasonably give rise to a right of indemnification under this Agreement
(including a pending or threatened claim or demand asserted by a third party
against the Indemnified Party, such claim being a "Third Party Claim"),
describing in reasonable detail the facts and circumstances with respect to the
subject matter of such claim or demand; provided, however, that the failure to
provide such notice shall not release the Indemnifying Party from any of its
obligations under this Article X except to the extent the Indemnifying Party is
prejudiced by such failure, except that notices for claims in respect of a
breach of a representation or warranty must be delivered prior to the expiration
of any applicable period specified in Section 10.01(c) or 10.02(b) for giving
written notice.
(b) Upon receipt of a notice of a claim for indemnity from an
Indemnified Party pursuant to Section 10.03(a), the Indemnifying Party shall
have the right, but not the obligation, to assume the defense and control of any
Third Party Claim and the Indemnified Party shall have the right, but not the
obligation, to participate in the defense of such Third Party Claim with its own
counsel and at its own expense. Seller or the Acquiror, as the case may be,
shall, and shall cause each of its Affiliates and Representatives to, cooperate
fully with the Indemnifying Party in the defense of any Third Party Claim. In
the event that the Indemnifying Party does not, within ten Business Days after
notice of any Third Party Claim, assume the defense thereof, the Indemnified
Party shall have the right to undertake the defense, compromise or settlement of
such Third Party Claim at the expense and for the account of the Indemnifying
Party, subject to the right of the Indemnifying Party to assume the defense of
such third Party Claim with counsel reasonably satisfactory to the Indemnified
Party at any time prior to the compromise, settlement or final determination
thereof. The Indemnifying Party shall be authorized to consent to a settlement
of, or the entry of any judgment arising from, any Third Party Claim that does
not require any admission of liability by the Indemnified Party without the
consent of any Indemnified Party, provided that the Indemnifying Party shall (i)
pay or cause to be paid all amounts arising out of such settlement or judgment
concurrently with the effectiveness of such settlement, (ii) not encumber any of
the assets of any Indemnified Party or agree to any restriction or condition
that would apply to or adversely affect the conduct of any Indemnified Party's
business and (iii) obtain, as a condition of any settlement or other resolution,
a complete and unconditional release of any Indemnified Party from all liability
with respect to such Third Party Claim.
(c) In the event any Indemnifying Party receives a notice of a claim
for indemnity from an Indemnified Party pursuant to Section 10.03(a) that does
not involve a Third Party Claim, the Indemnifying Party shall notify the
Indemnified Party within 30 days following its receipt of such notice if the
Indemnifying Party disputes its liability to the Indemnified Party under this
Article X. If the Indemnifying Party does not so notify the Indemnified Party,
the Indemnifying Party shall be deemed to have rejected the claim specified by
the Indemnified Party in such notice. If the Indemnifying Party has rejected or
is deemed to have rejected such claim as provided above, the Indemnifying Party
and the Indemnified Party shall resolve such dispute in accordance with Section
11.11.
45
Section 10.04. Exclusive Remedies. Except (i) as provided in Article II,
Sections 5.24(b), 5.24(c) and 5.24(e) and Section 1(b) of Exhibit D, (ii) with
respect to intentional fraud and (iii) for any matters covered by the
indemnification provisions of the Tax Matters Agreement and the Transition
Services Agreement, Seller and the Acquiror acknowledge and agree that,
following the Closing, the indemnification provisions of Article X shall be the
sole and exclusive post-Closing remedies of Seller and the Acquiror,
respectively, for any breach of the representations or warranties in this
Agreement and for any breach of any covenants or agreements that, by their
terms, were to have been performed or complied with at or prior to the Closing.
Section 10.05. Additional Indemnification Provisions. Seller and the
Acquiror agree, for themselves and on behalf of their respective Affiliates and
Representatives, that with respect to each indemnification obligation in Article
X of this Agreement, the Tax Matters Agreement or any other document executed in
connection with the Closing (a) each such obligation shall be made on an
After-Tax Basis, (b) all Losses shall be net of any third-party insurance
proceeds which either have been recovered by, or are recoverable by, the
Indemnified Party in connection with the facts giving rise to the right of
indemnification and (c) in no event shall the Indemnifying Party have liability
to the Indemnified Party for any consequential, special, incidental, indirect or
punitive damages, lost profits or similar items, other than such items as the
indemnified party may be required to pay to a third party as a result of an
indemnifiable claim. In any case where an Indemnified Party recovers from a
third Person any amount in respect of a matter for which an Indemnifying Party
has indemnified it pursuant to this Article X or the Tax Matters Agreement, such
Indemnified Party shall promptly pay over to the Indemnifying Party the amount
so recovered (after deducting therefrom the amount of expenses incurred by it in
procuring such recovery), but not in excess of the sum of (i) any amount
previously paid by the Indemnifying Party to or on behalf of the Indemnified
Party in respect of such claim and (ii) any amount expended by the Indemnifying
Party in pursuing or defending any claim arising out of such matter.
Section 10.06. Mitigation. Each of the parties agrees to take all
reasonable steps to mitigate their respective Losses upon and after becoming
aware of any event or condition which would reasonably be expected to give rise
to any Losses that are indemnifiable hereunder.
Section 10.07. Indemnification for Taxes. Without limiting the generality
of Article VII hereof, all indemnification provisions related to Taxes are set
forth in the Tax Matters Agreement, except the provisions of Section 10.05.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01. Survival. The representations, warranties, covenants and
agreements of Seller, Parent and the Acquiror contained in or made pursuant to
this Agreement or in any certificate furnished pursuant to this Agreement shall
survive the Closing and the consummation of the transactions contemplated
hereby, subject to the limitations set forth in Article X hereof.
46
Section 11.02. Expenses. Except as may be otherwise specified in the
Transaction Agreements, all costs and expenses, including fees and disbursements
of counsel, financial advisers and accountants, incurred in connection with the
Transaction Agreements and the transactions contemplated by the Transaction
Agreements shall be paid by the Person incurring such costs and expenses,
whether or not the Closing shall have occurred. For the avoidance of doubt,
Seller shall not be liable for the costs and expenses incurred by the Company.
