EXECUTION COPY
PURCHASE OPTION AGREEMENT
THIS PURCHASE OPTION AGREEMENT (this "Agreement"), dated as of the 1st
day of July, 2002, between SCOR Life U.S. Re Insurance Company, a Texas
corporation ("SCOR") and Regan Holding Corp., a California corporation ("RHC").
WHEREAS, SCOR is the owner of 100% of the issued and outstanding
shares of capital stock (the "IIC Stock") of Investors Insurance Corporation, a
Delaware corporation ("IIC"); and
WHEREAS, the parties hereto desire that RHC be granted the right to
purchase the IIC Stock from SCOR on the terms and conditions set forth herein.
W I T N E S S E T H :
NOW, THEREFORE, in consideration of the foregoing, the covenants and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of Option. SCOR hereby grants to RHC in exchange for the
option fees (as defined in Section 4 below) the right, exercisable at any time
prior to the termination of this Agreement pursuant to Section 10 hereof, to
purchase or have assigned from SCOR all of SCOR's right, title and interest in
and to the IIC Stock for the Purchase Price (as defined in Section 2 below) (the
"Option"). In the event that RHC exercises the Option, SCOR and RHC (or its
designee) shall enter into a definitive stock purchase agreement, on
substantially the terms set forth in the form of stock purchase agreement set
forth as Exhibit A to this Agreement (the "Stock Purchase Agreement").
The disclosure schedules to the Stock Purchase Agreement shall not
reflect disclosures that would individually or in the aggregate have a Material
Adverse Effect (as defined below), other than (i) disclosures reflected on the
disclosure schedules to this Agreement, and (ii) such additional disclosures
that reflect any change or effect that is caused by or that arises out of the
business of IIC generated by LMG or a change in the market value of investments
made in accordance with the investment guidelines previously approved by RHC.
For purposes of this Agreement, the following terms shall have
meanings as set forth below:
"Affiliate" means, with respect to any Person, at the time in
question, any other Person directly or indirectly controlling, controlled by or
under common control with such Person.
"Annuity Contract" means any annuity contract, funding agreement,
guaranteed investment contract or similar contract, and forms with respect
thereto, issued, assumed or reinsured by IIC.
"Assets" shall mean all rights, titles, franchises and interests in
and to every type of property, real, personal and mixed, including, but not
limited to, investment assets, Intellectual Property, Contracts, licenses,
leaseholds, privileges and all other assets whatsoever, tangible or intangible.
"Books and Records" means all records, documents, databases,
administrative records, claim records, policy files, sales records, files and
records relating to regulatory matters or correspondence with regulatory
authorities, reinsurance records, underwriting records, accounting records and
all other records, data and information (in whatever form maintained) in the
possession or control of IIC or IMG relating to the conduct of IIC's business.
"Closing Agreement" means a written and legally binding agreement with
a taxing authority.
"Closing Date" has the meaning set forth in Section 2.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder.
"Company Financial Statements" means the SAP Statements (as defined in
Section 6(m) and the GAAP Statements (as defined in Section 6(m)).
"Contract" shall mean a contract, agreement, guarantee, commitment,
indenture, note, bond, mortgage, non-governmental license or assignment, whether
written or oral.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Amount" means the amount deposited in an escrow account by RHC
pursuant to Section 2.04 of the Stock Purchase Agreement.
"GAAP" shall mean generally accepted accounting principles as used in
the United States of America as in effect at the time any applicable financial
statements were prepared or any act requiring the application of GAAP was
performed.
"Insurance Contract" means any Contract of insurance or reinsurance
(and any certificates thereunder) and forms with respect thereto, including any
Life Insurance Contract, accident and health insurance Contract or Annuity
Contract, issued, assumed or reinsured by IIC.
"Intellectual Property" means intellectual property rights, including,
but not limited to, all inventions, patents and patent applications, trademarks,
copyrights, copyright
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registrations and applications, computer programs, technology, trade secrets,
know-how, confidential information, proprietary processes and formulae.
"Knowledge" shall mean (i) with respect to the knowledge of SCOR, the
actual knowledge of John Brill, Chief Financial Officer of IIC and Yves Corcos,
Chief Executive Officer of IIC; and (ii) with respect to the knowledge of RHC,
the actual knowledge of R. Preston Pitts, President and Chief Operating Officer
of RHC and G. Steven Taylor, Chief Financial Officer of RHC.
"LMG" means Legacy Marketing Group.
"Life Insurance Contract" means any life insurance Contract (including
any group term life insurance contract), and forms with respect thereto, issued,
assumed or reinsured by IIC.
"Material Adverse Effect" shall mean a material adverse effect on (i)
the ability of SCOR to perform in all respects its obligations under this
Agreement or to consummate the transactions contemplated hereby; (ii) the
business, financial condition or results of operations of IIC; or (iii) as to
matters which can reasonably be quantified in economic terms, any effect which
has resulted in or could be reasonably expected to result in, with respect to
IIC, a diminution or decrease in the value of properties or assets, an increase
in liabilities or obligations (whether accrued, contingent or otherwise), an
adverse change in the cash flows, business or financial condition, or any
combination thereof involving, individually or in the aggregate more than
$1,000,000; provided, however, to the extent such effect results from any of the
following, such effect shall not be considered a Material Adverse Effect: (1)
any adverse change or effect that is caused by or that arises out of the
business of IIC generated by LMG; (2) a change in the market value of
investments made in accordance with the investment guidelines previously
approved by RHC; (3) any adverse change or effect that is caused by or that
arises out of conditions affecting the economy or securities markets generally;
(4) any adverse change or effect that is caused by or that arises out of
conditions affecting the insurance or financial services industries generally,
including but not limited to circumstances, changes or effects in or affecting
interest rates, securities markets, accounting principles, practices or
conventions or applicable law (whether federal, state, local or foreign); or (5)
any adverse change or effect resulting from the announcement or the pendency of
the transactions contemplated hereby.
"Permits" means all licenses, permits, orders, approvals and
non-disapprovals, registrations, authorizations, qualifications and filings with
and under all federal, state, local or foreign laws and governmental or
regulatory bodies.
"Permitted Liens" means each of the following: (a) Liens for Taxes,
assessments and governmental charges or levies not yet due and payable which are
not in excess of $50,000 in the aggregate or which are being contested in good
faith, and for which adequate reserves have been established and recorded on the
Company Financial Statements; (b) Liens imposed by law, including, without
limitation, materialmen's, mechanics', carriers', workmen's and repairmen's
Liens and other similar Liens arising in the ordinary course of
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business; (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations; and (d) Liens related to deposits to secure policyholders'
obligations as required by the insurance departments of the various states, each
of which is listed on Schedule 1 hereto.
"Person" means any individual, corporation, limited liability company,
partnership, limited partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental, judicial or
regulatory body or other entity.
"SAP" means statutory accounting practices prescribed or permitted by
the insurance regulatory authorities of the applicable states.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, joint venture or other legal entity of which such Person (either
alone or through or together with any other Subsidiary) owns, directly or
indirectly, more than 50% of the outstanding stock or other equity interest the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"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 IIC 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 IIC 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 Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, including any amendment thereof and including, where
permitted or required, combined, consolidated, unitary, or any similar tax
returns for any group of Persons.
"Tax Ruling" means a written ruling of a governmental entity relating
to Taxes.
"Tax Sharing Agreement" means any written or unwritten agreement,
indemnity or other arrangement for the allocation or payment of Tax liabilities
or payment for Tax benefits between IIC and any Person (other than any indemnity
provided pursuant to this Agreement).
2. Purchase Price. Subject to the terms and conditions of the Stock
Purchase Agreement, the Purchase Price to be paid by RHC to SCOR on the closing
date of the
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acquisition of IIC by RHC (the "Closing Date") shall be the "Purchase Price" set
forth in Section 2.01 of the Stock Purchase Agreement.
3. Term of Option.
(a) The Option shall initially be exercisable for a one-year period
beginning on July 1, 2002 and ending on June 30, 2003. The Option shall be
renewable by RHC for two additional one-year periods, for a total of three
years. Each one-year period during which the Option is exercisable is
referred to herein as an "Option Year."
(b) RHC shall notify SCOR in writing of its intention to renew the
Option for any subsequent Option Year no later than the May 1 prior to the
end of the current Option Year (the first such renewal request to be
delivered by May 1, 2003) (each such written request, an "Option Renewal
Request"). In the event that RHC fails to provide an Option Renewal Request
by the due date thereof, SCOR shall promptly notify RHC of such failure,
and RHC will then have five (5) business days following the receipt of such
notification to provide the Option Renewal Request. If the Option Renewal
Request is not received by SCOR within the five (5) business days following
notification, this Agreement shall terminate as of the last date of the
current Option Year (June 30), and thereafter RHC shall have no rights
hereunder.
4. Option Fees.
(a) The annual, non-refundable option fee with respect to each Option
Year shall be $656,846 (five percent (5%) of the capital and surplus of IIC
as of June 30, 2002, as set forth on IIC's quarterly statutory financial
statement) (the "Annual Option Fee"), payable as hereinafter provided.
(b) The Annual Option Fee for the first Option Year shall be due and
payable in three installments, as follows: the first installment in the
amount of $250,000 has been paid, and the second and third installments,
each in the amount of $203,423, shall be due and payable on November 1,
2002 and March 1, 2003, respectively. If applicable, the due dates for the
payment of the Annual Option Fees for the second and third Option Years
shall be July 1, 2003 and July 1, 2004, respectively.
(c) In the event that RHC exercises the Option and the parties
contemplate that the Closing Date will occur after the end of the third
Option Year, Annual Option Fees, on the same terms as set forth in Section
4(a) above, shall be due and payable by RHC to SCOR with respect to the
period from the end of the third Option Year to the Closing Date, prorated
accordingly in the event that such period or periods do not equal full
years.
(d) In the event that any capital or surplus contribution is made to
IIC by SCOR or an affiliate thereof prior to the Closing Date to support
the business
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generated by LMG, SCOR shall notify RHC in writing of its intention to
increase IIC's capital and surplus no later than 30 days prior to the date
of the capital and surplus contribution and such notice shall specify the
date of the contribution. SCOR shall also notify RHC that such contribution
has been made and RHC shall, within ten (10) business days after
notification that such contribution has been made, pay to SCOR or such SCOR
affiliate an annual option fee of five percent (5%) of such additional
capital and surplus contribution, which fee shall be prorated to the period
remaining in the current Option Year, and shall pay such option fee thereon
in each subsequent Option Year, prorated accordingly in the event that such
period or periods do not equal full years. The Annual Option Fees and each
fee paid pursuant to this Section 4(c) are collectively referred to as the
"Option Fees".
(e) In the event that RHC fails to make any required option fee
payment within five (5) business days after the later of (i) the due date
thereof and (ii) the date RHC receives notice of its failure to make such
required option fee payment, this Agreement shall terminate and thereafter
RHC shall have no rights hereunder.
(f) Except as provided in Section 10 hereof, the option fees payable
pursuant to this Section 4 shall be non-refundable, including the Annual
Option Fee paid with respect to the Option Year in which the Option is
exercised.
5. Exercise of Option. Unless already terminated, RHC may exercise its
rights under this Agreement at any time during the three years following the
Option Inception Date by tendering two executed copies of the Stock Purchase
Agreement to SCOR. SCOR shall execute and return one to RHC. Subject to the
terms and conditions of the Stock Purchase Agreement, the Closing Date shall
occur within two (2) years following the date the Option is exercised by RHC.
The date the Option is exercised by RHC is referred to hereinafter as the
"Option Exercise Date." Notwithstanding the foregoing, if at the time the Option
is exercised IIC is commercially domiciled in California within the meaning of
California Insurance Code Section 1215.13, RHC will not acquire the IIC Stock,
vote the IIC Stock or otherwise acquire control over IIC without the prior
approval of the California Insurance Commissioner under California Insurance
Code Section 1215.2.
6. Representations and Warranties of SCOR. The representations and
warranties of SCOR shall be true and correct in all respects when made and shall
be true and correct at and as of the Option Exercise Date as if made at and as
of such time. SCOR represents and warrants to RHC as follows:
(a) Organization and Power of SCOR. SCOR is a corporation duly
organized, validly existing and in good standing under the laws of Texas.
SCOR has all requisite power and authority to own the IIC Stock and to
carry on its business as now being conducted.
(b) Organization and Standing of IIC; Corporate Power and Authority.
IIC (i) is a corporation duly organized, validly existing and in good
standing under the laws of Delaware; (ii) has the corporate power and
authority to conduct its business as
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currently conducted; and (iii) is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which
the nature of its business makes such qualification necessary, except as
would not, individually or in the aggregate, have a Material Adverse
Effect.
(c) Authority Relative to Agreement. SCOR has full power and authority
to enter into and perform its obligations under this Agreement and the
Stock Purchase Agreement and to consummate the transactions contemplated
herein and therein. The execution, delivery and performance of this
Agreement and the Stock Purchase Agreement by SCOR has been duly authorized
by all necessary corporate actions. This Agreement is, and when executed by
SCOR the Stock Purchase Agreement will be, the legal, valid and binding
obligations of SCOR enforceable in accordance with their respective terms,
except as enforceability may be limited by equitable principles or by
bankruptcy, fraudulent conveyance or insolvency laws affecting creditors'
rights generally.
(d) Title to IIC Stock. SCOR is the holder of record and beneficial
owner of the IIC Stock free and clear of any lien, mortgage, pledge,
security interest, encumbrance, claim charge or defect of title of any kind
(any of the above, a "Lien"). SCOR is not party to any option, warrant,
purchase right or other contract or commitment that could require the sale,
transfer or other disposition of any shares of IIC capital stock or other
equity interest in IIC (other than this Agreement). SCOR is not party to
any voting trust, proxy or other agreement or understanding with respect to
the voting of the IIC Stock. Upon consummation of the transactions
contemplated hereby and by the Stock Purchase Agreement, RHC will acquire
good, valid and marketable title to the IIC Stock, free and clear of any
Lien.
(e) Capital Structure.
(i) The authorized capital stock of IIC consists of 1,000 shares
of common stock, par value $3,400 per share, of which 750 shares,
constituting the IIC Stock, are issued and outstanding. All shares of
the IIC Stock are duly authorized, validly issued, fully paid,
nonassessable and free of any preemptive rights. There is no
outstanding option, warrant, right, subscription, call, unsatisfied
preemptive right or other agreement or right of any kind to purchase
or otherwise acquire any shares of capital stock of IIC from SCOR or
IIC. There is no outstanding security of any kind convertible into
such capital stock, and there is no outstanding contract or other
agreement of SCOR or IIC or any other party, to purchase, redeem or
otherwise acquire any outstanding shares of capital stock or any other
equity security of IIC.
(ii) Other than IMG, IIC does not have any Subsidiaries, nor does
it directly or indirectly own any equity interest in, or any interest
convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture,
limited liability company or other business association or entity.
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(iii) No indebtedness of IIC contains any restriction upon (x)
the prepayment of any indebtedness of IIC, (y) the incurrence of
indebtedness by IIC or (z) the ability of IIC to grant any Lien on the
properties or assets of IIC.
(f) No Conflict or Violation. The execution, delivery and performance
of this Agreement and, when executed, the Stock Purchase Agreement, and the
consummation by SCOR of the transactions contemplated hereby and thereby do
not and will not (i) violate or conflict with any provision of its or IIC's
constituent documents, (ii) result in the creation of any Lien on any of
IIC's assets or properties, (iii) violate, conflict with or result in the
breach of any of the terms of any contract to which it or IIC is a party or
(iv) violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, or
any agreement with, or condition imposed by, any governmental entity.
(g) Consents and Approvals. No consent, approval, authorization,
ruling, order of, notice to, or registration with, any governmental entity,
shareholder or any person that is party to any material contract (a
contract involving amounts in excess of $50,000 annually) with SCOR or IIC
is required on the part of SCOR in connection with the execution and
delivery of this Agreement or the consummation by SCOR of the transactions
contemplated hereby, except that the approval of the Delaware Insurance
Department and the approval of the California Insurance Commissioner (if at
such time IIC is commercially domiciled in California within the meaning of
California Insurance Code Section 1215.13), will be required prior to the
closing of the purchase by RHC of the IIC Stock.
(h) Broker's or Finder's Fee. No broker or finder has acted directly
or indirectly for SCOR or IIC, nor has SCOR or IIC incurred any obligation
to pay any brokerage or finder's fee or other commission in connection with
the transactions contemplated by this Agreement or the Stock Purchase
Agreement.
(i) No Proceeding or Litigation. No claim, action, suit, arbitration,
investigation or other formal proceeding is pending or, to the Knowledge of
SCOR, threatened, which seeks to (i) enjoin, restrain or prohibit the
transactions contemplated herein or (ii) impose limitations on the ability
of SCOR to consummate the transactions contemplated herein.