Section 11.03. Notices. All notices, requests, claims, demands and other
communications under the Transaction Agreements shall be in writing and shall be
given or made (and shall be deemed to have been duly given or made upon receipt)
by delivery in person, by overnight courier service, by facsimile with receipt
confirmed (followed by delivery of an original via overnight courier service) or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
11.03):
(i) if to Seller:
Employers Reinsurance Corporation
5200 Metcalf Avenue
P.O. Box 2991
Overland Park, KS 66201
Attention: General Counsel
Facsimile: (913) 676-5258
47
with a copy to:
General Electric Company
3135 Easton Turnpike, W3A24
Fairfield, CT 06431
Attention: Vice President and Senior
Counsel for Transactions
Facsimile: (203) 373-3008
and
Stinson Morrison Hecker LLP
2600 Grand Boulevard
Kansas City, Missouri 64108
Attention: James S. Swenson
Facsimile: (816) 691-2768
(ii) if to the Acquiror or Parent:
Scottish Holdings, Inc.
15800 John J. Delaney Drive
Suite 200
Charlotte, North Carolina 28277
Attention: General Counsel
Facsimile: (704) 542-5744
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attention: Hugh T. McCormick, Esq.
Stephen G. Rooney, Esq.
Facsimile: (212) 424-8500
Section 11.04. Public Announcements. Except as may be required by Law or
stock exchange rules, no party to this Agreement or any Affiliate or
Representative of such party shall make any public announcements or otherwise
communicate with any news media in respect of this Agreement or the transactions
contemplated by this Agreement without prior notification to the other parties,
and prior to any announcement or communication the parties shall cooperate as to
the timing and contents of any such announcement or communication.
Section 11.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced under any Law or as
a matter of public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated by this Agreement is
48
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties to this Agreement shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally
contemplated to the greatest extent possible.
Section 11.06. Entire Agreement. Except as otherwise expressly provided in
the Transaction Agreements, the Transaction Agreements constitute the entire
agreement of Seller, Parent and the Acquiror with respect to the subject matter
of the Transaction Agreements and supersede all prior agreements and
undertakings, both written and oral, other than the Confidentiality Agreement to
the extent not in conflict with this Agreement, between or on behalf of Seller
and/or its Affiliates, on the one hand, and each of the Acquiror and Parent
and/or its respective Affiliates, on the other hand, with respect to the subject
matter of the Transaction Agreements.
Section 11.07. Assignment. Subject to Section 5.18, this Agreement shall
not be assigned by operation of law or otherwise, except that Acquiror may
assign any or all of its rights and obligations under this Agreement to any of
its Affiliates; provided, however, that no such assignment shall release
Acquiror from any liability or obligation under this Agreement and provided,
further, that no such assignment shall be permitted in the event that additional
regulatory approvals are required in connection with such assignment or to
consummate the transactions contemplated hereby as a result of such assignment.
This Agreement shall be binding upon, shall inure to the benefit of, and shall
be enforceable by the parties hereto and their permitted successors and assigns.
Section 11.08. No Third-Party Beneficiaries. Except as provided in Section
5.08 and except as provided in Article X with respect to Seller Indemnified
Parties and Acquiror Indemnified Parties, this Agreement is for the sole benefit
of the parties to this Agreement and their permitted successors and assigns and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other Person or entity any legal or equitable right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
Section 11.09. Amendment. No provision of any Transaction Agreement may be
amended or modified except by a written instrument signed by all the parties to
such agreement.
Section 11.10. Disclosure Schedules. Any disclosure with respect to a
Section or Schedule of this Agreement shall be deemed to be disclosed for other
Sections and Schedules of this Agreement to the extent that such disclosure sets
forth facts in sufficient detail so that the relevance of such disclosure would
be reasonably apparent to a reader of such disclosure.
Section 11.11. Dispute Resolution.
(a) Except (i) as set forth in Sections 2.05, 5.03, 5.07 and 5.08 and
Exhibit D, and the Tax Matters Agreement and (ii) with respect to any request
for equitable relief (including
49
interim relief) by Seller or Acquiror on or prior to the Closing Date, any
dispute, controversy or claim arising out of or relating to the transactions
contemplated by the Transaction Agreements, or the validity, interpretation,
breach or termination of any such agreement, including claims seeking redress or
asserting rights under any Law (a "Dispute"), shall be resolved in accordance
with the procedures set forth in this Section 11.11 and Section 11.12. Until
completion of such procedures, no party may take any action to force a
resolution of a Dispute by any judicial or similar process, except to the
limited extent necessary to avoid expiration of a claim that might eventually be
permitted by this Agreement.
(b) Any party seeking resolution of a Dispute shall first submit the
Dispute for resolution by mediation pursuant to the Center of Public Resources
Model Procedure for Mediation of Business Disputes as then in effect. Mediation
will continue for at least 60 days unless the mediator chooses to withdraw
sooner.
(c) All communications among the parties or their Representatives in
connection with the attempted resolution of any Dispute shall be deemed to have
been delivered in furtherance of a Dispute settlement and shall be exempt from
discovery and production and shall not be admissible in evidence (whether as an
admission or otherwise) in any proceeding for the resolution of the Dispute.
Section 11.12. Governing Law; Submission to Jurisdiction; Waivers. This
Agreement and each other Transaction Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York without giving
effect to the conflicts of law principles of such state. Seller, Parent and the
Acquiror agree that if any Dispute is not resolved by mediation undertaken
pursuant to Section 11.11, such Dispute shall be resolved only in the Courts of
the State of New York sitting in the County of New York or the United States
District Court for the Southern District of New York and the appellate courts
having jurisdiction of appeals in such courts. In that context, and without
limiting the generality of the foregoing, each of Seller, Parent and the
Acquiror by this Agreement irrevocably and unconditionally:
(a) submits for itself and its property in any Action relating to the
Transaction Agreements, or for recognition and enforcement of any judgment in
respect thereof, to the exclusive jurisdiction of the Courts of the State of New
York sitting in the County of New York, the court of the United States of
America for the Southern District of New York, and appellate courts having
jurisdiction of appeals from any of the foregoing, and agrees that all claims in
respect of any such Action shall be heard and determined in such New York State
court or, to the extent permitted by law, in such federal court;
(b) consents that any such Action may and shall be brought in such
courts and waives any objection that it may now or hereafter have to the venue
or jurisdiction of any such Action in any such court or that such Action was
brought in an inconvenient court and agrees not to plead or claim the same;
50
(c) waives all right to trial by jury in any Action (whether based on
contract, tort or otherwise) arising out of or relating to any of the
Transaction Agreements, or its performance under or the enforcement of the
Transaction Agreements;
(d) agrees that service of process in any such Action may be effected
by mailing a copy of such process by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such party at its
address as provided in Section 11.03; and
(e) agrees that nothing in the Transaction Agreements shall affect the
right to effect service of process in any other manner permitted by the Laws of
the State of New York.
Section 11.13. Rules of Construction. Interpretation of the Transaction
Agreements (except as specifically provided in any such agreement, in which case
such specified rules of construction shall govern with respect to such
agreement) shall be governed by the following rules of construction: (a) words
in the singular shall be held to include the plural and vice versa, and words of
one gender shall be held to include the other gender as the context requires;
(b) references to the terms Article, Section, paragraph, Exhibit and Schedule
are references to the Articles, Sections, paragraphs, Exhibits and Schedules to
this Agreement unless otherwise specified; (c) references to "$" shall mean U.S.
dollars; (d) the word "including" and words of similar import when used in the
Transaction Agreements shall mean "including without limitation," unless
otherwise specified; (e) the word "or" shall not be exclusive; (f) provisions
shall apply, when appropriate, to successive events and transactions; (g) the
headings contained in the Transaction Agreements are for reference purposes only
and shall not affect in any way the meaning or interpretation of the Transaction
Agreements; and (h) the Transaction Agreements shall be construed without regard
to any presumption or rule requiring construction or interpretation against the
party drafting or causing any instrument to be drafted.
Section 11.14. Counterparts. Each of the Transaction Agreements may be
executed in one or more counterparts, and by the different parties to each such
agreement in separate counterparts, each of which when executed shall be deemed
to be an original but all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to any
Transaction Agreement by facsimile shall be as effective as delivery of a
manually executed counterpart of any such Agreement.
[Signatures follow on next page.]
51
IN WITNESS WHEREOF, Seller, Parent and the Acquiror have caused this
Agreement to be executed on the date first written above by their respective
duly authorized officers.
EMPLOYERS REINSURANCE CORPORATION
By:
-------------------------------------
Name:
Title:
SCOTTISH HOLDINGS, INC.
By:
-------------------------------------
Name:
Title:
SCOTTISH RE GROUP LIMITED
By:
-------------------------------------
Name:
Title:
52
TABLE OF EXHIBITS
Exhibit A Transferred Shares; Retained Shares
Exhibit B Definitions
Exhibit C Transition Services Agreement
Exhibit D Ownership and Transfer of Equity Shares
EXHIBIT A
DESCRIPTION OF TRANSFERRED SHARES
AND RETAINED SHARES
ERC LIFE REINSURANCE CORPORATION
Stockholders Number of Equity Shares % of Total Equity
Acquiror 506,350 shares of common stock 95%
Seller 26,650 shares of common stock 5%
A-1
EXHIBIT B
DEFINITIONS
"2003 Statutory Statement" shall have the meaning set forth in Section
5.26.
"Accounting Arbitrator" shall have the meaning set forth in Section
2.05(g).
"Acknowledgement" shall have the meaning set forth in Section 5.19(b).
"Acquiror" shall have the meaning set forth in the Preamble.
"Acquiror Disclosure Schedule" means the disclosure schedule delivered by
Acquiror to Seller and which forms a part of this Agreement.
"Acquiror Indemnified Parties" shall have the meaning set forth in Section
10.01(a).
"Acquiror's Banker" shall have the meaning set forth in Section 4.09.
"Action" means any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority, arbitrator or arbitration
panel.
"Admitted Assets" means assets recognized under SAP for inclusion as assets
in the Company's statutory financial statements.
"Affiliate" means, with respect to any specified Person, any other Person
that, at the time of determination, directly or indirectly through one or more
intermediaries, Controls, is Controlled by or is under common Control with such
specified Person; provided, however, that for the purposes of this Agreement,
the Seller shall not be deemed an Affiliate of the Acquiror nor, after the
Closing, of the Company.
"After-Tax Basis" means that, in determining the amount of the payment
necessary to indemnify any party against, or reimburse any party for, Losses,
the amount of such Losses shall be determined net of any Tax benefit allowable
(or reasonably certain to be allowed) or Tax detriment actually realized (or
reasonably certain to be realized) by the Indemnified Party (or any Affiliate
thereof) as the result of sustaining or paying such Losses (including as the
result of facts or circumstances due to which the Indemnified Party sustained or
paid such Losses). Such Tax benefits shall be computed assuming that the
Indemnified Party (or such Affiliate) is subject to taxation at an income tax
rate equal to 35%.
"Agreement" means this Stock Purchase Agreement, dated as of October 24,
2003, by and among Seller, the Acquiror and Parent, including the Disclosure
Schedule, the Acquiror Disclosure Schedule and the Exhibits, and all amendments
to such agreement made in accordance with Section 11.09.
"Ancillary Agreements" means the Transition Services Agreement and the Tax
Matters Agreement.
B-1
"Assets" means the assets of every type and description that are owned,
leased or licensed by the Company.
"Assumed Reinsurance Agreements" means all Reinsurance Agreements pursuant
to which the Company has or has agreed or committed to, assume any risk from
insurers or other reinsurers as of the Closing Date.
"Balance Sheet Review Period" shall have the meaning set forth in Section
2.05(c).
"Balance Sheet Consultation Period" shall have the meaning set forth in
Section 2.05(f).
"Books and Records" means originals or copies of all of the Company's books
and records, documents, databases, administrative records, claim records, forms
of reinsurance agreements and files, sales records and files, records relating
to regulatory matters, customer lists, correspondence with regulatory
authorities, reinsurance records, underwriting records, financial, Tax and
accounting records and all other records, data and information (in whatever form
maintained, including computer generated, recorded or stored) relating to the
assets, properties, business, conduct and operations of the Company, including
all Permits held by the Company and all such items relating to the Company's
legal existence, stock ownership, corporate management or other such corporate
records, in each case, whether or not in the possession or control of the
Company or any Affiliate of the Company.
"Business Day" means any day that is not a Saturday, a Sunday or other day
on which commercial banks in the City of New York, New York are required or
authorized by Law to be closed.
"Business Employee" shall have the meaning set forth in Section 3.17(a).