(j) Licenses and Permits. IIC has all Permits necessary for the
ownership and operation of its Assets and Owned Real Property (as defined
in Section 6(u)) and the conduct of its business as presently conducted,
except where the failure to have such Permits would not have a Material
Adverse Effect. IIC is in compliance with all applicable statutes, laws,
regulations and orders of any governmental entity, except as would not have
individually or in the aggregate a Material Adverse Effect. Schedule 6(j)
hereto sets forth a true and complete list of all such Permits including
the jurisdiction covered thereby and the types of insurance IIC is
authorized to write thereunder. All of the Permits listed on Schedule 6(j)
are valid and in full force and effect, except for any limitations or
restrictions placed thereon by any Governmental
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Entity as a result of the pendency of the transactions contemplated by this
Agreement and the Purchase Option Agreement. Any such limitations or
restrictions are listed on Schedule 6(j). There are no pending or, to the
Knowledge of SCOR, threatened suits or proceedings with respect to the
suspension, revocation, restriction, amendment or nonrenewal of any such
Permit, and no event which (whether with notice or lapse of time or both)
would result in a suspension, revocation, restriction, amendment or
nonrenewal of any such Permit has occurred, except with respect to such
Permits which, if suspended, restricted, amended or not renewed would not
individually or in the aggregate have a Material Adverse Effect.
(k) Compliance with Applicable Law. IIC is in compliance with all laws
and regulations with respect to the conduct of its business in all
jurisdictions in which it is presently conducting its business and has
filed all reports, registrations, filings or submissions required to be
filed with any governmental entity with respect to the conduct of its
business in such jurisdictions, except where the failure to be in
compliance with such laws or regulations, or the failure to file such
reports, registrations, filings or submissions, would not have a Material
Adverse Effect.
(l) Reserves. The statutory reserves, and other liability amounts
required by SAP to be determined using actuarial methods, in the SAP
Statements (the "Reserves") were determined in accordance with commonly
accepted actuarial standards applied in each case in a manner consistent
with past practices, are fairly stated in accordance with sound actuarial
principles, and are based on actuarial assumptions which are in accordance
with those necessary to meet the minimum requirements of the insurance laws
and regulations of the state of Delaware; provided, however, that RHC
acknowledges that the mere fact that any such Reserve is, or is determined
to be, inadequate shall not, in and of itself, constitute a breach of the
representations and warranties set forth in this Section 6(l).
(m) Financial Statements.
(i) SCOR has previously made available to RHC true, complete and
correct copies of the statutory financial statements of IIC, as filed
with the Delaware Insurance Department (A) as of and for the years
ended December 31, 2000 and 2001 and (B) as of and for the quarter
ended June 30, 2002 (together with all notes, exhibits and schedules
thereto (collectively, the "SAP Statements")). Except as set forth on
Schedule 6(m), each of the SAP Statements presents fairly, in all
material respects, the statutory financial condition of IIC at the
respective dates thereof, and the statutory results of operations for
the periods then ended in accordance with SAP, applied on a consistent
basis throughout the periods indicated except as otherwise
specifically noted therein.
(ii) There are no liabilities, whether accrued, contingent,
absolute, determined, determinable or otherwise (including, without
limitation, any Liens other than Permitted Liens), of IIC other than
(A) liabilities reflected or
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reserved against in the June 30, 2002 SAP Statements, not heretofore
discharged, (B) policyholder benefits payable or other liabilities
arising after June 30, 2002 in the ordinary course of business
consistent with past practice and in amounts consistent with past
practice or (C) liabilities disclosed in Schedule 6(m).
(iii) Since June 30, 2002, IIC has operated its business only in
the usual, regular and ordinary course of business and since such date
there has not occurred (A) any event or change that is reasonably
likely to have individually or in the aggregate a Material Adverse
Effect; (B) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with
respect to any of IIC's outstanding capital stock; (C) any employment
contract entered into by IIC with any officer or employee, or any
other Person; (D) any other material transaction out of the ordinary
course of business.
(n) Books and Records. The Books and Records are consistent with and
accurately reflect the business of IIC in all material respects.
(o) Actions Pending. Except as set forth on Schedule 6(o), there is no
claim, action, suit, arbitration, investigation or other proceeding pending
or, to the Knowledge of SCOR, threatened against IIC or any properties or
rights of IIC, by or before any court, arbitrator or administrative or
governmental entity, which could reasonably be expected to have a Material
Adverse Effect. There is no judgment, decree, injunction or order of any
governmental entity or arbitrator outstanding against IIC having, or which
would reasonably be expected to have, a Material Adverse Effect on IIC.
There is no claim, action, suit, arbitration, investigation or other
proceeding pending or, to the Knowledge of SCOR, threatened against SCOR,
by or before any court, arbitrator or administrative or governmental
entity, which would reasonably be expected to have a Material Adverse
Effect on IIC.
(p) Employee Matters.
(i) Schedule 6(p) contains a list of each material plan, program,
arrangement and Contract which is maintained by IIC or under which IIC
is obligated to make contributions and which provides benefits or
compensation to or on behalf of employees or former employees of IIC,
including, but not limited to, executive arrangements and "employee
benefit plans" as defined in Section 3(3) of ERISA. All such material
plans, programs, arrangements or Contracts are referred to herein as
"Company Employee Plans." SCOR has made available to RHC the plan
documents or other writing constituting each Company Employee Plan
that has been reduced to writing (or a written description of any
Company Employee Plan which has not been reduced to writing) and, if
applicable, the trust, insurance contract or other funding
arrangement, the ERISA summary plan description and the three most
recent Forms 5500 financial statements and actuarial reports for each
such Company
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Employee Plan. SCOR has made available to RHC accurate copies of the
most recent favorable determination letters for all Company Employee
Plans qualified under Section 401(a) of the Code.
(ii) There does not now exist, nor do any circumstances exist
that would result in, any Company Controlled Group Liability (as
defined below) that is reasonably likely to be a liability of IIC
following the consummation of the transactions contemplated by this
Agreement. "Company Controlled Group Liability" means any and all
liabilities under (1) Title IV of ERISA, (2) Section 302 of ERISA, (3)
Sections 412 and 4971 of the Code and (4) the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the
Code. IIC has not (1) participated in any multiemployer plan (as
defined in Section 3(37) of ERISA) or (2) incurred any liability to a
multiemployer plan that has not been satisfied in full.
(iii) Except as set forth on Schedule 6(p), IIC is not obligated
to provide post-employment or retirement medical benefits or any other
unfunded welfare benefits to or on behalf of any Person who is no
longer an employee, except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA.
(iv) Each Company Employee Plan has at all times been maintained
in all material respects, by its terms and in operation, in accordance
with all applicable laws, and each of those Company Employee Plans
which are intended to be qualified under Section 401(a) of the Code
has at all times been maintained in all material respects, by its
terms and in operation, in accordance with Section 401(a) of the Code.
(v) Neither SCOR nor IIC is party to, or bound by, any collective
bargaining agreement or other Contract with a labor union or labor
organization and, to the Knowledge of SCOR, there are no
organizational efforts with respect to the formation of a collective
bargaining unit currently being made or threatened involving the
employees of IIC. There is no unfair labor practice or labor
arbitration proceeding or, to the Knowledge of SCOR, threatened
against SCOR or IIC. SCOR and IIC are each in compliance, in all
material respects, with all applicable laws regarding employment,
consulting, employment practices, wages, hours and terms and
conditions of employment.
(vi) There have been no prohibited transactions within the
meaning of Section 4975 of the Code or Section 406 of ERISA with
respect to the Company Employee Plans for which an exemption is not
available, no fiduciary has any liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any Company Employee
Plan, and no action, suit, proceeding, hearing or investigation with
respect to any Company Employee Plan (other than routine claims for
benefits) is pending or, to the Knowledge of SCOR, threatened.
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(vii) Any Company Employee Plan (or liability related thereto) is
by its terms able to be amended or terminated by IIC.
(viii) All accrued contributions, premiums and other payments
that would be (without regard to the transactions contemplated
hereby), but are not yet, due from IIC to (or under) any Company
Employee Plan have been adequately and properly provided for on the
Company's financial statements. The funding method used in connection
with each Company Employee Plan which is subject to the minimum
funding requirements of ERISA is acceptable under law, and the
actuarial assumptions used in connection with funding each such plan
are reasonable.
(ix) All contributions and payments required by law or any
Company Employee Plan agreement to have been made under any such
Company Employee Plan (without regard to any waivers granted under
Section 412 of the Code to any fund, trust, or account established
thereunder or in connection therewith) have been made or will have
been made by the due date thereof.
(x) The consummation of the transactions contemplated by this
Agreement will not (1) entitle any current or former employee of IIC
to severance pay, unemployment compensation, retention pay or any
other payment from IIC, except as expressly provided in this
Agreement, or (2) accelerate the time of payment or vesting, or
increase the amount of compensation from IIC due to any such current
or former employee of IIC.
(xi) IIC does not have any "leased employees" within the meaning
of Code Section 414(n).
(q) Insurance Business. All policy forms issued by IIC prior to July
1, 2002, and all amendments, applications, brochures, illustrations and
certificates pertaining thereto have, where required by applicable law,
been approved by all applicable governmental entities or filed with and not
objected to by such governmental entities within the period provided by
applicable law for objection, subject to such exceptions as would not,
individually or in the aggregate, have a Material Adverse Effect. All such
forms comply in all material respects with, and have been administered in
all material respects in accordance with, applicable law. Any rates of IIC
which are required to be filed with or approved by any governmental entity
have been so filed or approved and the rates used by IIC conform in all
material respects thereto. For the avoidance of doubt, the representations
and warranties made by SCOR in this Section 6(q) shall not apply to policy
forms (or amendments, applications, brochures, illustrations or
certificates pertaining thereto) or rates that are jointly developed or
produced by, or are related to business that is jointly developed or
produced by, RHC and SCOR (including IIC). SCOR has made available to RHC
copies of all financial examination reports of the Delaware Department of
Insurance with respect to IIC which have been completed and issued since
January 1, 1999.
12
Except as set forth in Schedule 6(q), since January 1, 1999, no violations
material to the financial condition of IIC have been asserted in writing by
the Delaware Department of Insurance, other than any violation which has
been cured or otherwise resolved to the satisfaction of the Delaware
Department of Insurance or which is no longer being pursued by the Delaware
Department of Insurance following a response from IIC.
(r) Reinsurance. Schedule 6(r) contains a list of all reinsurance
treaties and agreements, including retrocessional agreements, to which IIC
is a party or under which it has any existing rights, obligations or
liabilities, and Schedule 6(r) contains a list of all reinsurance treaties
and agreements, including facultative certificates, between SCOR or any of
SCOR's Affiliates, on the one hand, and IIC, on the other hand. All
reinsurance treaties and agreements set forth on Schedule 6(r) are in full
force and effect as of the date hereof and, to the Knowledge of SCOR, no
party thereto is in default in any material respect as to any provision
thereof; and, except as set forth on Schedule 6(r) no such agreement
contains any provision providing that any party thereto may terminate such
agreement by reason of the transactions contemplated by this Agreement.
(s) Contracts.
(i) Schedule 6(s) contains a true and complete list of all the
following Contracts (true and complete copies of all such written
Contracts having been made available to RHC), currently in force, to
which IIC is a party or by which any Assets of IIC are or may be
bound, as such Contracts may have been amended as of the date hereof:
(1) all Contracts with (A) SCOR or any of its Affiliates, (B) any
director, officer or employee of IIC or SCOR or its Affiliates,
(C) any Affiliate of any director, officer or employee of IIC or
SCOR or its Affiliates, or (D) any Person, the equity interests
of which are more than 5% owned by any director, officer or
employee of IIC or SCOR or any of its Affiliates, other than any
such Contracts that will terminate or expire without further
liability to IIC prior to or as of the Closing;
(2) all Contracts providing for employment of any individual,
whether or not such Person is considered an employee or
independent contractor and all Contracts providing for specific
severance benefits or parachute payments;
(3) all Contracts with any Person including, but not limited to,
any governmental entity, containing any provision or covenant (A)
limiting the ability of IIC to engage in any line of business, to
compete with any Person, to do business with any Person or in any
location or to employ any Person or (B) limiting the ability of
any Person to compete with or obtain products or services from
IIC;
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(4) all Contracts relating to the borrowing of money by IIC or
the direct or indirect guarantee by IIC of any obligation of any
Person for borrowed money or other financial obligation of any
Person or any other liability of IIC in respect of indebtedness
for borrowed money or other financial obligations of any Person,
including, but not limited to, lines of credit or similar
facilities and any Contract relating to or containing provisions
with respect to any obligation to satisfy any financial
obligation or covenants;
(5) all Contracts (other than Insurance Contracts and other
Contracts entered into in the ordinary course of business) with
any Person containing any provisions or covenant relating to the
indemnification or holding harmless by IIC of any Person which is
reasonably likely to result in a liability of IIC of fifty
thousand dollars ($50,000) or more;
(6) all leases or subleases of real property used in the conduct
of the business of IIC and all other leases, subleases or rental
or use Contracts providing for annual rental payments to be paid
by or on behalf of IIC, involving, in the case of each of the
foregoing, annual payments in excess of fifty thousand dollars
($50,000);
(7) all Contracts relating to the future disposition (including,
but not limited to, restrictions on transfer or rights of first
refusal) or acquisition of any interest in any business
enterprise, and all Contracts relating to the future disposition
of a material portion of the Assets of IIC other than, in the
case of each of the foregoing, any investment asset or interest
in any material business enterprise or Assets to be acquired or
disposed of in the ordinary course of business;
(8) all Contracts or arrangements (including, but not limited to,
those relating to allocations of expenses, personnel, services or
facilities, management contracts and appointments as
attorneys-in-fact) between or among IIC and Affiliates of IIC;
(9) all outstanding proxies (other than routine proxies in
connection with annual meetings or guarantee associations),
powers of attorney or similar delegations of authority of IIC to
an unrelated Person, other than those entered into in the
ordinary course of business;
(10) all other Contracts (other than (A) Insurance Contracts, (B)
Contracts otherwise required to be set forth on Schedule 6(r),
Schedule 6(s), Schedule 6(w) or Schedule 6(z) and (C) other
Contracts which are expressly excluded under any other subsection
of this Section 6(s) that involve or are reasonably likely to
involve the payment pursuant to the terms of such Contracts by or
to IIC of fifty thousand dollars ($50,000)
14
or more;
(11) any partnership, joint venture, joint marketing, strategic
alliance, tenancy in common or similar Contracts; and
(12) any Contracts that (A) require IIC to purchase or sell any
product or service exclusively from or to any Person, (B)
prohibit IIC from selling products or services to any Person, (C)
require IIC to pay for any product or service regardless of
whether or not IIC avails itself of such product or service.
(ii) Each of the Contracts listed on Schedule 6(s), and each
material Contract to which IIC is a party, is in full force and effect
and constitutes a legal, valid and binding obligation of IIC, to the
extent that it is party thereto, and, to the Knowledge of SCOR, of
each other Person that is a party thereto. Except as set forth on
Schedule 6(s), IIC is not, and to the Knowledge of SCOR, no other
party to such Contract is, in material violation, breach or default of
any such Contract or, with or without notice or lapse of time or both,
would be, in material violation, breach or default of any such
Contract, except for any violation, breach or default which would not
have Material Adverse Effect.
(t) Assets. Except as set forth on Schedule 6(t) and except for Assets
disposed of since June 30, 2002 in the ordinary course of business: (i) IIC
has good title to all Assets that are disclosed or otherwise reflected in
the SAP Statements for such year and all Assets acquired thereafter, and
all such Assets are owned by IIC, free and clear of all Liens, other than
Permitted Liens; and (ii) IIC owns, has a valid leasehold interest in or
has a valid right under contract to use, all personal property that is
material to the conduct of its business, free and clear of all Liens, other
than Permitted Liens.
(u) Real Property. Schedule 6(u) sets forth a complete and correct
list of (i) all real property owned by IIC (together with all improvements
or fixtures thereon owned by IIC, the "Owned Real Property") and (ii) all
real property in which IIC has a leasehold interest (the "Leased Real
Property") that is material to the conduct of the business of IIC. IIC has
good and marketable fee simple title to the Owned Real Property free and
clear of all Liens, other than Permitted Liens. IIC has a valid leasehold
interest in the Leased Real Property.
(v) Environmental Matters. There is no legal, administrative, or other
proceeding, claim or action of any nature seeking to impose on IIC any
liability relating to the release of hazardous substances as defined under
any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, pending or, to the
Knowledge of SCOR, threatened against IIC; to the Knowledge of SCOR, there
is no reasonable basis for any such proceeding, claim or
15
action; and to the Knowledge of SCOR, IIC is not subject to any agreement,
order, judgment, or decree by or with any court, Governmental Entity or
third party imposing any such environmental liability on IIC.
(w) Insurance. Schedule 6(w) sets forth a list of all policies and
binders of fire, liability, product liability, workers' compensation,
vehicular and other insurance covering IIC as of the date of this
Agreement, other than reinsurance treaties and agreements listed on
Schedule 6(r). The policies and binders listed on Schedule 6(w) are valid
and enforceable in accordance with their terms and are in full force and
effect (assuming no default by any such insurer).
(x) Taxes.