"Business Employee Plans" means (i) all "employee benefit plans," as
defined in section 3(3) of ERISA, and all other employee benefit arrangements or
payroll practices, including, without limitation, bonus plans, employment,
consulting or other compensation agreements, incentive, equity or equity-based
compensation, or deferred compensation arrangements, change in control,
termination or severance plans or arrangements, stock purchase, severance pay,
sick leave, vacation pay, salary continuation for disability, hospitalization,
medical insurance, life insurance and scholarship plans and programs maintained,
contributed to or sponsored by the Company or any ERISA Affiliate for the
benefit of Business Employees, and (ii) all "employee pension plans," as defined
in section 3(2) of ERISA, subject to Title IV of ERISA or section 412 of the
Code, maintained, contributed to or sponsored by Company or any ERISA Affiliate
for the benefit of Business Employees.
"Capital Stock" means capital stock of or other type of ownership interest
in, as applicable, a Person.
"Ceding Company" shall mean each Person ceding risk under a Reinsurance
Agreement.
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall have the meaning set forth in Section 2.02.
B-2
"Closing Pro Forma Surplus" means the aggregate amount of Surplus of the
Company plus the amount of the Asset Valuation Reserve of the Company as of the
close of business on December 31, 2003.
"COBRA" shall have the meaning set forth in Section 3.12(f).
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Collection Notice" shall have the meaning set forth in Section 5.19(b).
"Company" shall have the meaning set forth in Recital A.
"Company Employee Plans" means (i) all "employee benefit plans," as defined
in section 3(3) of ERISA, and all other employee benefit arrangements or payroll
practices, including, without limitation, bonus plans, employment, consulting or
other compensation agreements, incentive, equity or equity-based compensation,
or deferred compensation arrangements, change in control, termination or
severance plans or arrangements, stock purchase, severance pay, sick leave,
vacation pay, salary continuation for disability, hospitalization, medical
insurance, life insurance and scholarship plans and programs maintained or
sponsored by the Company for the benefit of Business Employees, and (ii) all
"employee pension plans," as defined in section 3(2) of ERISA, subject to Title
IV of ERISA or section 412 of the Code, maintained or sponsored by the Company
for the benefit of Business Employees.
"Confidential IP" shall have the meaning set forth in Section 3.12(f).
"Confidentiality Agreement" shall have the meaning set forth in Section
5.04.
"Contracts" means all contracts, subcontracts, agreements, leases,
licenses, commitments, sales and purchase orders, and other instruments,
arrangements or understandings of any kind, to which the Company is a party or
by which the Company or its Assets are bound, other than contracts, agreements
or other arrangements or instruments that are Distributed Assets.
"Control" means, as to any Person, the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. The terms "Controlled
by," "under common Control with" and "Controlling" shall have correlative
meanings.
"Co-Sale Notice" shall have the meaning set forth in Exhibit D.
"Co-Sale Transaction" shall have the meaning set forth in Exhibit D.
"Debt" means financial indebtedness for borrowed money from third party
lending sources, other than current trade accounts payable included in current
liabilities and incurred in respect of property or services purchased in the
ordinary course of business.
"Designated Non-Admitted Receivables" shall have the meaning set forth in
Section 5.27.
B-3
"Disclosure Schedule" means the disclosure schedule delivered by Seller to
the Acquiror and which forms a part of this Agreement.
"Dispute" shall have the meaning set forth in Section 11.11(a).
"Distributed Assets" shall mean the following assets of the Company as of
June 30, 2003, which have been distributed or otherwise transferred by the
Company prior to the date of this Agreement: (a) all of the capital stock of
Employers Re Corporation (UK) Limited owned by the Company, or the proceeds from
any transfer thereof, (b) all software of the Company related to the SPICE
system and the capitalized costs associated therewith, or the proceeds from any
transfer thereof, and (c) cash and marketable securities in the amount of
$151,000,000.
"Environmental Law" means any Law relating to pollution or protection of
the environment, drinking water supply, natural resources and human health and
safety including the use, handling, transportation, treatment, storage,
disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under or issued pursuant to any
Environmental Law.
"Equity Shares" means shares of or other ownership interests in Capital
Stock of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean Seller, the Company and any trade or business
(whether or not incorporated) which is or has ever been under common control, or
which is or has ever been treated as a single employer, with the Company under
section 414(b), (c), (m) or (o) of the Code.
"Estimated Initial Balance Sheet" shall have the meaning set forth in
Section 2.05(a).
"Fair Market Value" shall have the meaning set forth in Exhibit D.
"Final Balance Sheet" shall have the meaning set forth in Section 2.05(g).
"Final Closing Pro Forma Surplus" shall have the meaning set forth in
Section 2.05(g).
"GAAP Financial Statements" shall have the meaning set forth in Section
5.25.
"Governmental Authority" means any United States federal, state or local or
any supra-national or non-U.S. government, political subdivision, governmental,
regulatory or administrative authority, instrumentality, agency, body or
commission, self-regulatory organization or any court, tribunal, or judicial or
arbitral body.
"Governmental Order" means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
"Guarantees" shall have the meaning set forth in Section 5.12.
B-4
"Guaranteed Premium Overpayment Receivables" shall have the meaning set
forth in Section 5.19(a).
"Guarantee Amount" shall have the meaning set forth in Section 5.19(a).
"Hazardous Materials" means (a) petroleum, petroleum products, by-products
or breakdown products, radioactive materials, friable asbestos, lead-based paint
or polychlorinated biphenyls, and (b) any chemical products, mixtures, material
or substance defined, characterized or regulated as "hazardous," "dangerous,"
"toxic" or as a pollutant, contaminant or waste under any Environmental Law.
"Health Reinsurance Business" means the quota share first dollar medical
business, group life business and group disability business from the DART
reinsurance pool acquired when the Company engaged in the Phoenix Transaction,
and other group life business, personal accident business, workers compensation
business and catastrophic covers written by the Company.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations under such Act.
"Indemnified Party" shall have the meaning set forth in Section 10.03(a).
"Indemnifying Party" shall have the meaning set forth in Section 10.03(a).
"Initial Balance Sheet" shall have the meaning set forth in Section
2.05(b).
"Intellectual Property" means: (a) patents, patent applications, and
statutory invention registrations, including reissues, divisions, continuations,
continuations in part, extensions and reexaminations thereof, all rights therein
provided by international treaties or conventions, (b) trademarks, service
marks, trade dress, trade names, logos, domain names, any and all common law
rights, goodwill and registrations and applications for registration thereof,
all rights therein provided by international treaties or conventions, and all
reissues, extensions and renewals of any of the foregoing, (c) copyrightable
works, copyrights, whether or not registered, and registrations and applications
for registration thereof, and all rights therein provided by international
treaties or conventions, including computer software and (d) confidential and
proprietary information, including trade secrets, processes and know-how.
"Interest Rate" means an interest rate per annum equal to the average of
the three month London Interbank Offered Rate (LIBOR) for U.S. dollars as
published in the Wall Street Journal on each Business Day during the period for
which interest is to be paid.
"Investments" shall have the meaning set forth in Section 3.23(a).
"IRS" means the Internal Revenue Service.
"Knowledge of Seller" means the actual knowledge of any of John Tiller,
Dale Filsinger, Robert Buckner, Ron Peters, or John Attey, after reasonable
inquiry.
B-5
"Law" means any U.S. federal, state, local or non-U.S. statute, law,
ordinance, regulation, rule, code, order, common law or other requirement or
rule of law.
"Liability" means any indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, security
interest, encumbrance, claim, lien or charge of any kind, in each case, whether
or not perfected.
"Long Term Care Business" means the Company's participation in the American
Long Term Care Reinsurance Group reinsurance pool as a result of the Company's
acquisition of the reinsurance business in the Phoenix Transaction.
"Losses" means all losses, damages, costs, expenses, fines, penalties,
interest, Liabilities, obligations and claims of any kind (including any Action
brought by any Governmental Authority or Person and including reasonable
attorneys' fees and disbursements and reasonable expenses of investigation).
"Material Adverse Effect" means a material adverse effect on the financial
condition, earnings, business or results of operations of the Company, but shall
not include any adverse effect to the extent caused by or resulting from (a) an
event or series of events or circumstances affecting (i) the United States
economy generally or (ii) the life or health reinsurance industry generally
(including, without limitation, as a result of a change in (or change in
interpretation of) Law or SAP) or (b) the announcement of the execution and
delivery of any of the Transaction Agreements, the performance of obligations
thereunder or the consummation of any of the transactions contemplated thereby.
"Material Contract" means any Contract to which the Company is a party or
by or to which any of the material Assets of the Company are bound or subject
and which:
(i) represents an aggregate future liability of the Company or
represents the future right of the Company to receive an amount in
excess of $200,000 in any one fiscal year,
(ii) contains covenants limiting the ability of the Company to
engage in any line of business, to compete with any Person, to solicit
for employment, hire or obtain the services of any Person or to sell
any products or services of or to any other Person;
(iii) has as a counterparty any Governmental Authority;
(iv) provides for the incurrence of indebtedness for borrowed
money by the Company or the lending of money by the Company;
B-6
(v) provides for the imposition of any material Lien, other than
a Permitted Lien, on any Assets of the Company;
(vi) is a partnership, joint venture or limited liability company
agreement;
(vii) is a written proxy, power of attorney or similar delegation
of authority of the Company;
(viii) relates to the acquisition or sale by the Company of any
company, business, division or other enterprise, other than
investments in the ordinary course of business;
(ix) is an indemnification agreement or guarantee;
(x) represents an aggregate future liability of the Company or
represents the future right of the Company to receive an amount in
excess of $1,000,000;
(xi) involves payments in aggregate to or from the Company in
excess of $200,000 and is not terminable upon 60 days notice without
penalty or premium; or
(xii) is between the Company and the Seller or any Affiliate of
the Seller and will not be terminated at or prior to Closing.
"Material Permits" shall have the meaning set forth in Section 3.10(a).
"Notice of Balance Sheet Disagreement" shall have the meaning set forth in
Section 2.05(e).
"Offer Notice" shall have the meaning set forth in Exhibit D.
"Ordinary Course Liabilities" means Liabilities from time to time in the
ordinary course of business under Reinsurance Agreements for (a) claims, (b)
claim expenses, (c) brokerage and agency fees and commissions, (c) experience
refunds, (d) profit commissions, (e) persistency bonuses, (f) allowances, (g)
expense reimbursements, (h) refunds or returns of premiums, including unearned
premiums, (i) premium taxes, (j) premium tax allowances, (j) premiums, (k)
regulatory or guaranty fund assessments, (l) Liabilities of the reinsured as
specified in Reinsurance Agreements and (m) any other Liabilities under the
terms of the Reinsurance Agreements in the ordinary course of business
substantially similar to any of the foregoing; provided that, without limiting
the meaning of "ordinary course of business," the parties agree that such phrase
shall not include any claims by counterparties under Reinsurance Agreements that
amounts paid by them under such Reinsurance Agreements were paid in error and
exceeded the amount due thereunder at the time of payment.
"Parent" shall have the meaning set forth in the Preamble.
"Permitted Liens" means the following Liens: (a) Liens for Taxes,
assessments or other governmental charges or levies that are not yet due or
payable or that are being contested in good
B-7
faith by appropriate proceedings and have been properly reserved for on the
Final Balance Sheet; or (b) materialmen's, mechanics', carriers', workmen's and
repairmen's Liens and other like Liens arising in the ordinary course of
business so long as the obligations to which such Liens relate are not
delinquent and also so long as any such Lien does not materially impair the
value of such property.
"Person" means any natural person, general or limited partnership,
corporation, limited liability company, limited liability partnership, firm,
association or organization or other legal entity.
"Phoenix Transaction" the 1999 bulk reinsurance and related transactions
between Phoenix Home Life Mutual Insurance Company and its Affiliates and the
Company.
"Post-Closing Adjustment" shall have the meaning set forth in Section
2.05(i).
"Preferred Stock" shall have the meaning set forth in Section 5.17.
"Premium Overpayment Receivables" means any amounts owed to the Company by
retrocessionaires with respect to the matter listed in Item 2 of Section 3.08 of
the Disclosure Schedule.
"Purchase Price" shall have the meaning set forth in Section 2.03.
"Reference Date Pro Forma Balance Sheet" shall have the meaning set forth
in Section 3.06(b).
"Reference Date Pro Forma Surplus" means the aggregate amount of Surplus of
the Company plus the amount of the Asset Valuation Reserve of the Company as of
June 30, 2003, as set forth in the Reference Date Pro Forma Balance Sheet,
excluding the Distributed Assets and including the adjustments set forth in the
Reference Date Pro Forma Balance Sheet.
"Reinsurance Agreements" means collectively, all policies, treaties,
binders, slips, other agreements of reinsurance or retrocession and binding
quotations to which the Company is a party, as reinsurer, retrocedant or
retrocessionaire (including all supplements, endorsements and riders thereto and
all ancillary agreements in connection therewith).