(1) (i) All Tax Returns required to be filed by or with respect to IIC
(the "Company Tax Returns") have been or will be timely filed (taking
into account permitted extensions) with the appropriate Governmental
Entity in the manner prescribed by Applicable Law; (ii) the Company
Tax Returns, in all material respects, are true, complete and have
accurately disclosed and will be true, complete and accurately
disclose, all liability for Taxes of IIC required to be shown thereon
for the periods covered thereby; (iii) IIC has timely paid (or there
has been paid on its behalf) all Taxes with respect to IIC shown as
due and payable on any Company Tax Return and has timely paid (or
there has been paid on its behalf) all Taxes with respect to IIC,
whether or not shown on any Company Tax Return, in each case, in the
manner prescribed by Applicable Law; (iv) no Liens (other than
Permitted Liens) for Taxes exist on IIC's Assets; (v) IIC has not
requested nor is it currently the beneficiary of any extension of time
within which to file any Company Tax Return; (vi) as of the date of
the SAP Statements, to the extent that Tax liabilities and assessments
have accrued but not yet become payable, such Tax liabilities and
assessments have been reflected as liabilities in accordance with SAP
on the SAP Statements and adequate reserves have been established for
the payment thereof and no difference exists between the amount
recorded on the SAP Statements and the amount of such Tax liability as
determined by the appropriate Governmental Entity; (vii) no written
claim has ever been made by a Governmental Entity in a jurisdiction
where IIC does not file Company Tax Returns that IIC is or may be
subject to taxation by that jurisdiction; (viii) there are no actions,
suits, investigations, audits, claims administrative or court
proceedings, or assessments ("Audits") pending or proposed or,
threatened with respect to Taxes of IIC; (ix) all deficiencies
asserted or assessments made as a result of any examination of the
Company Tax Returns have been paid in full; (x) there are no Tax
Rulings, request for Tax Rulings, or Closing Agreements relating to
IIC or the Seller Consolidated Group which could affect IIC's
liability for Taxes; (xi) as a result of a change in accounting method
IIC will not be required to include any adjustment under Section
481(c) of the Code (or any corresponding provision of foreign, state
or local Tax law) in taxable income for any Tax period; (xii) as a
result of any Closing Agreement,
16
IIC will not be required to include any item of income in, or exclude
any Tax Credit or item of deduction from, any taxable period (or
portion thereof); (xiii) there are no intercompany obligations between
IIC on the one hand, and any other member of the affiliated group of
which SCOR is the common parent, within the meaning of Section 1504(a)
of the Code (the "Seller Consolidated Group") on the other hand and
IIC has not engaged in any transaction with SCOR or any of its
Affiliates which would result in the recognition of income by IIC with
respect to such transaction (including, but not limited to, Code
sections 355 and 1502); (xiv) no power of attorney currently in force
has been granted with respect to any matter relating to the Taxes of
IIC; (xv) no indebtedness of IIC is "corporate acquisition
indebtedness" within the meaning of Code Section 279(b); (xvi) no
property of IIC is property that IIC or any party to this transaction
is or will be required to treat as being owned by another Person
pursuant to the provisions of Code Section 168(f)(8) (as in effect
prior to its amendment by the Tax Reform Act of 1986) or is tax-exempt
use property within the meaning of Code Section 168; and (xvii) IIC
has not (A) filed a consent pursuant to Code Section 341(f) or (B)
agreed to have Code Section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code Section
341(f)(4)).
(2) IIC is a member of the Seller Consolidated Group , and such
affiliated group files a consolidated Federal Income Tax Return. IIC
has not at any time been a member of an affiliated group filing a
consolidated Federal Income Tax Return other than the Seller
Consolidated Group. Except with respect to any liability under
Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law) that directly results from IIC being a
member of the Seller Consolidated Group, IIC will not have any
liability for Taxes of any Person other than IIC (i) as a transferee
or successor, (ii) by contract (including any Tax Sharing Agreements)
or (iii) otherwise.
(3) IIC has complied with all applicable laws relating to the payment
and withholding of Taxes and has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any Person.
(4) Schedule 6(x) sets forth the amount of any net operating loss, net
capital loss, unused credit, unused foreign tax, or excess charitable
contribution allocable to IIC as of June 30, 2002.
(5) There are no disputes or claims concerning any material Tax
liability of IIC. Schedule 6(x) lists all Company Tax Returns filed on
or after January 1, 1999 that have been the subject of an Audit, and
indicates all Company Tax Returns that currently are the subject of an
Audit. SCOR has delivered or made available to RHC correct and
complete copies of all Income Tax Returns and examination reports and
all other relevant written materials with respect to any Audit which
pertain to IIC.
17
(6) IIC has not executed any waiver or comparable consent to any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(7) IIC (i) has not made any payments, (ii) is not obligated to make
any payments, and (iii) is not a party to, any agreement that under
certain circumstances could obligate it to make any payments that will
not be deductible under Code Section 280G.
(8) IIC does not have an existing policyholder surplus account as
defined in Code Section 815(e).
(y) Products. All Life Insurance Contracts issued, assumed, modified,
exchanged or sold by IIC which are subject to Sections 101(f) or 7702 of
the Code qualify (and have qualified since issuance) as "life insurance
contracts" within the meaning of Sections 101(f) or 7702(a) of the Code, as
applicable. No Life Insurance Contract issued, assumed, modified, exchanged
or sold by IIC is a "modified endowment contract" within the meaning of
Section 7702A of the Code, except for those Life Insurance Contracts that
IIC is administering as modified endowment contracts and with respect to
which IIC has notified the policyholder, before the date hereof, that the
contract constitutes a modified endowment contract. IIC has not issued or
assumed any Insurance Contracts (i) as, or in connection with, plans that
are intended to qualify under sections 401, 403, 408 or 457 of the Code,
(ii) that are subject to Section 817 of the Code or (iii) with respect to
individual or group retirement or deferred compensation plans or
arrangements.
(z) Technology and Intellectual Property. (i) IIC owns or possesses,
or has enforceable rights or licenses to use, the Intellectual Property
that is necessary to carry on its business as presently conducted (each, an
"Intellectual Property Right"), except where the failure to so own or
possess, or have enforceable rights or licenses would not have a Material
Adverse Effect. Neither IIC nor any of its Subsidiaries has received any
written notice of any infringement of the rights of others with respect to
any Intellectual Property Right that, if such infringement is determined to
be unlawful, would have a Material Adverse Effect on IIC. Except as set
forth in Schedule 6(z), the execution and delivery of this Agreement by
SCOR, and the consummation of the transactions contemplated hereby, will
neither cause IIC or any of its Subsidiaries to be in violation or default
under any licenses, sublicenses or other agreements to which IIC or any of
its Subsidiaries is a party and pursuant to which IIC or its Subsidiaries
is authorized to use any Intellectual Property Right, nor entitle any other
party to any such license, sublicense or agreement to terminate or modify
such license, sublicense or agreement, except where any such violation,
default, termination or modification would not have a Material Adverse
Effect.
(ii) No use of any Intellectual Property Right by IIC or any of its
Subsidiaries infringes any rights of any third party or (except for the
payment of licensing fees) requires any payment for the use of any
proprietary rights or rights in
18
Intellectual Property or technology owned by any third party.
7. Representations and Warranties of RHC. The representations and
warranties of RHC shall be true and correct in all respects when made and shall
be true and correct at and as of the Option Exercise Date and the Closing Date
as if made at and as of such time. RHC represents and warrants to SCOR as
follows:
(a) Organization and Power. RHC is a corporation duly organized,
validly existing and in good standing under the laws of California. RHC has
all requisite power and authority to carry on its business as now being
conducted.
(b) Authority Relative to Agreement. RHC has full power and authority
to enter into and perform its obligations under this Agreement and the
Stock Purchase Agreement and to consummate the transactions contemplated
herein and therein. The execution, delivery and performance of this
Agreement and the Stock Purchase Agreement by RHC has been duly authorized
by all necessary corporate actions. This Agreement is, and when fully
executed the Stock Purchase Agreement will be, the legal, valid and binding
obligations of RHC enforceable in accordance with their respective terms,
except as enforceability may be limited by equitable principles or by
bankruptcy, fraudulent conveyance or insolvency laws affecting creditors'
rights generally.
(c) No Conflict or Violation. The execution, delivery and performance
of this Agreement and, when fully executed, the Stock Purchase Agreement,
and the consummation by RHC of the transactions contemplated hereby and
thereby do not and will not (i) violate or conflict with any provision of
its constituent documents, (ii) result in the creation of any Lien on any
of its assets or properties, (iii) violate, conflict with or result in the
breach of any of the terms of any contract to which it is a party or (iv)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, or
any agreement with, or condition imposed by, any governmental entity.
(d) Consents and Approvals. No consent, approval, authorization,
ruling, order of, notice to, or registration with, any governmental entity
or any person that is party to any material contract (a contract involving
amounts in excess of $50,000 annually) with RHC is required on the part of
RHC in connection with the execution and delivery of this Agreement or the
consummation by RHC of the transactions contemplated hereby, except that
the approval of the Delaware Insurance Department and the approval of the
California Insurance Commissioner (if at such time IIC is commercially
domiciled in California within the meaning of California Insurance Code
Section 1215.13), will be required prior to the closing of the purchase by
RHC of the IIC Stock.
(e) Broker's or Finder's Fee. No broker or finder has acted directly
or indirectly for RHC, nor has RHC incurred any obligation to pay brokerage
or finder's fees or other commissions in connection with the transactions
contemplated by this
19
Agreement or the Stock Purchase Agreement.
(f) No Proceeding or Litigation. No claim, action, suit, arbitration,
investigation or other formal proceeding is pending or, to the knowledge of
RHC, threatened, which seeks to (i) enjoin, restrain or prohibit the
transactions contemplated herein or (ii) impose limitations on the ability
of RHC to consummate the transactions contemplated herein..
8. Covenants of the Parties. During the term of this Agreement through
the Closing Date:
(a) RHC shall have the right to audit the balance sheet supporting
IIC's total capital and surplus as of June 30, 2002. SCOR shall make a
contribution to IIC's capital and surplus if the foregoing audit results in
any material adjustment (any adjustment exceeding $250,000) to IIC's
balance sheet, which contribution shall be in the amount of the material
adjustment.
(b) RHC shall have the right to audit the books of IIC so as to enable
RHC to prepare GAAP financial statements for IIC.
(c) SCOR shall cause IIC to be operated in the ordinary course of
business and shall communicate to RHC all material information regarding
IIC. Until the Closing Date, SCOR shall cause IIC to provide to RHC usual
and customary information to enable RHC to perform its due diligence review
of IIC, as if RHC were an unaffiliated third party seeking such
information.
(d) RHC shall have the right, through its officers, employees,
consultants, accountants, actuaries, attorneys and other designated agents
and representatives, upon reasonable notice, during normal business hours
and in a manner so as not to disrupt the orderly conduct of business of
IIC, to (i) inspect (and make copies of) such of the Books and Records as
RHC may reasonably request; and (ii) make such reasonable investigation of
the assets, liabilities, financial condition, properties, business and
operations of IIC as RHC may reasonably deem necessary or appropriate, and
for such purposes to have access to the Books and Records and contracts and
facilities of IIC, and access to the personnel of IIC, SCOR and SCOR's
Affiliates that perform work for, or have knowledge of facts relating to,
IIC (including the employees), including an examination of the corporate
records and minute books, financial statements and projections, insurance
department filings, reports and examinations, summaries of pending
litigation, tax returns, accounting and actuarial methods, business plans
and prospects, in each case wherever located, of IIC, provided, that RHC
will take reasonable steps to maintain the confidentiality of all Books and
Records. SCOR shall, and shall cause IIC and SCOR's Affiliates, and their
respective officers, employees (including the employees), agents and
representatives, including their respective counsel and independent public
accountants, to cooperate fully with RHC in connection with such
investigation, access and examination.
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(e) At least 30 days prior to entering into any such contract or
making any such commitment, SCOR shall provide notice to RHC of IIC's
intent to enter into any contract or commitment that by its terms extends
beyond one year and is either not cancelable by IIC or is cancelable by IIC
with a penalty (other than insurance contracts with respect to which LMG
acted as agent or to which LMG or RHC is a party). RHC shall have the right
to notify SCOR of its objection to any such contracts or commitments in its
reasonable discretion within thirty (30) days of its receipt of notice from
SCOR or IIC of IIC's intent to enter into any such contract or commitment;
provided, however, that the ultimate decision of whether to enter into any
such contract or commitment shall rest with IIC. If the transactions
contemplated by this Agreement and the Stock Purchase Agreement are
consummated, SCOR agrees to indemnify RHC or adjust the Purchase Price in
the Stock Purchase Agreement for any losses to IIC or RHC caused by any
contract or commitment that IIC enters into as to which RHC has provided a
timely objection as provided in this Section 8(e).
(f) At least 30 days prior to IIC making any capital expenditures in
excess of $100,000 in the aggregate (except as required to support the
business generated by LMG), SCOR shall notify RHC of such proposed capital
expenditure and RHC shall have the right to notify SCOR of its objection to
such capital expenditure; provided, however, that the ultimate decision of
whether to make any such capital expenditure rests with IIC. If the
transactions contemplated by this Agreement and the Stock Purchase
Agreement are consummated, SCOR agrees to indemnify RHC or adjust the
Purchase Price in the Stock Purchase Agreement for any losses to IIC or RHC
caused by any capital expenditure that IIC makes as to which RHC has
provided a timely objection as provided in this Section 8(f).
(g) SCOR covenants and agrees that it shall not cause IIC to pay
dividends, distributions, loans, capital or extraordinary payments to SCOR,
or to make any other payments by IIC to SCOR other than payments in the
ordinary course of business by IIC to SCOR (including but not limited to,
payments under existing reinsurance, management service or tax allocation
agreements), which shall be permissible; provided, however, the parties
acknowledge that the ultimate decision to make any such dividends,
distributions, loans or extraordinary payments rests with the board of
directors of IIC. Copies of any such intercompany agreements shall be made
available to RHC. The parties agree that the Purchase Agreement will
provide for adjustments to the Purchase Price for any dividends,
distributions, loans, capital or extraordinary payments made by IIC.
(h) SCOR shall provide prompt notice to RHC of any significant NAIC,
state insurance department or other governmental (including judicial)
actions or issues relating to IIC. SCOR shall provide to RHC a copy of any
correspondence requiring action on the part of IIC.
(i) SCOR shall not and SCOR shall cause IIC to not engage in any
transaction with any independent producer group with respect to any
annuities or life insurance products which transaction is similar to the
Marketing Agreement dated as
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of June 5, 2002 between LMG and IIC; provided, however, the parties
acknowledge that the ultimate decision of IIC to enter into any such
contracts rests with the board of directors of IIC. If the transactions
contemplated by this Agreement and the Stock Purchase Agreement are
consummated, SCOR agrees to indemnify RHC or make an appropriate adjustment
to the Purchase Price pursuant to the terms of the Stock Purchase Agreement
for any current or projected future losses to IIC or RHC caused by any
contract or commitment that IIC enters into as to which RHC has provided a
timely objection as provided above. SCOR will maintain strict
confidentiality with respect to any products jointly developed with RHC.
(j) RHC agrees that IIC shall be permitted to sell its non-RHC third
party administrator ("TPA") activities to an unaffiliated third party, and
in connection therewith employees working for the TPA may cease to be
employees of IIC; provided, however, that such sale shall be at a price not
less than book value, and IIC shall have no post-closing liabilities to the
TPA or the purchaser thereof.
(k) SCOR shall give RHC 30 days advance notice of any proposed new
non-RHC related TPA agreements that involve Investors Marketing Group
("IMG") or IIC. RHC shall have the right to review any such agreements and
object to any such agreements involving IIC; provided, however, the parties
acknowledge that the ultimate decision to enter into any such agreements
rests with the board of directors of IIC. RHC shall also have the right to
request that IIC transfer IMG at its statutory book value as of June 30,
2002 (current value) with no after-tax gain or loss to IIC based on current
value, to another SCOR company; provided, however, the parties acknowledge
that the ultimate decision to make any such transfer rests with the board
of directors of IIC. SCOR agrees to provide RHC with indemnification
against any liabilities resulting from any such TPA agreements or adjust
the Purchase Price pursuant to the terms of the Stock Purchase Agreement.
(l) SCOR shall provide RHC with statutory financial information that
shows separate reporting lines for (i) business produced through RHC or its
subsidiaries including LMG and (ii) non-RHC produced business. If the
transactions contemplated by this Agreement and the Stock Purchase
Agreement are consummated, SCOR agrees to indemnify RHC or adjust the
Purchase Price in the Stock Purchase Agreement for any losses to RHC or IIC
resulting from the non-RHC produced business.
(m) SCOR shall provide to RHC, at least quarterly, a standard package
of financial reports concerning IIC, which shall include (i) statutory
financial statements, (ii) reserve valuation and cash flow testing detail,
(iii) investment reports and (iv) any relevant and available information
regarding the business produced by RHC or its subsidiaries including LMG.
(n) RHC will provide to SCOR a formal acknowledgment of the current
investment guidelines for IIC, and any revisions thereto. RHC understands
and agrees that the investment advisor for SCOR will continue to act with
discretionary authority
22
under the approved investment guidelines to construct comparable investment
portfolios between SCOR and IIC, it being understood that investments
allocated to IIC shall be representative of SCOR's total investment
portfolio as to yield, credit rating and risk. SCOR shall advise RHC of all
investment review conclusions. From and after the Option Exercise Date, on
a prospective basis, RHC may recommend to SCOR the exclusion or further
limitation of any approved asset class in the investment guidelines;
provided, however, the ultimate investment decisions shall rest with the
board of directors of IIC. To the extent such recommendations are accepted
by SCOR, RHC must then accept any impact that this action has on the
pricing of the underlying policies or interest credited to the
policyholders. On a prospective basis, RHC may also provide SCOR with a
specific list of individual securities that RHC does not wish to be
purchased for the portfolios. On a retrospective basis, however, both SCOR
and RHC will accept the financial impact of the securities purchased for
the portfolios and will work together to optimize the economic results.
(o) RHC shall have the right to participate in IIC's Investment and
Product Management Committee decisions with respect to interest rate
setting, product design and pricing, and asset / liability modeling. SCOR
and RHC acknowledge and agree that (i) they shall endeavor to reach
consensus with respect to the matters in the previous sentence and (ii)
ultimate decision making authority shall rest with IIC.
(p) SCOR agrees to provide or find capacity for RHC-produced products
meeting SCOR's return on investment objectives either in IIC or another
insurance company; provided that the ultimate decision of IIC to underwrite
any such products shall rest with the board of directors of IIC. SCOR will
provide capacity for $1.0 billion of annual production and will use its
best efforts to provide or find capacity for amounts in excess of $1.0
billion annually.
(q) SCOR agrees to reinsure IIC business produced by RHC or its
subsidiaries (including LMG) (i) on an automatic 80% quota share
coinsurance basis pursuant to one or more treaties with terms that would be
found in agreements negotiated on an arm's length basis, and (ii) on an
additional automatic 10% quota share funds withheld coinsurance basis
pursuant to one or more treaties under which SCOR will provide IIC with
surplus in exchange for an annual expense and risk charge of 2% of surplus
provided until the Closing Date, after which the expense and risk charge
shall be adjusted to a market rate as determined by a nationally recognized
actuarial firm, but in no event in excess of 6% per year. Beginning on the
Closing Date, IIC shall have the right to require recapture of the 10%
quota share funds withheld treaties pursuant to their terms. In addition,
SCOR agrees (subject to receipt of regulatory approval or non-disapproval)
to amend all IIC reinsurance treaties (including those covering IIC
business not produced by RHC or its subsidiaries) as of the Closing Date to
include (i) a DAC tax provision designed to achieve equitable allocation
between the parties and (ii) a provision for reinsurer participation in
state guaranty fund assessments. SCOR will not otherwise amend such
reinsurance treaties and will cause IIC to maintain such reinsurance
treaties in force prior to the Closing Date; provided, however, the parties
acknowledge that the ultimate decision of IIC to
23
amend or terminate such treaties rests with the board of directors of IIC.
Notwithstanding the preceding sentence, SCOR may at its sole option cause
the management of IIC to amend or novate reinsurance treaties covering
business not produced by RHC or its subsidiaries provided that any such
amendment or novation does not have an adverse effect on IIC. If the
transactions contemplated by this Agreement and the Stock Purchase
Agreement are consummated, SCOR agrees to indemnify RHC or make an
appropriate adjustment to the Purchase Price for any current or projected
future losses to IIC caused by any amendment, novation or termination of
any reinsurance treaty between SCOR or its Affiliates and IIC for which
SCOR has not obtained the prior written consent of RHC.
(r) SCOR will use its best efforts to maintain IIC's A.M. Best rating
at its current level or at "A-" or better.
9. Cure Period. Except as provided in Sections 3(b) and 4(e), if
either party violates any provision of this Agreement, the violating party shall
have forty-five (45) calendar days from receipt of written notice of the
violation from the other party to cure the violation to the satisfaction of the
other party.
10. Termination.
(a) In the event that there is a material breach of Seller's
representations and warranties or covenants hereunder, which breach is not
cured in accordance with Section 3(b) or 9, or in the event that the A.M.
Best rating of IIC falls below A- prior to the Closing Date, RHC shall be
entitled to terminate this Agreement (and the Stock Purchase Agreement, if
the Stock Purchase Agreement has been executed by the parties), in which
case SCOR shall refund to RHC the Annual Option Fees and any other Option
Fees paid to SCOR pursuant to Section 4 of this Agreement since the Option
Inception Date, and the Escrow Amount, if it has been paid, with interest
at a rate of seven percent (7%) per annum on each such Option Fee and the
Escrow Amount, from the date each such payment was made.
(b) In the event of a change in the ultimate control of SCOR prior to
the Closing Date (a change in ownership of stock resulting in over fifty
percent (50%) of the voting power of SCOR Life Re being held by an
unaffiliated third party) or a breach by SCOR prior to the Closing Date of
its obligation to pursue the sale of product or support of capital, RHC may
terminate this Agreement (and the Stock Purchase Agreement, if the Stock
Purchase Agreement has been executed by the parties), in which case SCOR
shall refund to RHC all Option Fees paid to SCOR since the Option Inception
Date, and the Escrow Amount, if it has been paid, with interest at a rate
of seven percent (7%) per annum on each such Option Fee and the Escrow
Amount from the date each such payment was made.
(c) In the event of a material change in the senior management of RHC
(which, for the avoidance of doubt, shall mean that neither Lynda Regan nor
Preston Pitts hold senior management positions at RHC, or if LMG is
acquired by a competitor
24
to SCOR), RHC shall so notify SCOR in writing. For purposes of this Section
10(c) "a competitor to SCOR" shall mean an entity the principal business of
which is the reinsurance of life insurance products. SCOR may terminate
this Agreement within ninety (90) days from receipt of such notice, in
which case it shall provide RHC six (6) months from the date of SCOR's
receipt of such notice to exercise the Option.
(d) In the event of termination by SCOR of the marketing or
administrative agreements between IIC and RHC or LMG as a result of an
uncured material breach thereof by RHC or LMG (including, without
limitation, a breach by RHC or LMG as a result of market conduct issues),
SCOR may terminate this Agreement and retain all Option Fees paid to the
date of termination.
(e) The parties agree that in the event that the Option is not
exercised, each party shall retain the right to market and sell the jointly
developed insurance products, subject to the Non-Compete Provision (Section
9.1) of the Marketing Agreement dated as of June 5, 2002 by and between LMG
and IIC (the "Marketing Agreement"), which provision is hereby incorporated
herein by reference and shall survive the termination of this Agreement for
a period of two (2) years thereafter, regardless of whether the Marketing
Agreement remains in effect.
11. Indemnification by SCOR. SCOR shall indemnify and hold harmless
RHC against:
(a) any damages, losses, obligations, liabilities, claims, actions or
causes of action sustained or suffered by RHC arising from a breach of any
representation, warranty, covenant or agreement made by SCOR contained in
or made pursuant to this Agreement; and
(b) all ordinary and necessary costs, expenses or settlement payments
(including, without limitation, reasonable attorneys', accountants' and
other professional fees) incurred by RHC in connection with any action,
suit, proceeding, demand, assessment or judgment incident to any of the
matters indemnified against under this Section 11.
12. Indemnification by RHC. RHC shall indemnify and hold harmless SCOR
against:
(a) any damages, losses, obligations, liabilities, claims, actions or
causes of action sustained or suffered by SCOR arising from a breach of any
representation, warranty, covenant or agreement made by RHC contained in or
made pursuant to this Agreement; and
(b) all ordinary and necessary costs, expenses or settlement payments
(including, without limitation, reasonable attorneys', accountants' and
other professional fees) incurred by SCOR in connection with any action,
suit, proceeding, demand, assessment or judgment incident to any of the
matters indemnified against
25
under this Section 12.
13. Expenses: Each party shall bear its own expenses in connection
with the transaction, whether or not the Option is exercised.
14. Governing Law: This Agreement shall be governed by the laws of the
State of New York without regard to conflicts of laws principles thereof.
15. Assignment; Successors. This Agreement shall not be assigned by
any party without the prior written consent of the other party. This Agreement
is intended for the exclusive benefit of the parties hereto and their respective
permitted successors and assigns and shall not create any rights in or be
enforceable by any other person. This Agreement shall inure to the benefit of,
and be binding on and enforceable against, the permitted successors and assigns
of the respective parties.
16. Amendment and Modification; Waivers. This Agreement or any term
hereof may be changed, waived, discharged or terminated only by agreement in
writing signed by both parties hereto. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained herein
shall be effective unless in writing, and no waiver in any one or more instances
shall be deemed to be a further or continuing waiver of any such condition or
breach in any other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
17. Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein and all legal process in regard
thereto shall be validly given, made or served, if in writing and delivered
personally or sent by fax or nationally recognized overnight courier:
if to SCOR, at the following address:
SCOR Life U.S. Re Insurance Company
Colonnade Building III, Suite 700
15305 Dallas Parkway
Addison, TX 75001
Attention: Yves Corcos, Chief Executive Officer
Fax: 972-560-9535
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: Kirk M. Reische
Fax: 212-259-6333
26
and, if to RHC, at the following address:
Regan Holding Company
2090 Marina Avenue
Petaluma, CA 94954
Attention: R. Preston Pitts
Fax: 707-778-1524
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attention: Joseph L. Seiler III and Jane Boisseau
Fax: 212-424-8500
or, in each case, at such other address as may be specified in writing, but no
such change shall be deemed to have been given until it is actually received by
the party sought to be charged with its contents.
18. Further Assurances. Each party shall cooperate and take such
actions, and execute all such further instruments and documents, at or
subsequent to the Closing Date, as any other party may reasonably request in
order to convey title to the IIC Stock to RHC and to otherwise effectuate the
terms and purposes of this Agreement.
19. Confidentiality. Except as may otherwise be required by law or the
rules of any applicable stock exchange or other regulatory authority, no release
or announcement concerning this Agreement or the transactions contemplated
hereby shall be made by SCOR or RHC without the advance written approval of the
other party, which approval shall not be unreasonably delayed or withheld. Each
party shall cooperate with the other in making any release or announcement to
the extent reasonably practicable. In addition, the parties shall maintain
strict confidentiality during the development and pre-marketing stages with
respect to any products jointly developed by them except with respect to
information that has otherwise become publicly known, or as required by
applicable law, court order or regulatory authority.
20. Attorneys' Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled from the other party.
21. Entire Agreement; Counterparts. This Agreement constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral,
27
among the parties with respect to the subject matter hereof. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original, and all of which, together, shall constitute one and the same
instrument.
22. Headings. The headings of sections contained in this Agreement are
inserted for purposes of convenience only and shall not be construed to affect
the meaning or construction of any of the provisions hereof.
23. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall be, as to such jurisdiction,
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
24. Specific Performance. SCOR and RHC acknowledge that the Option is
a unique and valuable right, without which the parties hereto would lose
substantial benefits. The parties hereto have concluded that, upon breach of
this Agreement by any of the parties hereto, legal remedies would be inadequate
and impracticable to enforce, in that, among other things, it would be difficult
to calculate with reasonable certainty the legal damages payable as a result of
such breach; therefore, the obligations of each of the parties hereto shall be
enforceable by means of a suit for specific performance brought by the other
party hereto.
(The remainder of this page is intentionally left blank.)
28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
SCOR LIFE U.S. RE INSURANCE COMPANY
By: /s/ Yves I. Corcos
----------------------------------
Name: Yves I. Corcos
Title: Chief Executive Officer
REGAN HOLDING CORP.
By: /s/ R. Preston Pitts
----------------------------------
Name: R. Preston Pitts
Title: President
29
Exhibit A to Purchase Option Agreement
[FORM OF]
STOCK PURCHASE AGREEMENT
between
SCOR LIFE U.S. RE INSURANCE COMPANY
and
REGAN HOLDING CORP.
Dated as of [______________], 200[ ]
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..........................................................1
Section 1.01. Definitions................................................1
ARTICLE II PURCHASE OF SHARES..................................................8
Section 2.01. Purchase of Shares.........................................8
Section 2.02. Closing....................................................9
Section 2.03. Closing Deliveries.........................................9
Section 2.04. Escrow Amount.............................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER..........................10
Section 3.01. Organization and Standing; Corporate Power and Authority..10
Section 3.02. Authorization.............................................11
Section 3.03. Consents and Approvals....................................11
Section 3.04. Capital Structure.........................................11
Section 3.05. Actions Pending...........................................12
Section 3.06. No Conflict or Violation..................................12
Section 3.07. Licenses and Permits......................................13
Section 3.08. Contracts.................................................13
Section 3.09. Compliance with Applicable Law............................15
Section 3.10. Reserves..................................................15
Section 3.11. Financial Statements......................................15
Section 3.12. Taxes.....................................................16
Section 3.13. Employee Matters..........................................18
Section 3.14. No Brokers................................................20
Section 3.15. Insurance Business........................................20
Section 3.16. Assets....................................................21
Section 3.17. Real Property.............................................21
Section 3.18. Environmental Matters.....................................21
Section 3.19. Books and Records.........................................21
Section 3.20. Insurance.................................................21
Section 3.21. Reinsurance...............................................21
Section 3.22. Products..................................................22
Section 3.23. Technology and Intellectual Property......................22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................23
Section 4.01. Organization and Standing.................................23
Section 4.02. Authorization.............................................23
Section 4.03. Consents and Approvals....................................23
Section 4.04. No Conflict or Violation..................................23
Section 4.05. Actions Pending...........................................24
Section 4.06. Resources.................................................24
Section 4.07. Investment Intent.........................................24
Section 4.08. No Brokers................................................24
ARTICLE V PRE-CLOSING COVENANTS...............................................24
Section 5.01. Right of Access and Inspection............................24
Section 5.02. Conduct of Business.......................................25
Section 5.03. Cooperation...............................................26
Section 5.04. Regulatory Approvals......................................26
Section 5.05. Notification of Changes...................................27
Section 5.06. Confidentiality of Information............................27
Section 5.07. Intercompany Accounts.....................................27
Section 5.08. Long-Term Contracts.......................................27
Section 5.09. Extraordinary Payments....................................27
Section 5.10. Board of Directors Meetings...............................28
Section 5.11. NAIC/State Investigations.................................28
Section 5.12. Annuity and Life Insurance Products.......................28
Section 5.13. TPA Business..............................................28
Section 5.14. Separate Reporting Lines..................................29
Section 5.15. Participation in Meetings.................................29
Section 5.16. Capacity for Buyer-produced Products......................29
Section 5.17. Amendments to Reinsurance Agreements......................29
Section 5.18. Maintenance of Credit Rating..............................30
Section 5.19. Acknowledgement of Investment Guidelines..................30
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE...........30
Section 6.01. Representations and Covenants.............................30
Section 6.02. Administrative Services Agreement.........................31
Section 6.03. Approvals and Consents....................................31
Section 6.04. Injunction and Litigation.................................31
Section 6.05. Employee Matters..........................................31
Section 6.06. Lease Obligations.........................................32
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE.........32
Section 7.01. Representations, Warranties and Covenants.................32
Section 7.02. Approvals and Consents....................................32
Section 7.03. Injunction and Litigation.................................32
Section 7.04. Certificate of Non-Foreign Status.........................32
ARTICLE VIII POST-CLOSING COVENANTS...........................................32
ii
Section 8.01. Cooperation...............................................32
Section 8.02. Post-Closing Obligation to Obtain Permits.................33
Section 8.03. Regulatory Compliance.....................................33
Section 8.04. Use of Names..............................................33
Section 8.05. Investment Intent of Buyer................................33
Section 8.06. Transfer Taxes............................................34
ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..............34
Section 9.01. Survival of Representations, Warranties and Covenants.....34
ARTICLE X INDEMNIFICATION.....................................................34
Section 10.01. Obligation to Indemnify..................................34
Section 10.02. Notice of Asserted Liability.............................35
Section 10.03. Opportunity to Defend....................................35
Section 10.04. Exclusive Remedy.........................................36
Section 10.05. Third Party Beneficiaries................................36
Section 10.06. Tax Loss.................................................36
Section 10.07. After-tax Basis..........................................36
ARTICLE XI TAX MATTERS........................................................36
Section 11.01. Tax Indemnification......................................36
Section 11.02. Tax Sharing Agreements and Powers of Attorney............40
Section 11.03. Transfer Taxes...........................................40
Section 11.04. Return Filings, Payments, Refunds and Credits............40
Section 11.05. Defects with Respect to Insurance Products...............42
Section 11.06. Treatment of Indemnity Payments..........................42
Section 11.07. Section 338(h)(10) Election..............................43
Section 11.08. Reimbursement of Excess Tax Cost.........................44
ARTICLE XII TERMINATION PRIOR TO CLOSING......................................45
Section 12.01. Termination of Agreement.................................45
Section 12.02. Survival.................................................45
Section 12.03. Remedies.................................................46
ARTICLE XIII MISCELLANEOUS....................................................46
Section 13.01. Publicity................................................46
Section 13.02. Notices..................................................46
Section 13.03. Entire Agreement.........................................47
Section 13.04. Waivers and Amendments; Preservation of Remedies.........47
Section 13.05. Governing Law............................................48
Section 13.06. Jurisdiction.............................................48
Section 13.07. Binding Effect; No Assignment............................48
iii
Section 13.08. No Third Party Beneficiaries.............................48
Section 13.09. Expenses.................................................48
Section 13.10. Counterparts.............................................48
Section 13.11. Headings.................................................49
Exhibit A Opinion of Maxine Verne, Esq.