"Rejection Notice" shall have the meaning set forth in Exhibit D.
"Representative" of a Person means the directors, officers, employees,
advisors, agents, stockholders, consultants, accountants, investment bankers or
other representatives of such Person and of such Person's Affiliates.
"Restructuring Transactions" means those transactions which are described
in the Company's Statutory Statements for the year ended 2002 under Note 10 of
the Notes to Financial Statements.
"Retained Shares" shall have the meaning set forth in Recital C.
B-8
"Retroceded Reinsurance Agreements" means all Reinsurance Agreements
pursuant to which the Company has retroceded or transferred to any other Person
any portion of the risks included within the business of the Company.
"Sale Document" shall have the meaning set forth in Exhibit D.
"SAP" means, as to any insurance or reinsurance company, the statutory
accounting practices prescribed or permitted by the insurance regulatory
authorities of the jurisdiction in which such company is domiciled.
"Section 1 Closing" shall have the meaning set forth in Exhibit D.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations under such Act.
"Seller Indemnified Parties" shall have the meaning set forth in Section
10.02.
"Seller" shall have the meaning set forth in the preamble hereof.
"Seller Marks" means the names or trademarks of Seller or any of its
Affiliates, including without limitation "GE" (in block letters or otherwise),
"ERC", "ERC Life", "Employers Reinsurance", "Employers Reassurance", "Employers
Re", "Frankona", the GE monogram, "General Electric Company" and "General
Electric," either alone or in combination with other words and all marks, trade
dress, logos, monograms, domain names and other source identifiers similar to
any of the foregoing or embodying any of the foregoing alone or in combination
with other words.
"Seller's Banker" shall have the meaning set forth in Section 3.18.
"Settlement Agreement" means the settlement agreement identified in Item 6
of Section 3.14(a) of the Disclosure Schedule.
"Statutory Statements" shall have the meaning set forth in Section 3.06(a).
"Subsidiary" of any Person means any corporation, general or limited
partnership, joint venture, limited liability company, limited liability
partnership or other Person that is a legal entity, trust or estate of which (or
in which) (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the board of directors (or a majority of another
body performing similar functions) of such corporation or other Person
(irrespective of whether at the time capital stock of any other class or classes
of such corporation or other Person shall or might have voting power upon the
occurrence of any contingency), (b) more than 50% of the interest in the capital
or profits of such partnership, joint venture or limited liability company or
(c) more than 50% of the beneficial interest in such trust or estate, is at the
time of determination directly or indirectly owned or Controlled by such Person.
"Surplus" of the Company as of any date means the aggregate amount by which
the total Admitted Assets of the Company as of such date exceeds the total
liabilities of the Company as of
B-9
such date, in each case, determined in accordance with relevant SAP,
consistently applied as provided in this Agreement.
"Taxes" (or "Tax" as the context may require) mean (i) all federal, state,
county, local, foreign and other taxes (including, without limitation, income,
profits, business and occupation, estimated, payroll, withholding, disability,
workers compensation, unemployment insurance, social security, premium, stamp,
customs, license, transfer, excise, sales, use, gross receipts, franchise, ad
valorem, environmental, production, severance, capital and property taxes,
duties, fees, levies or other governmental charges and assessments), and
including any interest, additions to tax and penalties (civil or criminal) with
respect thereto or in respect of a failure to comply with any requirement
relating to such taxes or any Tax Return and any expenses incurred in connection
with the determination, settlement or litigation of any tax liability and (ii)
any liability of the Company for the payment of amounts with respect to payments
of a type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group, or as a result of any
obligation of the Company under any tax sharing arrangement or Tax indemnity
arrangement, in each case, whether imposed directly on a Person, as a transferee
or successor, by contract or otherwise.
"Tax Matters Agreement" shall have the meaning set forth in Recital D.
"Third Party Claim" shall have the meaning set forth in Section 10.03(a).
"Transaction" shall have the meaning set forth in Section 5.04(b).
"Transaction Agreements" means this Agreement and each of the Ancillary
Agreements.
"Transfer" shall mean any mode or manner of disposing of securities, or any
interest therein, whether voluntary or involuntary, direct or indirect,
equitable or legal, including, but not limited to, dispositions by gift, sale,
exchange, bequest, descent, assignment, operation of law, pledge, encumbrance,
hypothecation, attachment, garnishment, or alienation of any kind, or any
combination thereof.
"Transferred Shares" shall have the meaning set forth in Recital B.
"Transition Services Agreement" shall have the meaning set forth in Section
5.10.
"Valuation Agent" shall have the meaning set forth in Exhibit D.
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EXHIBIT C
TRANSITION SERVICES AGREEMENT
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EXHIBIT D
OWNERSHIP AND TRANSFER
OF EQUITY SHARES
1. Right of First Offer. (a) Offer Notice. Prior to offering to Transfer or
soliciting or responding to any unsolicited offers to Transfer all, but not less
than all, of the Retained Shares to a Person other than the Acquiror, the Seller
shall offer to the Acquiror the right to purchase such Retained Shares on the
terms set forth below by sending to the Acquiror a written notice ("Offer
Notice").
(b) Determination of Purchase Price. For a period of 10 calendar days
immediately following the delivery of the Offer Notice, the parties shall
attempt to reach agreement on the fair market value at the time of the Offer
Notice ("Fair Market Value") of the Retained Shares. If at the end of such
10-day period, the parties have been unable to reach agreement on the Fair
Market Value, then the parties shall mutually select a nationally accredited
valuation agent with expertise in the life reinsurance industry ("Valuation
Agent") to perform such valuation of the Retained Shares. If the parties are
unable to agree on the Valuation Agent within 10 calendar days after the end of
the negotiation period, either party may request the New York, New York office
of the American Arbitration Association to select the Valuation Agent. Each
party agrees to execute a reasonable engagement letter if requested by the
Valuation Agent. Within thirty (30) calendar days after the engagement of the
Valuation Agent, or as soon as practicable thereafter (the "Valuation Date"),
the Valuation Agent shall make a final determination, binding on the parties to
this Agreement, of the Fair Market Value of the Retained Shares to be
transferred. The parties agree to reasonably cooperate with the Valuation Agent
in connection with such determination. The Fair Market Value of the Retained
Shares shall consist of the sum of (i) and (ii), where (i) is the value of 5% of
the reinsurance business of the Company in force on the Valuation Date,
determined in accordance with generally accepted actuarial principles using a
discount rate based upon the midpoint of a range of discount rates selected by
the Valuation Agent based upon discount rates used by buyers in the market at
such time, and (ii) is an amount equal to 5% of the adjusted capital and surplus
of the Company as of the Valuation Date. If applicable, the Fair Market Value of
the Retained Shares shall also take into account a minority interest discount.