Schedule 1.01 Permitted Liens
Schedule 3.03 Consents and Approvals
Schedule 3.05 Pending and Threatened Actions
Schedule 3.06 Conflicts and Violations
Schedule 3.07 Licenses and Permits
Schedule 3.08 Contracts
Schedule 3.09 Compliance with Law
Schedule 3.10 Reserves
Schedule 3.11 Liabilities
Schedule 3.12 Taxes
Schedule 3.13 Employee Matters
Schedule 3.15 Insurance violations
Schedule 3.16 Assets
Schedule 3.17 Real Property
Schedule 3.20 Insurance
Schedule 3.21 Reinsurance
Schedule 3.23 Intellectual Property
Schedule 4.03 Consents and Approvals
Schedule 4.04 Conflicts and Violations
Schedule 4.05 Pending and Threatened Actions
Schedule 5.02 Conduct of Business
Schedule 5.07 Intercompany Accounts
Schedule 8.04 Use of Names
iv
[FORM OF]
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of the day of , 200 (this "Agreement"), has
been made and entered into by and between SCOR Life U.S. Re Insurance Company, a
Texas corporation ("Seller"), and Regan Holding Corp., a California corporation
("Buyer").
WHEREAS, Seller is the owner of 100% of the issued and outstanding
shares of capital stock (the "Shares") of Investors Insurance Corporation, a
Delaware corporation (the "Company"); and
WHEREAS, Seller and Buyer have entered into a Purchase Option
Agreement, dated as of July 1, 2002 (the "Purchase Option Agreement"), pursuant
to which Buyer was granted the right to purchase the Shares from Seller on the
terms and conditions set forth therein; and
WHEREAS, Buyer has delivered notice to Seller pursuant to the terms of
the Purchase Option Agreement of its intention to exercise its rights thereunder
to purchase the Shares from Seller; and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, the Shares on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, promises, agreements and conditions contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. For all purposes of this Agreement, the
following terms shall have the respective meanings set forth below (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Accident and Health Insurance Contract" means any accident or health
insurance contract (including, without limitation, stop loss coverage on
self-funded employee medical plans, if any, and medical supplement business),
and forms with respect thereto, issued, assumed or reinsured by the Company.
"Accountant" means an accounting firm of recognized national standing
other than accounting firms that regularly audit the annual financial statements
of any of the parties, which is mutually acceptable to the parties.
"Accounting Firm" has the meaning set forth in Section 11.07(b)
"Administrative Services Agreement" has the meaning set forth in
Section 6.02.
"Affiliate" means, with respect to any Person, at the time in
question, any other Person directly or indirectly controlling, controlled by or
under common control with such Person.
"Agreement" has the meaning as set forth in the first paragraph of
this Agreement.
"Allocation Agreement" has the meaning set forth in Section 11.07(b).
"Annuity Contract" means any annuity contract, funding agreement,
guaranteed investment contract or similar contract, and forms with respect
thereto, issued, assumed or reinsured by the Company.
"Applicable Law" means any domestic or foreign federal, state or local
statute, law, ordinance or code, or any rules, regulations, administrative
interpretations, or orders issued by any Governmental Entity pursuant to any of
the foregoing, and any order, writ, injunction, directive, judgment or decree
applicable to a Person or any such Person's subsidiaries, properties, assets,
officers, directors, employees or agents.
"Asserted Liability" has the meaning as set forth in Section 10.02.
"Assets" shall mean all rights, titles, franchises and interests in
and to every type of property, real, personal and mixed, including, but not
limited to, investment assets, Intellectual Property, Contracts, licenses,
leaseholds, privileges and all other assets whatsoever, tangible or intangible.
"Audit" has the meaning set forth in Section 3.12(a).
"Books and Records" means all records, documents, databases,
administrative records, claim records, policy files, sales records, files and
records relating to regulatory matters or correspondence with regulatory
authorities, reinsurance records, underwriting records, accounting records and
all other records, data and information (in whatever form maintained) in the
possession or control of the Company or IMG relating to the conduct of its
business.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City are required or authorized by law
to be closed.
"Buyer" has the meaning set forth in the first paragraph of this
Agreement.
"Claims Notice" has the meaning as set forth in Section 10.02.
"Closing" has the meaning set forth in Section 2.02.
2
"Closing Agreement" means a written and legally binding agreement with
a taxing authority.
"Closing Date" means the date designated by Buyer in writing to Seller
at least 30 days prior to such date, which date shall be after the later of (i)
June 30, 2003 and (ii) the date that all of the conditions set forth in Articles
VI and VII have been satisfied or waived.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder.
"Company" has the meaning set forth in the first recital of this
Agreement.
"Company Affiliated Group" has the meaning set forth in Section
3.12(b).
"Company Controlled Group Liability" has the meaning set forth in
Section 3.13(b).
"Company Employees" mean any persons who, prior to the Closing Date,
are employed by the Company.
"Company Employee Plans" has the meaning set forth in Section 3.13(a).
"Company Financial Statements" means the SAP Statements and the GAAP
Statements.
"Company Tax Returns" has the meaning set forth in Section 3.12(a).
"Consolidated Returns" has the meaning set forth in Section 11.04(a).
"Contract" shall mean a contract, agreement, guarantee, commitment,
indenture, note, bond, mortgage, non-governmental license or assignment, whether
written or oral.
"Controlling Party" has the meaning set forth in Section 11.01(i).
"Election" has the meaning set forth in Section 11.07.
"Election Cost" has the meaning set forth in Section 11.08.
"Enforceability Exceptions" has the meaning set forth in Section 3.02.
"ERISA" has the meaning set forth in Section 3.13(a).
"Escrow Amount" has the meaning set forth in Section 2.04.
"Excepted Amounts" has the meaning set forth in Section 11.01(a).
"Excess Tax Cost" has the meaning set forth in Section 11.08.
3
"Excess Tax Cost Computation" has the meaning set forth in Section
11.08.
"Final Determination" means with respect to any issue (a) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or other order has become final and not subject to
further appeal, (b) a Closing Agreement (whether or not entered into under
Section 7121 of the Code) or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (c) the completion
of the highest level of administrative proceedings by a Governmental Entity if a
judicial contest is not or is no longer available.
"Founder's Policies" means all policies issued by the Company that
require the Company to pay to the owners of such policies an amount that is
equal to all or a portion of the Company's gains from lapses, surrenders, excess
interest earnings or mortality savings resulting from the class of policies
including such policy.
"GAAP" means generally accepted accounting principles as used in the
United States of America as in effect at the time any applicable financial
statements were prepared or any act requiring the application of GAAP was
performed.
"GAAP Statements" has the meaning set forth in Section 3.11(a).
"Governmental Entity" means any foreign, federal, state, local,
municipal, county or other governmental, quasi-governmental, administrative or
regulatory authority, body, agency, court, tribunal, commission or other similar
entity (including any branch, department, agency or political subdivision
thereof).
"IMG" means Investors Marketing Group, a Florida corporation.
"Income Tax" has the meaning set forth in Section 11.01(b).
"Insurance Contract" means any Contract of insurance or reinsurance
(and any certificates thereunder) and forms with respect thereto, including any
Life Insurance Contract, Accident and Health Insurance Contract or Annuity
Contract, issued, assumed or reinsured by the Company.
"Intellectual Property" means intellectual property rights, including,
but not limited to, all inventions, patents and patent applications, Trademarks,
copyrights, copyright registrations and applications, computer programs,
technology, trade secrets, know-how, confidential information, proprietary
processes and formulae including all licenses and rights relating to the
foregoing.
"Knowledge" shall mean (i) with respect to the knowledge of Seller,
the actual knowledge of John Brill, Chief Financial Officer of the Company and
Yves Corcos, Chief Executive Officer of the Company; and (ii) with respect to
the knowledge
4
of Buyer, the actual knowledge of R. Preston Pitts, President and Chief
Operating Officer of Buyer and G. Steven Taylor, Chief Financial Officer of
Buyer.
"Leased Real Property" has the meaning set forth in Section 3.17.
"Lien" means any lien, mortgage, pledge, security interest,
encumbrance, restriction, easement, limitation, claim, charge or defect of
title; provided that such term shall not include restrictions imposed by any
applicable insurance law or regulation or state or federal securities laws.
"Life Insurance Contract" means any life insurance Contract (including
any group term life insurance Contract), and forms with respect thereto, issued,
assumed or reinsured by the Company.
"LMG" has the meaning set forth in Section 2.01(b).
"Losses" and individually "Loss" has the meaning set forth in Section
10.01.
"Material Adverse Effect" means a material adverse effect on (i) the
ability of Seller to perform in all respects its obligations under this
Agreement or to consummate the transactions contemplated hereby; (ii) the
business, financial condition or results of operations of the Company; or (iii)
as to matters which can reasonably be quantified in economic terms, any effect
which has resulted in or could be reasonably expected to result in, with respect
to the Company, a diminution or decrease in the value of properties or assets,
an increase in liabilities or obligations (whether accrued, contingent or
otherwise), an adverse change in the cash flows, business or financial
condition, or any combination thereof involving, individually or in the
aggregate more than $1,000,000; provided, however, to the extent such effect
results from any of the following, such effect shall not be considered a
Material Adverse Effect: (1) any adverse change or effect that is caused by or
that arises out of the business of the Company generated by LMG; (2) a change in
the market value of investments made in accordance with the investment
guidelines previously approved by Buyer; (3) any adverse change or effect that
is caused by or that arises out of conditions affecting the economy or
securities markets generally; (4) any adverse change or effect that arises out
of conditions affecting the insurance or financial services industries
generally, including, but not limited to, circumstances, changes or effects in
or affecting interest rates, securities markets, accounting principles,
practices or conventions or applicable law (whether federal, state, local or
foreign); or (5) any adverse change or effect resulting from the announcement or
the pendency of the transactions contemplated hereby.
"Non-Buyer Business" has the meaning set forth in Section 5.14.
"Non-Controlling Party" has the meaning set forth in Section 11.01(i).
"Option Exercise Date" means the date the Option is exercised by Buyer
pursuant to the terms of the Purchase Option Agreement.
5
"Option Inception Date" means June 30, 2002.
"Option Inception Date Capital and Surplus" means $13,136,922, the
Company's total statutory capital and surplus as of the Option Inception Date as
set forth in its statutory filing.
"Owned Real Property" has the meaning set forth in Section 3.17.
"Permits" means all licenses, permits, orders, approvals and
non-disapprovals, registrations, authorizations, qualifications and filings with
and under all federal, state, local or foreign laws and governmental or
regulatory bodies.
"Permitted Liens" means each of the following: (a) Liens for Taxes,
assessments and governmental charges or levies not yet due and payable which are
not in excess of $50,000 in the aggregate or which are being contested in good
faith, and for which adequate reserves have been established and recorded on the
Company Financial Statements; (b) Liens imposed by law, including, without
limitation, materialmen's, mechanics', carriers', workmen's and repairmen's
Liens and other similar Liens arising in the ordinary course of business; (c)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (d) Liens
related to deposits to secure policyholders' obligations as required by the
insurance departments of the various states, each of which is listed on Schedule
1.01 hereto.
"Person" means any individual, corporation, limited liability company,
partnership, limited partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental, judicial or
regulatory body or other entity.
"Post-Closing Tax Period" has the meaning set forth in Section
11.01(a).
"Pre-Closing Tax Period" has the meaning set forth in Section
11.01(a).
"Purchase Option Agreement" has the meaning set forth in the second
recital to this Agreement.
"Purchase Price" has the meaning set forth in Section 2.01.
"Reserves" has the meaning set forth in Section 3.10.
"SAP" means statutory accounting practices prescribed or permitted by
the insurance regulatory authorities of the applicable states.
"SAP Statements" has the meaning set forth in Section 3.11(b).
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" has the meaning in the first paragraph of this Agreement.
6
"Shares" has the meaning set forth in the first recital of this
Agreement.
"Specified Matter" means the matter specified in Schedule 6(o) of the
Disclosure Schedules to the Purchase Option Agreement
"Subsidiary" means, with respect to any Person, any corporation,
partnership, joint venture or other legal entity of which such Person (either
alone or through or together with any other Subsidiary) owns, directly or
indirectly, more than 50% of the outstanding stock or other equity interest the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"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 Contest" has the meaning set forth in Section 11.01(d).
"Tax Detriment" means an increase in Liability for Taxes or a
reduction of (i) a refund for Taxes or (ii) other Tax attributes.
"Tax Indemnified Liability" has the meaning set forth in Section
11.01(c).
"Tax Indemnifying Party" has the meaning set forth in Section
11.01(c).
"Tax Indemnitee" has the meaning set forth in Section 11.01(c).
"Tax Loss" has the meaning set forth in Section 11.01(a).
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, including any amendment thereof and including, where
permitted or required, combined, consolidated, unitary, or any similar tax
returns for any group of Persons.
7
"Tax Ruling" means a written ruling of a Governmental Entity relating
to Taxes.
"Tax Sharing Agreement" means any written or unwritten agreement,
indemnity or other arrangement for the allocation or payment of Tax liabilities
or payment for Tax benefits that may exist between the Company and any Person
(other than any indemnity provided pursuant to this Agreement).
"TPA" means any third party administrator.
"TPA Agreements" means any third party administrator Contract.
"Trademarks" shall mean all United States and foreign trademarks
(including service marks and trade names, whether registered or at common law),
registrations, renewals and applications therefor, domain names, logos and
designs owned by the Company or IMG and used in connection with the conduct of
the business as currently conducted by the Company or IMG.
"Transfer Taxes" has the meaning set forth in Section 11.03.
ARTICLE II
PURCHASE OF SHARES
Section 2.01. Purchase of Shares. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell to
Buyer, and Buyer shall purchase from Seller, the Shares for an aggregate
purchase price (the "Purchase Price") equal to the sum of:
(a) the Option Inception Date Capital and Surplus;
(b) plus any capital or surplus contributions made in cash to the
Company by Seller or an Affiliate of Seller to support the business generated by
Buyer's subsidiary, Legacy Marketing Group ("LMG"), during the period from the
Option Inception Date to the Closing Date;
(c) less any dividends, distributions, loans, capital or extraordinary
payments made by the Company between June 30, 2002 and the Closing Date;
(d) less any Losses to the Company related to the Specified Matter;
(e) less any Purchase Price adjustments required by Sections 5.02(c),
5.08, 5.09, 5.12, 5.13, 5.14 and 5.17;
(f) plus interest at the rate of 5% percent per annum on an amount
equal to the Option Inception Date Capital and Surplus, calculated from the
Option Inception Date to the Closing Date, compounded annually;
8
(g) plus interest at the rate determined by the following formula on
any capital and surplus contributions referred to in clause (b) above, if any,
in each case calculated from the date of such contribution to the Closing Date
compounded annually on the date of such contribution:
Interest = (5% * (A/B) where:
A is equal to the Moody's Aaa corporate bond rate (Federal Reserve
Statistical Release H.15) at the time of the surplus contribution, and
B is 6.61% (the Moody's Aaa corporate bond rate as of June 30, 2002);
and
(h) less interest at the rate determined by formula set forth in (f)
above on any dividends, distributions, loans, capital or extraordinary payments
referred to in clause (c) above, if any, in each case calculated from the date
of such distribution to the Closing Date compounded annually on the date of such
distribution.
Section 2.02. Closing. Upon the terms and subject to the conditions of
this Agreement, the closing of the purchase and sale of the Shares (the
"Closing") shall be at 10:00 a.m. local time at the offices of Dewey Ballantine
LLP, 1301 Avenue of the Americas, New York, New York 10019 (or such other
location as Buyer and Seller shall mutually agree), on the Closing Date.