(c) For a period of twenty (20) days after the determination of Fair
Market Value, each of Seller and Acquiror shall have the right to elect not to
proceed with the sale of the Retained Shares from Seller to Acquiror by giving
written notice to the other ("Rejection Notice"). If Seller or Acquiror gives a
Rejection Notice to the other within such period, the parties shall not be
required to purchase or sell the Retained Shares to each other as provided
herein and the party giving the Rejection Notice shall be required to pay the
fees and costs of the Valuation Agent, if applicable. If neither Acquiror nor
Seller gives a Rejection Notice within such period, Seller shall be obligated to
sell and Acquiror shall be obligated to purchase the Retained Shares at their
Fair Market Value in accordance with the terms hereof, and the parties shall
each pay one-half of the fees and costs of the Valuation Agent, if applicable.
(d) Closing. The closing of any purchase of Retained Shares under this
Section 1 by the Acquiror ("Section 1 Closing") shall take place on a date
thirty (30) days after the determination of Fair Market Value, at 10:00 a.m., at
the principal office of the Company, unless
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otherwise agreed to in writing between the Acquiror and the Seller. At the
Section 1 Closing, the Acquiror shall pay the purchase price in the amount
prescribed under subsection (b) hereof in immediately available funds and the
Seller shall Transfer to the Acquiror the Retained Shares, together with the
Seller's written representations to the Acquiror that the Retained Shares are
Transferred to the Acquiror free and clear of all Liens (other than Permitted
Liens) and that the Seller has full power and authority to sell, assign and
Transfer such Retained Shares to the Acquiror in accordance with the terms of
this Agreement.
(e) Right to Transfer. If Seller gives a Rejection Notice to the
Acquiror under subsection (c) with respect to the Retained Shares, the Seller
may not Transfer such Retained Shares without giving a new Offer Notice and
again complying with the terms of this Section. If Acquiror gives a Rejection
Notice to the Seller under subsection (c) with respect to the Retained Shares,
the Seller shall be free, for a period of sixty (60) days after the date such
right is deemed to have been waived, to Transfer the Retained Shares specified
in the Offer Notice, at a price per share not less than Fair Market Value as
determined hereunder. If the Seller shall fail to so Transfer such Retained
Shares within such sixty (60) day period, Seller may not Transfer such Retained
Shares without giving a new Offer Notice and again complying with the terms of
this Section. It shall be a condition precedent to any Transfer under this
subsection that the transferee furnish the Acquiror and the Company with a
written agreement to be bound by and comply with all provisions of this Exhibit
D and the other provisions of the Agreement applicable to Exhibit D with respect
to the Retained Shares so Transferred.
(f) Permitted Transfers. The provisions of this Section 1 shall not
apply to any Transfer of the Retained Shares to any Affiliate of the Seller,
provided that any such transferee shall furnish to the Acquiror and the Company
a written agreement to be bound by and comply with all provisions of this
Exhibit D and the other provisions of the Agreement applicable to Exhibit D with
respect to the Retained Shares so Transferred. The provisions of this Section 1
shall not apply to any pledge of Retained Shares by Seller, provided that any
foreclosure of such security interest shall be a Transfer subject to this
Section 1.
(g) Rights of Transferee. Any transferee of Retained Shares in
accordance with this Section 1 shall thereafter have the rights and obligations
of a "Seller" under this Exhibit D and the other provisions of the Agreement
applicable to Exhibit D with respect to the Retained Shares so Transferred to
the transferee.
2. Co-Sale Rights. (a) Notice of Intended Disposition. In the event that
Acquiror proposes to Transfer any interest in any Equity Shares (including any
securities or indebtedness convertible into or exercisable or exchangeable for
Equity Shares) ("Co-Sale Transaction"), the Acquiror shall promptly deliver to
the Seller written notice of the intended disposition (the "Co-Sale Notice"),
which Co-Sale Notice shall set forth: (i) the identity and address of the
intended transferee, (ii) the number and class of Equity Shares to be
Transferred, (iii) the amount and type of consideration to be received in
exchange for the Equity Shares, (iv) the intended manner of Transfer, and (v)
any other terms and conditions of the proposed Transfer, and shall include a
copy of the written agreement, letter of intent, form of offer or similar
document relating to the proposed Transfer ("Sale Document"), if any exists at
the time of giving the Co-Sale Notice. If no Sale Document exists at the time of
giving the Co-Sale Notice, the Acquiror shall provide to the Seller a copy of
any Sale Document immediately upon receipt thereof by the Acquiror. The Acquiror
shall
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also promptly provide such further information with respect to such Co-Sale
Transaction as is reasonably requested by the Seller.
(b) Exercise of Co-Sale Rights. The Seller shall have the right to
require the Acquiror to substitute for or include with the Acquiror's Equity
Shares being Transferred in the Co-Sale Transaction all or any portion of the
number of Equity Shares owned by the Seller as are specified below. The Seller
shall be entitled to sell such Equity Shares at the same price and upon the same
terms as the Acquiror sells the Acquiror's Equity Shares in the Co-Sale
Transaction, as set forth in the Co-Sale Notice, provided that any liability or
obligations of Seller to the purchaser in the Co-Sale Transaction shall be
several and not joint with Acquiror. The Seller may exercise such right by
giving written notice to the Acquiror of the exercise of such right within
thirty (30) days after the date that the Co-Sale Notice is given to the Seller.
If the Seller does not give notice as provided in this subsection, the rights
provided herein to the Seller with respect to the Co-Sale Transaction shall
immediately expire.