Section 2.03. Closing Deliveries. At the Closing, the parties hereto
shall take the following actions:
(a) Seller shall deliver to Buyer certificates representing all of the
Shares, duly executed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer, with all appropriate stock transfer tax
stamps affixed;
(b) Seller shall deliver to Buyer certificates as to the good standing
of the Company and IMG (unless IMG shall have been sold or transferred prior to
the Closing Date) in their respective jurisdictions of incorporation, together
with a copy of the Certificate of Incorporation of the Company certified by the
Delaware Secretary of State or other appropriate authority;
(c) Seller shall deliver to Buyer resolutions of the board of
directors of Seller, certified by the Secretary or Assistant Secretary of
Seller, approving and authorizing the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby;
(d) Seller shall deliver to Buyer the officer's certificate
contemplated by Section 6.01 of this Agreement;
(e) Seller shall deliver to Buyer a receipt evidencing receipt of the
Purchase Price;
9
(f) Seller shall deliver to Buyer an executed copy of the
Administrative Services Agreement (as defined in Section 6.02);
(g) approvals of the Delaware Insurance Department and if required,
approval of the California Insurance Commissioner, and any other consent and
approvals set forth on Schedule 3.03;
(h) Buyer shall deliver to Seller the Purchase Price by wire transfer
of immediately available funds to such account or accounts as shall have been
designated in writing to Buyer by Seller;
(i) Buyer shall deliver to Seller resolutions of the board of
directors of Buyer, certified by the Secretary or Assistant Secretary of Buyer,
approving and authorizing the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby;
(j) Seller shall provide the legal opinion of in-house counsel to
Seller, and/or such other counsel to Seller reasonably acceptable to Buyer,
substantially in the form of Exhibit A, with such modifications as shall be
reasonably acceptable to Buyer;
(k) Seller shall have provided, on or before the Closing Date, copies
of the Company's current licenses in each of the jurisdictions listed in
Schedule 3.07;
(l) Buyer shall deliver to Seller the officer's certificate
contemplated by Section 7.01 of this Agreement; and
(m) Buyer shall deliver to Seller a receipt evidencing receipt by
Buyer of the Shares.
Section 2.04. Escrow Amount.
On the one-year anniversary of the Option Exercise Date, Buyer shall
deposit into an escrow account on behalf of Seller an amount equal to
$1,313,692, (being ten percent (10%) of the Option Inception Date Capital and
Surplus) (the "Escrow Amount"). In the event that the Closing Date occurs within
two (2) years following the Option Exercise Date, the Escrow Amount shall be
applied to the Purchase Price. In the event that the Closing Date does not occur
within two (2) years following the Option Exercise Date, the Escrow Amount shall
be non-refundable, except as provided in Section 12.03(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
Section 3.01. Organization and Standing; Corporate Power and
Authority.
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(a) Each of Seller and the Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and (ii) has the corporate power and
authority to conduct its business as currently conducted.
(b) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business makes such qualification necessary, except as would not,
individually or in the aggregate, have a Material Adverse Effect.
Section 3.02. Authorization.
(a) Seller has the full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the performance by Seller of its obligations
hereunder has been or will be duly and validly authorized and approved by all
requisite corporate action of Seller and no other acts or proceedings on its
part are necessary to authorize the execution, delivery and performance of this
Agreement or the transactions contemplated hereby. Assuming the due
authorization and execution by Buyer, this Agreement constitutes the legal,
valid and binding obligations of Seller, and is and will be enforceable in
accordance with its terms except (i) as the same may be limited by applicable
bankruptcy, insolvency, rehabilitation, moratorium or similar laws of general
application relating to or affecting creditors' rights, including, without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (ii) for the limitations imposed by
general principles of equity. The foregoing exceptions set forth in clauses (i)
and (ii) of this Section 3.02 are hereinafter referred to as the "Enforceability
Exceptions."
Section 3.03. Consents and Approvals. Except as set forth on Schedule
3.03 hereto, no consent, approval, non-disapproval, authorization, ruling, order
of, notice to, or registration with, any Governmental Entity or any other
Person, is required on the part of Seller or the Company in connection with the
execution and delivery of this Agreement or the consummation by Seller of the
transactions contemplated hereby, except that the approval of the Delaware
Insurance Department and the approval of the California Insurance Commissioner
(if at such time the Company is commercially domiciled in California within the
meaning of California Insurance Code Section 1215.13), will be required prior to
the closing of the purchase by Buyer of the Shares.
Section 3.04. Capital Structure. (a) The authorized capital stock of
the Company consists of 1,000 shares of common stock, par value $3,400 per
share, of which 750 shares, constituting the Shares, are issued and outstanding.
The Shares are owned beneficially and of record by Seller free and clear of any
Lien and constitute all of the issued and outstanding shares of capital stock of
the Company. Seller has the power to sell, assign, transfer and deliver the
Shares to Buyer upon the terms and subject to the conditions of this Agreement.
All of the Shares are duly authorized, validly issued, fully paid, nonassessable
and free of any preemptive rights. There is no outstanding option, warrant,
right, subscription, call, unsatisfied preemptive right or other agreement or
right of any kind to purchase or otherwise acquire any shares of capital stock
of the Company
11
from Seller or the Company. There is no outstanding security of any kind
convertible into such capital stock, and there is no outstanding contract or
other agreement of Seller or the Company or any other party, to purchase, redeem
or otherwise acquire any outstanding shares of capital stock or any other equity
security of the Company. Seller is not party to any voting trust, proxy or other
agreement or understanding with respect to the voting of the Shares. Assuming
Buyer has the requisite power and authority to be the lawful owner of the
Shares, upon delivery of and payment for the Shares at the Closing as herein
provided, Buyer will acquire good, valid and marketable title to the Shares,
free and clear of any Lien, other than any Liens arising from acts of Buyer.
(b) Other than IMG, the Company does not have any Subsidiaries, nor
does it directly or indirectly own any equity interest in, or any interest
convertible into or exchangeable or exercisable for any equity or similar
interest in, any corporation, partnership, joint venture, limited liability
company or other business association or entity.
(c) No indebtedness of the Company contains any restriction upon (i)
the prepayment of any indebtedness of the Company, (ii) the incurrence of
indebtedness by the Company or (iii) the ability of the Company to grant any
Lien on the properties or assets of the Company.
Section 3.05. Actions Pending. Except as set forth on Schedule 3.05,
there is no claim, action, suit, arbitration, investigation or other proceeding
pending or, to the Knowledge of Seller, threatened against the Company or any
properties or rights of the Company, by or before any court, arbitrator or
administrative or Governmental Entity, which could reasonably be expected to
have a Material Adverse Effect. There is no judgment, decree, injunction or
order of any Governmental Entity or arbitrator outstanding against the Company
having, or which would reasonably be expected to have, a Material Adverse Effect
on the Company. There is no claim, action, suit, arbitration, investigation or
other proceeding pending or, to the Knowledge of Seller, threatened against
Seller, by or before any court, arbitrator or administrative or Governmental
Entity, which would reasonably be expected to have a Material Adverse Effect on
the Company.
Section 3.06. No Conflict or Violation. Except as set forth on
Schedule 3.06, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Seller in accordance
with the terms and conditions hereof, will not (i) violate any provision of (a)
the articles of incorporation, (b) the bylaws or (c) other charter or
organizational document of Seller or the Company; (ii) result in the creation of
any Lien on any of the assets or properties of the Company; (iii) result in the
breach of the terms and conditions or cause an impairment of any license or
government authorization of the Company; (iv) violate, conflict with or result
in the breach of any of the terms of, result in any modification of, accelerate
or permit the acceleration of the performance required by, otherwise give any
other contracting party the right to terminate, or constitute (with or without
notice or lapse of time, or both) a default under, any agreement to which the
Company is a party or by or to which the Company or any of its assets or
properties may be subject; (v) violate any order,
12
judgment, injunction, award or decree of any court, arbitrator or Governmental
Entity against, or binding upon, or any agreement with, or condition imposed by,
any Governmental Entity, foreign or domestic, with respect to the Company; or
(vi) violate any statute, law or regulation of any jurisdiction, except, in the
case of clause (iv) of this Section 3.06, as would not individually or in the
aggregate have a Material Adverse Effect.
Section 3.07. Licenses and Permits. The Company has all Permits
necessary for the ownership and operation of its Assets and Owned Real Property
and the conduct of its business as presently conducted, except where the failure
to have such Permits would not have a Material Adverse Effect. The Company is in
compliance with all applicable statutes, laws, rules, regulations and orders of
any Governmental Entity, except as would not have individually or in the
aggregate a Material Adverse Effect. Schedule 3.07 hereto sets forth a true and
complete list of all such Permits, including the jurisdiction covered thereby
and the types of insurance the Company is authorized to write thereunder. All of
the Permits listed on Schedule 3.07 are valid and in full force and effect,
except for any limitations or restrictions placed thereon by any Governmental
Entity as a result of the pendency of the transactions contemplated by this
Agreement and the Purchase Option Agreement. Any such limitations or
restrictions are listed on Schedule 3.07. There are no pending or, to the
Knowledge of Seller, threatened suits or proceedings with respect to the
suspension, revocation, restriction, amendment or non-renewal of any such
Permit, and no event which (whether with notice or lapse of time or both) would
result in a suspension, revocation, restriction, amendment or nonrenewal of any
such Permit has occurred, except with respect to such Permits which, if
suspended, restricted, amended or not renewed would not individually or in the
aggregate have a Material Adverse Effect.
Section 3.08. Contracts.
(a) Schedule 3.08(a) contains a true and complete list of all the
following Contracts (true and complete copies of all such written Contracts
having been made available to Buyer), currently in force, to which the Company
is a party or by which any Assets of the Company are or may be bound, as such
Contracts may have been amended as of the date hereof:
(1) all Contracts with (i) Seller or any of its Affiliates, (ii)
any director, officer or employee of the Company or Seller or its Affiliates,
(iii) any Affiliate of any director, officer or employee of the Company or
Seller or its Affiliates, or (iv) any Person, the equity interests of which are
more than 5% owned by any director, officer or employee of the Company or Seller
or any of its Affiliates, other than any such Contracts that will terminate or
expire without further liability to the Company prior to or as of the Closing;
(2) all Contracts providing for employment of any individual,
whether or not such Person is considered an employee or independent contractor
and all Contracts providing for specific severance benefits or parachute
payments;
13
(3) all Contracts with any Person, including, but not limited to,
any Governmental Entity, containing any provision or covenant (i) limiting the
ability of the Company to engage in any line of business, to compete with any
Person, to do business with any Person or in any location or to employ any
Person or (ii) limiting the ability of any Person to compete with or obtain
products or services from the Company;
(4) all Contracts relating to the borrowing of money by the
Company or the direct or indirect guarantee by the Company of any obligation of
any Person for borrowed money or other financial obligation of any Person or any
other liability of the Company in respect of indebtedness for borrowed money or
other financial obligations of any Person, including, but not limited to, lines
of credit or similar facilities and any Contract relating to or containing
provisions with respect to any obligation to satisfy any financial obligation or
covenants;
(5) all Contracts (other than Insurance Contracts and other
Contracts entered into in the ordinary course of business) with any Person
containing any provisions or covenant relating to the indemnification or holding
harmless by the Company of any Person which is reasonably likely to result in a
liability of the Company of fifty thousand dollars ($50,000) or more;
(6) all leases or subleases of real property used in the conduct
of the business of the Company and all other leases, subleases or rental or use
Contracts providing for annual rental payments to be paid by or on behalf of the
Company, involving, in the case of each of the foregoing, annual payments in
excess of fifty thousand dollars ($50,000);
(7) all Contracts relating to the future disposition (including,
but not limited to, restrictions on transfer or rights of first refusal) or
acquisition of any interest in any business enterprise, and all Contracts
relating to the future disposition of a material portion of the Assets of the
Company other than, in the case of each of the foregoing, any investment asset
or interest in any material business enterprise or Assets to be acquired or
disposed of in the ordinary course of business;
(8) all Contracts or arrangements (including, but not limited to,
those relating to allocations of expenses, personnel, services or facilities,
management contracts and appointments as attorneys-in-fact) between or among the
Company and Affiliates of the Company;
(9) all outstanding proxies (other than routine proxies in
connection with annual meetings or guarantee associations), powers of attorney
or similar delegations of authority of the Company to an unrelated Person, other
than those entered into in the ordinary course of business;
(10) all other Contracts (other than (i) Insurance Contracts,
(ii) Contracts otherwise required to be set forth on Schedule 3.08(a), Schedule
3.15, Schedule 3.22 or Schedule 3.23(a) and (iii) other Contracts which are
expressly excluded under any other subsection of this Section 3.08) that involve
or are reasonably likely to involve the
14
payment pursuant to the terms of such Contracts by or to the Company of fifty
thousand dollars ($50,000) or more;
(11) any partnership, joint venture, joint marketing, strategic
alliance, tenancy in common or similar Contracts; and
(12) any Contracts that (i) require the Company to purchase or
sell any product or service exclusively from or to any Person, (ii) prohibit the
Company from selling products or services to any Person, or (iii) require the
Company to pay for any product or service regardless of whether or not the
Company avails itself of such product or service.
(b) Each of the Contracts listed on Schedule 3.08(a), and each
material Contract to which the Company is a party, is in full force and effect
and constitutes a legal, valid and binding obligation of the Company, to the
extent that it is party thereto, and, to the Knowledge of Seller, of each other
Person that is a party thereto. Except as set forth on Schedule 3.08(b), the
Company is not, and to the Knowledge of Seller, no other party to such Contract
is, in material violation, breach or default of any such Contract or, with or
without notice or lapse of time or both, would be, in material violation, breach
or default of any such Contract, except for any violation, breach or default
which would not have Material Adverse Effect.
Section 3.09. Compliance with Applicable Law. The Company is in
compliance with all laws and regulations with respect to the conduct of its
business in all jurisdictions in which it is presently conducting its business
and has filed all reports, registrations, filings or submissions required to be
filed with any Governmental Entity with respect to the conduct of its business
in such jurisdictions, except as set forth on Schedule 3.09, or where the
failure to be in compliance with such laws or regulations, or the failure to
file such reports, registrations, filings or submissions, would not have a
Material Adverse Effect.
Section 3.10. Reserves. Except as set forth on Schedule 3.10, the
statutory reserves, and other liability amounts required by SAP to be determined
using actuarial methods, in the SAP Statements (the "Reserves") were determined
in accordance with commonly accepted actuarial standards applied in each case in
a manner consistent with past practices, are fairly stated in accordance with
sound actuarial principles, and are based on actuarial assumptions which are in
accordance with those necessary to meet the minimum requirements of the
insurance laws and regulations of the state of Delaware; provided, however, that
Buyer acknowledges that the mere fact that any such Reserve is, or is determined
to be, inadequate shall not, in and of itself, constitute a breach of the
representations and warranties set forth in this Section 3.10.
Section 3.11. Financial Statements.
(a) Seller has previously made available to Buyer true, complete and
correct copies of the statutory financial statements of the Company, as filed
with the Delaware Insurance Department (i) as of and for the years ended
December 31, 2000 and
15
2001 and (ii) as of and for the quarter ended June 30, 2002 (together with all
notes, exhibits and schedules thereto (collectively, the "SAP Statements")).
Except as set forth on Schedule 3.11, each of the SAP Statements, if any,
presents fairly, in all material respects, the statutory financial condition of
the Company at the respective dates thereof, and the statutory results of
operations for the periods then ended in accordance with SAP, applied on a
consistent basis throughout the periods indicated except as otherwise
specifically noted therein.
(b) There are no liabilities, whether accrued, contingent, absolute,
determined, determinable or otherwise (including, without limitation, any Liens
other than Permitted Liens), of the Company other than (i) liabilities reflected
or reserved against in the June 30, 2002 SAP Statements, not heretofore
discharged, (ii) policyholder benefits payable or other Liabilities arising
after June 30, 2002 in the ordinary course of business consistent with past
practice and in amounts consistent with past practice, or (iii) Liabilities
disclosed in Schedule 3.11(c).
(c) Since June 30, 2002, the Company has operated its business only in
the usual, regular and ordinary course of business and since such date there has
not occurred (i) any event or change that is reasonably likely to have
individually or in the aggregate a Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
outstanding capital stock; (iii) any employment contract entered into by the
Company with any officer or employee, or any other Person; or (iv) any other
material transaction out of the ordinary course of business.
Section 3.12. Taxes. Except as provided in Schedule 3.12:
(a) (i) All Tax Returns required to be filed on or before the Closing
Date by or with respect to the Company (the "Company Tax Returns") have been or
will be timely filed (taking into account permitted extensions) with the
appropriate Governmental Entity in the manner prescribed by Applicable Law; (ii)
the Company Tax Returns, in all material respects, are true, complete and have
accurately disclosed and will be true, complete and accurately disclose, all
liability for Taxes of the Company required to be shown thereon for the periods
covered thereby; (iii) the Company has timely paid (or there has been paid on
its behalf) all Taxes with respect to the Company shown as due and payable on
any Company Tax Return and has timely paid (or there has been paid on its
behalf) all Taxes with respect to the Company, whether or not shown on any
Company Tax Return, in each case, in the manner prescribed by Applicable Law;
(iv) no Liens (other than Permitted Liens) for Taxes exist on the Company's
Assets; (v) the Company has not requested nor is it currently the beneficiary of
any extension of time within which to file any Company Tax Return; (vi) as of
the date of the SAP Statements, to the extent that Tax liabilities and
assessments have accrued but not yet become payable, such Tax liabilities and
assessments have been reflected as liabilities in accordance with SAP on the SAP
Statements and adequate reserves have been established for the payment thereof
and no difference exists between the amount recorded on the SAP Statements and
the amount of such Tax liability as determined by the appropriate Governmental
Entity; (vii) no written claim has ever been made by a Governmental Entity in a
jurisdiction
16
where the Company does not file Company Tax Returns that the Company is or may
be subject to taxation by that jurisdiction; (viii) there are no actions, suits,
investigations, audits, claims administrative or court proceedings, or
assessments ("Audits") pending or proposed or, threatened with respect to Taxes
of the Company; (ix) all deficiencies asserted or assessments made as a result
of any examination of the Company Tax Returns have been paid in full; (x) there
are no Tax Rulings, request for Tax Rulings, or Closing Agreements relating to
the Company or the Seller Consolidated Group which could affect the Company's
liability for Taxes for any period after the Closing Date; (xi) as a result of a
change in accounting method for a Tax period beginning on or before the Closing
Date, the Company will not be required to include any adjustment under Section
481(c) of the Code (or any corresponding provision of foreign, state or local
Tax law) in taxable income for any Tax period (or portion thereof) beginning on
or after the Closing Date; (xii) as a result of any Closing Agreement, the
Company will not be required to include any item of income in, or exclude any
Tax Credit or item of deduction from, any taxable period (or portion thereof)
beginning on or after the Closing Date; (xiii) no intercompany obligation (as
described in Treas. Reg. ss. 1.1502-13(g)) between the Company, on the one hand,
and any other member of the Seller Consolidated Group, on the other hand, will
remain outstanding following the Closing and the Company has not engaged in any
transaction with Seller or any of its Affiliates which would result in the
recognition of income by the Company with respect to such transaction for any
period ( or portion thereof) ending on or after the Closing Date (including, but
not limited to, Code sections 355 and 1502); (xiv) no power of attorney
currently in force has been granted with respect to any matter relating to the
Taxes of the Company; (xv) no indebtedness of the Company is "corporate
acquisition indebtedness" within the meaning of Code Section 279(b); (xvi) no
property of the Company is property that the Company or any party to this
transaction is or will be required to treat as being owned by another Person
pursuant to the provisions of Code Section 168(f)(8) (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is tax-exempt use property within
the meaning of Code Section 168; and (xvii) the Company has not (A) filed a
consent pursuant to Code Section 341(f) or (B) agreed to have Code Section
341(f)(2) apply to any disposition of a subsection (f) asset (as such term is
defined in Code Section 341(f)(4)).
(b) The Company is a member of the affiliated group of which Seller is
the common parent, within the meaning of Section 1504(a) of the Code (the
"Seller Consolidated Group"), and such affiliated group files a consolidated
Federal Income Tax Return. The Company has not at any time been a member of an
affiliated group filing a consolidated Federal Income Tax Return other than the
Company Affiliated Group. Except with respect to any liability under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law) that directly results from the Company being a member of the Seller
Consolidated Group, the Company will not have as of the Closing Date any
liability for Taxes of any Person other than the Company (i) as a transferee or
successor, (ii) by contract (including any Tax Sharing Agreements) or (iii)
otherwise.
(c) The Company has complied with all applicable laws relating to the
payment and withholding of Taxes and has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
Person.
17
(d) Schedule 3.12(d) sets forth the amount of any net operating loss,
net capital loss, unused credit, unused foreign tax, or excess charitable
contribution allocable to the Company as of June 30, 2002.
(e) Other than as set forth in Schedule 3.12(e), there is no dispute
or claim concerning any material Tax liability of the Company. Schedule 3.12(e)
lists all Company Tax Returns filed on or after January 1, 1999 that have been
the subject of an Audit, and indicates all Company Tax Returns that currently
are the subject of an Audit. Seller has delivered or made available to Buyer
correct and complete copies of all Income Tax Returns and examination reports
and all other relevant written materials with respect to any Audit which pertain
to the Company.
(f) The Company has not executed any waiver or comparable consent
regarding any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(g) The Company (i) has not made any payments, (ii) is not obligated
to make any payments, and (iii) is not a party to, any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
(h) The Company does not have an existing policyholder surplus account
as defined in Code Section 815(e).
Section 3.13. Employee Matters.
(a) Schedule 3.13 contains a list of each material plan, program,
arrangement and Contract which is maintained by the Company or under which the
Company is obligated to make contributions and which provides benefits or
compensation to or on behalf of employees or former employees of the Company,
including, but not limited to, executive arrangements and "employee benefit
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). All such material plans, programs, arrangements
or Contracts are referred to herein as "Company Employee Plans." Seller has made
available to Buyer the plan documents or other writing constituting each Company
Employee Plan that has been reduced to writing (or a written description of any
Company Employee Plan which has not been reduced to writing) and, if applicable,
the trust, insurance contract or other funding arrangement, the ERISA summary
plan description and the three most recent Forms 5500 financial statements and
actuarial reports for each such Company Employee Plan. Seller has made available
to Buyer accurate copies of the most recent favorable determination letters for
all Company Employee Plans qualified under Section 401(a) of the Code.
(b) There does not now exist, nor do any circumstances exist that
would result in, any Company Controlled Group Liability (as defined below) that
is reasonably likely to be a liability of the Company following the Closing
Date. "Company Controlled Group Liability" means any and all liabilities under
(i) Title IV of ERISA, (ii) Section
18
302 of ERISA, (iii) Sections 412 and 4971 of the Code and (iv) the continuation
coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the
Code. The Company has not (i) participated in any multiemployer plan (as defined
in Section 3(37) of ERISA) or (ii) incurred any liability to a multiemployer
plan that has not been satisfied in full.
(c) Except as set forth on Schedule 3.13, the Company is not obligated
to provide post-employment or retirement medical benefits or any other unfunded
welfare benefits to or on behalf of any Person who is no longer an employee,
except for health continuation coverage as required by Section 4980B of the Code
or Part 6 of Title I of ERISA.
(d) Each Company Employee Plan has at all times been maintained in all
material respects, by its terms and in operation, in accordance with all
applicable laws, and each of those Company Employee Plans which are intended to
be qualified under Section 401(a) of the Code has at all times been maintained
in all material respects, by its terms and in operation, in accordance with
Section 401(a) of the Code.
(e) Neither Seller nor the Company is party to, or bound by, any
collective bargaining agreement or other Contract with a labor union or labor
organization and, to the Knowledge of Seller, there are no organizational
efforts with respect to the formation of a collective bargaining unit currently
being made or threatened involving the employees of the Company. There is no
unfair labor practice or labor arbitration proceeding or, to the Knowledge of
Seller, threatened against Seller or the Company. Seller and the Company are
each in compliance, in all material respects, with all applicable laws regarding
employment, consulting, employment practices, wages, hours and terms and
conditions of employment.
(f) There have been no prohibited transactions within the meaning of
Section 4975 of the Code or Section 406 of ERISA with respect to the Company
Employee Plans for which an exemption is not available, no fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any Company
Employee Plan, and no action, suit, proceeding, hearing or investigation with
respect to any Company Employee Plan (other than routine claims for benefits) is
pending or, to the Knowledge of Seller, threatened.
(g) Any Company Employee Plan (or liability related thereto) is by its
terms able to be amended or terminated by the Company.
(h) All accrued contributions, premiums and other payments that would
be (without regard to the transactions contemplated hereby), but are not yet,
due from the Company to (or under) any Company Employee Plan have been
adequately and properly provided for on the Company's financial statements. The
funding method used in connection with each Company Employee Plan which is
subject to the minimum funding requirements of ERISA is acceptable under law,
and the actuarial assumptions used in connection with funding each such plan are
reasonable.
19
(i) All contributions and payments required by law or any Company
Employee Plan agreement (including all employer contributions and employee
salary reduction contributions for any period on or before the Closing Date) to
have been made under any such Company Employee Plan (without regard to any
waivers granted under Section 412 of the Code to any fund, trust, or account
established thereunder or in connection therewith) have been made or will have
been made by the due date thereof.
(j) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any Company Employee (or any former employee of
the Company) to severance pay, unemployment compensation, retention pay or any
other payment from the Company, except as expressly provided in this Agreement,
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation from the Company due to any such Company Employee (or former
employee of the Company).
(k) The Company does not have any "leased employees" within the
meaning of Code Section 414(n).
Section 3.14. No Brokers. No broker or finder has acted directly or
indirectly for Seller or the Company, nor has Seller or the Company incurred any
obligation to pay any brokerage or finder's fee or other commission in
connection with the transactions contemplated by this Agreement.
Section 3.15. Insurance Business.
All policy forms issued by the Company prior to July 1, 2002, and all
amendments, applications, brochures, illustrations and certificates pertaining
thereto have, where required by applicable law, been approved by all applicable
Governmental Entities or filed with and not objected to by such Governmental
Entities within the period provided by applicable law for objection, subject to
such exceptions as would not, individually or in the aggregate, have a Material
Adverse Effect. All such forms comply in all material respects with, and have
been administered in all material respects in accordance with, applicable law.
Any rates of the Company which are required to be filed with or approved by any
Governmental Entity have been so filed or approved and the rates used by the
Company conform in all material respects thereto. For the avoidance of doubt,
the representations and warranties made by Seller in this Section 3.15 shall not
apply to policy forms (or amendments, applications, brochures, illustrations or
certificates pertaining thereto) or rates that are jointly developed or produced
by, or are related to business that is jointly developed or produced by, Buyer
and Seller (including the Company). Seller has made available to Buyer copies of
all financial examination reports of the Delaware Department of Insurance with
respect to the Company which have been completed and issued since January 1,
1999. Except as set forth in Schedule 3.15, since January 1, 1999, no violations
material to the financial condition of the Company have been asserted in writing
by the Delaware Department of Insurance, other than any violation which has been
cured or otherwise resolved to the satisfaction of the Delaware Department of
Insurance or which is no longer being pursued by the Delaware Department of
Insurance following a response from the Company.
20
Section 3.16. Assets. Except as set forth on Schedule 3.16 and except
for Assets disposed of since December 31 of the year preceding the Closing Date
in the ordinary course of business: (i) the Company has good title to all Assets
that are disclosed or otherwise reflected in the SAP Statements for such year
and all Assets acquired thereafter, and all such Assets are owned by the
Company, free and clear of all Liens, other than Permitted Liens listed on
Schedule 3.16; and (ii) the Company owns, has a valid leasehold interest in or
has a valid right under contract to use, all personal property that is material
to the conduct of its business, free and clear of all Liens, other than
Permitted Liens listed on Schedule 3.16.
Section 3.17. Real Property. Schedule 3.17 sets forth a complete and
correct list of (i) all real property owned by the Company (together with all
improvements or fixtures thereon owned by the Company, the "Owned Real
Property") and (ii) all real property in which the Company has a leasehold
interest (the "Leased Real Property") that is material to the conduct of the
business of the Company. The Company has good and marketable fee simple title to
the Owned Real Property free and clear of all Liens, other than Permitted Liens
listed on Schedule 3.17. The Company has a valid leasehold interest in the
Leased Real Property.
Section 3.18. Environmental Matters. There is no legal,
administrative, or other proceeding, claim or action of any nature seeking to
impose on the Company any liability relating to the release of hazardous
substances as defined under any local, state or federal environmental statute,
regulation or ordinance, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended,
pending or, to the Knowledge of Seller, threatened against the Company; to the
Knowledge of Seller, there is no reasonable basis for any such proceeding, claim
or action; and to the Knowledge of Seller, the Company is not subject to any
agreement, order, judgment, or decree by or with any court, Governmental Entity
or third party imposing any such environmental liability on the Company.
Section 3.19. Books and Records. The Books and Records are consistent
with and accurately reflect the business of the Company in all material
respects.
Section 3.20. Insurance. Schedule 3.20 sets forth a list of all
policies and binders of fire, liability, product liability, workers'
compensation, vehicular and other insurance covering the Company as of the date
of this Agreement, other than reinsurance treaties and agreements listed on
Schedule 3.21(a). The policies and binders listed on Schedule 3.20 are valid and
enforceable in accordance with their terms and are in full force and effect
(assuming no default by any such insurer).
Section 3.21. Reinsurance. Schedule 3.21(a) contains a list of all
reinsurance treaties and agreements, including retrocessional agreements, to
which the Company is a party or under which it has any existing rights,
obligations or liabilities, and Schedule 3.21(b) contains a list of all
reinsurance treaties and agreements, including facultative certificates, between
Seller or any of Seller's Affiliates, on the one hand, and the Company, on the
other hand. All reinsurance treaties and agreements set forth on
21
Schedule 3.21(a) and on Schedule 3.21(b) are in full force and effect as of the
date hereof and, to the Knowledge of Seller, no party thereto is in default in
any material respect as to any provision thereof; and, except as set forth on
Schedule 3.21(c) no such agreement contains any provision providing that any
party thereto may terminate such agreement by reason of the transactions
contemplated by this Agreement.
Section 3.22. Products.
All Life Insurance Contracts issued, assumed, modified, exchanged or
sold by the Company which are subject to Sections 101(f) or 7702 of the Code
qualify (and have qualified since issuance) as "life insurance contracts" within
the meaning of Sections 101(f) or 7702(a) of the Code, as applicable. No Life
Insurance Contract issued, assumed, modified, exchanged or sold by the Company
is a "modified endowment contract" within the meaning of Section 7702A of the
Code, except for those Life Insurance Contracts that the Company is
administering as modified endowment contracts and with respect to which the
Company has notified the policyholder, before the date hereof, that the contract
constitutes a modified endowment contract.
Section 3.23. Technology and Intellectual Property.
(a) The Company owns or possesses, or has enforceable rights or
licenses to use, the Intellectual Property that is necessary to carry on its
business as presently conducted (each, an "Intellectual Property Right"), except
where the failure to so own or possess, or have enforceable rights or licenses
would not have a Material Adverse Effect on the Company. Neither the Company nor
any of its Subsidiaries has received any written notice of any infringement of
the rights of others with respect to any Intellectual Property Right that, if
such infringement is determined to be unlawful, would have a Material Adverse
Effect on the Company. Except as set forth in Schedule 3.23, the execution and
delivery of this Agreement by Seller, and the consummation of the transactions
contemplated hereby, will neither cause the Company or any of its Subsidiaries
to be in violation or default under any licenses, sublicenses or other
agreements to which the Company or any of its Subsidiaries is a party and
pursuant to which the Company or its Subsidiaries is authorized to use any
Intellectual Property Right, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement, except where any such violation, default, termination or modification
would not have a Material Adverse Effect on the Company.
(b) No use of any Intellectual Property Right by the Company or any of
its Subsidiaries infringes any rights of any third party or (except for the
payment of licensing fees) requires any payment for the use of proprietary
rights or rights in Intellectual Property or technology owned by any third
party.
22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 4.01. Organization and Standing. Buyer (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
state of California, (ii) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business makes such qualification necessary and (iii) has the corporate
power and authority to conduct its business as currently conducted, except in
the case of each of clauses (ii) and (iii), as would not individually or in the
aggregate impair the ability of Buyer to perform its obligations under this
Agreement.
Section 4.02. Authorization. Buyer has full corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement and the performance by Buyer of its
obligations hereunder have been duly and validly authorized and approved by all
requisite corporate action of Buyer, and no other acts or proceedings on its
part are necessary to authorize the execution, delivery and performance of this
Agreement or the transactions contemplated hereby. Assuming due authorization by
Seller, this Agreement constitutes the legal, valid and binding obligation of
Buyer enforceable in accordance with its terms, subject to the Enforceability
Exceptions.
Section 4.03. Consents and Approvals. Except as set forth in Schedule
4.03 hereto, no consent, approval, non-disapproval, authorization, ruling, order
of, notice to, or registration with any Governmental Entity or any other Person,
is required on the part of Buyer in connection with the execution and delivery
of this Agreement or the consummation by Buyer of the transactions contemplated
hereby or thereby.
Section 4.04. No Conflict or Violation. Except as disclosed in
Schedule 4.04, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Buyer in accordance with
the terms and conditions hereof, will not (i) violate any provision of Buyer's
(a) articles of incorporation, (b) bylaws or (c) other charter or organizational
document; (ii) violate, conflict with or result in the breach of any of the
terms of, result in any modification of, accelerate or permit the acceleration
of the performance required by, otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time, or both) a
default under, any agreement to which Buyer is a party or by or to which it or
any of its assets or properties may be subject; (iii) violate any order,
judgment, injunction, award or decree of any court, arbitrator or Governmental
Entity against, or binding upon, or any agreement with, or condition imposed by,
any Governmental Entity, foreign or domestic, binding upon Buyer, or upon the
assets or business of Buyer; or (iv) violate any statute, law or regulation of
any jurisdiction as each statute, law or regulation relates to Buyer or to the
assets or business of Buyer, except, in the case of clauses (ii) through (iv) of
this Section 4.04, as would not materially impair the ability of Buyer to
perform its obligations under this Agreement.
23
Section 4.05. Actions Pending. Except as set forth in Schedule 4.05,
there is no claim, action, suit, arbitration, investigation or other formal
proceeding pending or, to the Knowledge of Buyer, threatened against Buyer, or
any properties or rights of Buyer, by or before any court, arbitrator or
administrative or Governmental Entity, which action, suit, investigation or
proceeding would materially impair the ability of Buyer to perform its
obligations under this Agreement.
Section 4.06. Resources. Buyer has sufficient expertise, trained
personnel, resources, systems, controls and procedures (financial, legal,
accounting, administrative or otherwise) as may be necessary or appropriate to
discharge its obligations after Closing under the terms of this Agreement.