(c) Participation in Co-Sale Transaction. If the Seller has elected to
participate in a Co-Sale Transaction as provided herein, the Seller shall be
entitled to sell in the Co-Sale Transaction up to the number of Equity Shares
equal to the product of (i) the number of Equity Shares to be sold in the
proposed Co-Sale Transaction and (ii) the quotient determined by dividing (A)
the number of Equity Shares then beneficially owned by the Seller by (B) the
number of Equity Shares then beneficially owned by the Seller plus the number of
Equity Shares then beneficially owned by the Acquiror participating in the
Co-Sale Transaction. For purposes of this subsection (c), the number of Equity
Shares shall be determined by including any securities or indebtedness
convertible into or exercisable or exchangeable for Equity Shares on an
as-converted, as-exercised or as-exchanged basis. As used herein, "beneficially
owned" shall have the meaning ascribed thereto in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
(d) Agreement to Allow Participation of Seller. The Acquiror shall
attempt to obtain the agreement of the purchaser in the Co-Sale Transaction to
the participation of the Seller in the Co-Sale Transaction. The Acquiror shall
not Transfer any Equity Shares in any Co-Sale Transaction to the prospective
purchaser if the prospective purchaser declines to allow the participation of
the Seller as provided herein.
(e) Closing. The closing of the Co-Sale Transaction shall not take
place until the exercise period in subsection (b) has expired. The closing of
any sale of Equity Shares by the Seller under this Section shall take place at
the same date, time and place as the closing of the Co-Sale Transaction. At the
closing, (i) the Person acquiring the Equity Shares shall pay the purchase price
to the Seller in the amount and manner prescribed herein and (ii) the Seller
shall Transfer to the purchaser the Equity Shares to be purchased.
(f) Exercise or Non-Exercise of Rights. The exercise or non-exercise
of the rights of the Seller hereunder to participate in one or more Co-Sale
Transactions shall not adversely affect the Seller's rights to participate in
subsequent Co-Sale Transactions.
(g) Compliance with Co-Sale Provisions. If the closing of the Co-Sale
Transaction with the proposed purchaser has not occurred within ninety (90) days
after the date the Co-Sale Notice applicable to such Co-Sale Transaction is
given to the Seller, the Acquiror may not
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engage in such Co-Sale Transaction without giving a new Co-Sale Notice and again
complying with the terms of this Agreement.
(h) Exempt Transfers. Notwithstanding the foregoing, the co-sale right
of the Seller shall not apply to any Transfer of Equity Shares by Acquiror to
any Affiliate of Acquiror; provided that any such transferee shall furnish to
the Seller and the Company a written agreement to be bound by and comply with
all provisions of this Exhibit D and the other provisions of the Agreement
applicable to Exhibit D. Acquiror agrees that no Transfer shall be made pursuant
to this subsection (h) until such agreement has been furnished. Such transferee
shall thereafter have the rights and obligations of an "Acquiror" under this
Exhibit D and the other provisions of the Agreement applicable to Exhibit D with
respect to the Equity Shares so Transferred to the transferee.
3. Take-Along Rights. (a) Control Transaction. In the event that, at any
time after June 30, 2005, the Acquiror proposes to sell, in a single transaction
or series of related transactions, all of the then outstanding Equity Shares of
the Company other than the Retained Shares, to any Person or Persons other than
any Affiliate of the Acquiror (a "Control Transaction"), the Acquiror shall have
the right to require the Seller to sell the Retained Shares in the Control
Transaction upon the terms and conditions of this Section. In the event of a
proposed Control Transaction, Acquiror shall give thirty days prior written
notice to the Seller of the intended disposition and of the Acquiror's request
that Seller sell the Retained Shares in the proposed Control Transaction (the
"Transfer Notice"), which Transfer Notice shall set forth: (i) the identity and
address of the intended transferee, (ii) the number and class of Equity Shares
to be Transferred, (iii) the amount and type of consideration to be received in
exchange for the Equity Shares, (iv) the intended manner of Transfer and (v) any
other terms and conditions of the proposed Transfer, and shall include a copy of
the Sale Document, if any exists at the time of giving the Transfer Notice. If
no Sale Document exists at the time of giving the Transfer Notice, the Acquiror
shall provide to the Seller a copy of any Sale Document immediately upon receipt
thereof by the Acquiror. The Acquiror shall also promptly provide such further
information with respect to such Control Transaction as is reasonably requested
by the Seller.
(b) Closing. The Seller shall sell such Retained Shares at the same
price and upon the same terms as the Acquiror sells the Acquiror's Equity Shares
in the Control Transaction, provided that any liability or obligations of Seller
to the purchaser in the Control Transaction shall be several and not joint with
Acquiror. The closing of the sale of Retained Shares by the Seller under this
Section shall take place at the same date, time and place as the closing of the
Control Transaction. At the closing, (i) the Person acquiring the Retained
Shares shall pay the purchase price to the Seller in the amount and manner
prescribed herein and (ii) the Seller shall Transfer to the purchaser the
Retained Shares to be purchased.
4. Legend. Seller and the Acquiror agree to imprint each certificate
representing Equity Shares owned by the Acquiror or the Seller with the
following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN STOCK PURCHASE AGREEMENT
BETWEEN CERTAIN
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STOCKHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY."
5. Transfer of Title. Title to the Transferred Shares or the Retained
Shares may be Transferred by Acquiror or Seller only in accordance with the
terms of this Exhibit D. Any Transfer of title except in the manner provided
herein shall be void and of no further force and effect, the Company shall be
under no obligation to recognize or honor such Transfer of title and Seller and
the Acquiror shall have the right to compel the holder and/or purported
transferee of such Equity Shares to Transfer the Equity Shares in accordance
with the terms and conditions of this Agreement.
6. Equitable Relief. The parties hereto agree that they will be irreparably
damaged if this Exhibit D may not be specifically enforced. The parties agree
and acknowledge that money damages may not be an adequate remedy for any breach
of such provisions and that any party may in its, his or her sole discretion
apply for specific performance or injunctive relief, without posting a bond or
other security, in order to enforce or prevent any violation of such provisions.
Nothing in this Section shall be construed as prohibiting any party hereto from
pursuing any other rights or remedies available for any breach of this
Agreement.
7. Impairment. The Acquiror and the Company will not, through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, redemption of shares, issue or sale of securities, amendment of the
articles of incorporation of the Company or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed by the Acquiror under this Exhibit D, but will at all times in good
faith assist in the carrying out of all provisions of this Exhibit D and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Seller under this Exhibit D against impairment.
8. Termination. The provisions of this Exhibit D shall terminate at such
time as Seller no longer owns any Equity Shares of the Company.
Unless otherwise indicated, all section references in this Exhibit D shall be
deemed to be references to sections of this Exhibit D.
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