Section 4.07. Investment Intent. Buyer is acquiring the Shares for its
own account for investment purposes only and not for purposes of, or with a view
to, or for offer or sale in connection with, any distribution. Buyer is an
"accredited investor" within the meaning of Regulation D pursuant to the
Securities Act.
Section 4.08. No Brokers. No broker or finder has acted directly or
indirectly for Buyer, nor has Buyer incurred any obligation to pay any brokerage
or finder's fee or other commission in connection with the transactions
contemplated by this Agreement.
ARTICLE V
PRE-CLOSING COVENANTS
Seller and Buyer covenant as follows for the period from the date of
this Agreement through the Closing Date:
Section 5.01. Right of Access and Inspection. Buyer shall have the
right, through its officers, employees, consultants, accountants, actuaries,
attorneys and other designated agents and representatives, upon reasonable
notice, during normal business hours and in a manner so as not to disrupt the
orderly conduct of business of the Company, to (i) inspect (and make copies of)
such of the Books and Records as Buyer may reasonably request; and (ii) make
such reasonable investigation of the Assets, liabilities, financial condition,
properties, business and operations of the Company as Buyer may reasonably deem
necessary or appropriate, and for such purposes to have access to the Books and
Records and Contracts and facilities of the Company, and access to the Personnel
of the Company, Seller and Seller's Affiliates that perform work for, or have
knowledge of facts relating to, the Company (including the Employees), including
an examination of the corporate records and minute books, financial statements
and projections, insurance department filings, reports and examinations,
summaries of pending litigation, Tax Returns, accounting and actuarial methods,
business plans and prospects, in each case wherever located, of the Company;
provided, that Buyer will take reasonable steps to maintain the confidentiality
of all Books and Records. Seller shall, and shall cause the Company and Seller's
Affiliates, and their respective officers, employees (including the Employees),
agents and representatives, including their
24
respective counsel and independent public accountants, to cooperate fully with
Buyer in connection with such investigation, access and examination. Buyer shall
have the right to audit the books of the Company so as to enable Buyer to
prepare any GAAP financial statements for the Company that may be required to be
filed with the SEC on consummation of the transaction.
Section 5.02. Conduct of Business
(a) Except as set forth on Schedule 5.02, prior to the Closing Date or
the termination of this Agreement pursuant to the terms hereof, Seller shall
cause the Company to (i) conduct its business only in the ordinary course of
business; (ii) not issue, sell, grant, pledge or otherwise encumber any shares
of its capital stock, any other equity securities or any securities convertible
into equity securities, or any rights, warrants, options to acquire, any such
shares, equity securities or convertible securities; (iii) not amend its
certificate of incorporation, by-laws or other comparable organizational
documents; (iv) not acquire any corporation, partnership, joint venture,
association or other business organization or division thereof, or substantially
all of the assets of any of the foregoing; (v) not (A) incur any indebtedness
for borrowed money or guarantee or otherwise become responsible for any such
indebtedness of another Person, except in the ordinary course of business or (B)
make any material loans, advances or capital contributions to, or investments
in, any other Person, other than to the Company and loans and advances to agents
and employees in the ordinary course of business and other than as to such
matters related to the investment portfolio of the Company in the ordinary
course of business; (vi) preserve intact its present organization, business and
franchise; (vii) maintain in effect all material licenses, approvals,
qualifications, registrations and authorizations necessary to carry on its
business as currently conducted; (viii) preserve material existing relationships
with its employees and agents, other distribution sources, customers, lenders,
suppliers, regulators, insureds, rating agencies and others with which it has
material business relationships; (ix) continue its advertising and promotional
activities, pricing and purchasing policies, operations and business plan
implementation consistent with past practice; (x) continue in full force and
effect without material modification all existing policies or binders of
insurance currently maintained in respect of its Assets, properties, business,
operations, employees, officers or directors except as required by applicable
law; and (xi) not undertake any material new business initiatives without the
prior written consent of Buyer, which consent shall not be unreasonably
withheld; (xii) not make any material changes to any of the accounting,
underwriting, pricing, actuarial, tax, administrative, marketing or agency
principles, practices, methods or policies (including, but not limited to, any
reserving methods, practices or policies) employed with respect to the Company,
except as may be required as a result of a change in Applicable Law, including
SAP; and (xiii) not (A) make or rescind any express or deemed election relating
to Taxes, (B) make a request for a Tax Ruling or enter into a Closing Agreement,
or settle or compromise any Audit or other controversy relating to Taxes, to the
extent such action results in a Tax Detriment to the Company for any Post
Closing Tax Period, (C) change any of its methods of reporting income,
deductions or accounting for federal income tax purposes from those employed in
the preparation of its federal income Tax Return for the taxable year ending
December 31,1999, except as may be required by a change in Applicable Law after
the date hereof or (D) file any Tax
25
Return in manner inconsistent with past custom and practice, except as may be
required by a change in Applicable Law after the date hereof.
(b) Without the prior written consent of Buyer, which consent shall
not be unreasonably withheld, Seller will not, and will not permit the Company
to (i) take or omit to take any action that would be reasonably likely to cause
any of the representations and warranties made by Seller in this Agreement to
become untrue; or (ii) take any action that would prevent or materially impair
the ability of Seller to consummate the transactions contemplated by this
Agreement, including, without limitation, actions that would be reasonably
likely to prevent or materially impair the receipt of any consent, registration,
approval, permit or authorization, that is necessary in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
(c) At least 30 days prior to the Company making any capital
expenditures in excess of $100,000 in the aggregate (except as required to
support the business generated by LMG), Seller shall notify Buyer of such
proposed capital expenditure and Buyer shall have the right to notify Seller of
its objection to such capital expenditure; provided, however, that the ultimate
decision of whether to make any such capital expenditure rests with the Company.
The Purchase Price shall be reduced pursuant to Section 2.01(d) for any losses
to the Company caused by any capital expenditure that the Company makes as to
which Buyer has provided a timely objection as provided in this Section 5.02(c)
and if the Closing has occurred, Seller shall indemnify Buyer pursuant to
Section 10.01(a)(iii) for any such losses that have not been applied to reduce
the Purchase Price.
Section 5.03. Cooperation. Each party shall use its reasonable best
efforts, in cooperation with the other party, to satisfy all conditions
precedent to the consummation of the transactions contemplated by this
Agreement.
Section 5.04. Regulatory Approvals. Each of Seller and Buyer shall use
its reasonable best efforts, and shall reasonably cooperate with each other in
such efforts, to obtain the approvals of all Governmental Entities required to
be obtained by Seller or Buyer or by any Affiliate of Seller or Buyer in order
to consummate the transactions contemplated by this Agreement. Seller and Buyer
shall make and cause their respective subsidiaries to make all necessary filings
as soon as practicable, including, without limitation, those required by the
Hart-Scott-Rodino Act (if deemed necessary by the parties) and applicable
insurance laws in order to facilitate prompt consummation of the transactions
contemplated by this Agreement. Seller and Buyer shall use reasonable best
efforts to provide such information and communications to any Governmental
Entity as such Governmental Entity may reasonably request. Each of Seller and
Buyer shall provide to the other copies of all non-confidential portions of
applications filed or submitted with any Governmental Entity in connection with
this Agreement and shall keep the other apprised of the status of matters
relating to the completion of the transactions contemplated by this Agreement.
26
Section 5.05. Notification of Changes. Each party shall give each
other prompt notice after it has obtained knowledge of (a) any fact or
circumstance which renders untrue, incorrect or misleading in any material
respect any of the representations and warranties made by it in this Agreement,
whether as of the date such representation and warranty was made or as of the
date such knowledge was obtained and (b) any failure on its part to comply with
or satisfy in any material respect any covenant, condition or agreement which
they are to comply with or satisfy under this Agreement and (c) any adverse
change affecting its ability to perform its obligations under this Agreement.
Section 5.06. Confidentiality of Information. The parties shall
maintain strict confidentiality during the development and pre-marketing stages
with respect to any products jointly developed by them except with respect to
information that has otherwise become publicly known, or as required by
applicable law, court order, or regulatory authority.
Section 5.07. Intercompany Accounts. Schedule 5.07(a) contains a
complete list of all intercompany balances, including loans and advances and
commitments with respect thereto, and specifies the principal amount, rate of
interest and payment terms thereof in respect of the Company, on the one hand,
and Seller and Seller's Affiliates (other than the Company), on the other hand.
All intercompany balances listed on Schedule 5.07(a) (other than those set forth
in Schedule 5.07(b)) shall have been satisfied and all commitments with respect
thereto shall have been terminated on or before the Closing Date.
Section 5.08. Long-Term Contracts. At least 30 days prior to entering
into any such contract or making any such commitment, Seller shall provide
notice to Buyer of the Company's intent to enter into any Contract that by its
terms extends beyond one year and is either not cancelable by the Company or is
cancelable by the Company with a penalty (other than any Insurance Contract with
respect to which LMG acted as agent or to which LMG or Buyer is a party) (a
"Long Term Non-Cancelable Contract"). Buyer shall have the right to notify
Seller of its objection to any such contracts or commitments in its reasonable
discretion within thirty (30) days of its receipt of notice from Seller or the
Company of the Company's intent to enter into any such contract or commitment;
provided, however, that the ultimate decision of whether to enter into any such
contract or commitment shall rest with the Company. The Purchase Price shall be
reduced pursuant to Section 2.01(d) for any losses to the Company caused by any
contract or commitment that the Company enters into as to which Buyer has
provided a timely objection as provided in this Section 5.08 and if the Closing
shall have occurred, Seller shall indemnify Buyer pursuant to Section
10.01(a)(iii) for any such losses that have not been applied to reduce the
Purchase Price.
Section 5.09. Extraordinary Payments. Seller covenants and agrees that
it shall cause the Company not to pay dividends, distributions, loans, capital
or extraordinary payments to Seller, or to make any other payments by the
Company to Seller other than payments in the ordinary course of business by the
Company to Seller (including but not limited to, payments under existing
reinsurance, management service or tax allocation agreements), which shall be
permissible; provided, however, the parties
27
acknowledge that the ultimate decision to make any such dividends,
distributions, loans or extraordinary payments rests with the board of directors
of the Company. The Purchase Price will be reduced by the amount of any such
dividends, distributions, loans, capital or extraordinary payments pursuant to
Section 2.01(c). Copies of any such intercompany agreements shall be made
available to Buyer.
Section 5.10. Board of Directors Meetings. Seller shall cause the
Company to allow two persons designated by Buyer to (i) attend meetings of the
Company's board of directors and (ii) attend meetings with representatives of
rating agencies relating to the business and operations of the Company.
Section 5.11. NAIC/State Investigations. Seller shall provide prompt
notice to Buyer of any investigations initiated, or issues identified, by the
National Association of Insurance Commissioners or any state insurance
department or any other Governmental Entity with respect to the Company, and
Seller shall provide Buyer with copies of any and all correspondence pertaining
thereto.
Section 5.12. Annuity and Life Insurance Products. Seller shall not
and Seller shall cause the Company to not engage in any transaction with any
independent producer group with respect to any annuities or life insurance
products which transaction is similar to the Marketing Agreement dated as of
June 5, 2002 between LMG and the Company; provided, however, the parties
acknowledge that the ultimate decision to enter into any such contracts rests
with the board of directors of the Company. If the transactions contemplated by
this Agreement and the Purchase Option Agreement are consummated, the Purchase
Price shall be reduced pursuant to Section 2.01(d) for any current or projected
future losses to Buyer caused by any contract or commitment that the Company or
Seller enters into for which Seller has not obtained the prior written consent
of Buyer, or if the Closing shall have occurred, Seller shall indemnify Buyer
pursuant to Section 10.01(a)(iv) for any such losses that have not been applied
to reduce the Purchase Price. Seller will maintain strict confidentiality with
respect to any products jointly developed with Buyer.
Section 5.13. TPA Business
(a) Seller shall give Buyer 30 days advance notice of any proposed new
non-Buyer related TPA Agreements that involve IMG or the Company. Buyer shall
have the right to review any such agreements and object to any such agreements
involving the Company; provided, however, the parties acknowledge that the
ultimate decision to enter into any such agreements rests with the board of
directors of the Company.
(b) Buyer shall also have the right to request that the Company
transfer IMG at its statutory book value as of June 30, 2002 (current value)
with no after-tax gain or loss to the Company based on current value, to another
Seller company; provided, however, the parties acknowledge that the ultimate
decision to make any such transfer rests with the board of directors of the
Company. The Purchase Price shall be reduced pursuant to Section 2.01(d) or
Seller shall indemnify the Company pursuant to Section 10.01(a)(iii) for the
liabilities related to any such TPA Agreements.
28
Section 5.14. Statutory Financial Information. Seller shall provide
Buyer with statutory financial information that shows separate reporting lines
for (i) business produced through Buyer or its subsidiaries including LMG and
(ii) business of the Company not produced through Buyer or its subsidiaries
("Non-Buyer Business"). The Purchase Price shall be reduced pursuant to Section
2.01(d) for any losses to Buyer or the Company resulting from the Non-Buyer
Business or Seller shall indemnify Buyer pursuant to Section 10.01(a)(ii) for
any such losses that have not been applied to reduce the Purchase Price.
Section 5.15. Participation in Meetings. Buyer shall have the right to
attend and participate in the Company's investment and product management
committee meetings with respect to interest rates, product design/pricing and
asset/liability modeling; provided, however, that the Company shall have
ultimate decision making authority at such meetings.
Section 5.16. Capacity for Buyer-produced Products. Seller agrees to
provide or find capacity for Buyer-produced products meeting Seller's return on
investment objectives either in the Company or another insurance company;
provided that the ultimate decision of the Company to underwrite any such
products shall rest with the board of directors of the Company. Seller will
provide capacity for $1.0 billion of annual production and will use its best
efforts to provide or find capacity for amounts in excess of $1.0 billion
annually.
Section 5.17. Amendments to Reinsurance Agreements. Seller agrees to
reinsure Company business produced through Buyer or its subsidiaries (including
LMG) (i) on an automatic 80% quota share coinsurance basis pursuant to one or
more treaties with terms that would be found in agreements negotiated on an
arm's length basis, and (ii) on an additional automatic 10% quota share funds
withheld coinsurance basis pursuant to one or more treaties under which Seller
will provide the Company with surplus in exchange for an annual expense and risk
charge of 2% of surplus provided until the Closing Date, after which the expense
and risk charge shall be adjusted to a market rate as determined by a nationally
recognized actuarial firm, but in no event in excess of 6% per year. Beginning
on the Closing Date, the Company shall have the right to require recapture of
the 10% quota share funds withheld treaties pursuant to their terms. In
addition, Seller agrees (subject to receipt of regulatory approval or
non-disapproval) to amend all Company reinsurance treaties (including those
covering Non-Buyer Business) as of the Closing Date to include (i) a DAC tax
provision designed to achieve equitable allocation between the parties and (ii)
a provision for reinsurer participation in state guaranty fund assessments.
Seller will not otherwise amend such reinsurance treaties and will cause the
Company to maintain such reinsurance treaties in force prior to the Closing
Date; provided, however, the parties acknowledge that the ultimate decision of
the Company to amend or terminate such treaties rests with the board of
directors of the Company. Notwithstanding the preceding sentence, Seller may at
its sole option cause the management of the Company to amend or novate
reinsurance treaties covering Non-Buyer Business provided that any such
amendment or novation does not have an adverse effect on the Company. If the
transactions contemplated by this Agreement and the Stock Purchase Agreement are
consummated, the Purchase Price shall
29
be adjusted pursuant to Section 2.01(d) for any current or projected future
losses to the Company caused by any amendment, novation or termination of any
reinsurance treaty between Seller or its Affiliates and the Company for which
Seller has not obtained the prior written consent of Buyer, and if the Closing
shall have occurred, Seller shall indemnify Buyer pursuant to Section
10.01(a)(iv) for any such losses that have not been applied to reduce the
Purchase Price.
Section 5.18. Maintenance of Credit Rating. Seller shall use its best
efforts to maintain the Company's credit rating issued by A.M. Best & Co. at
"A-" or better.
Section 5.19. Acknowledgement of Investment Guidelines. Buyer has
provided Seller a formal acknowledgment of the current investment guidelines for
the Company, and any revisions thereto. Buyer understands and agrees that the
investment advisor for Seller will continue to act with discretionary authority
under the approved investment guidelines to construct comparable investment
portfolios between Seller and the Company, it being understood that investments
allocated to the Company shall be representative of Seller's total investment
portfolio as to yield, credit rating and risk. Seller shall advise Buyer of all
investment review conclusions. Buyer may recommend to Seller the exclusion or
further limitation of any approved asset class in the investment guidelines;
provided, however, the ultimate investment decisions shall rest with the board
of directors of the Company. To the extent such recommendations are accepted by
Seller, Buyer must then accept any impact that this action has on the pricing of
the underlying policies or interest credited to the policyholders. On a
prospective basis, Buyer may also provide Seller with a specific list of
individual securities that Buyer does not wish to be purchased for the
portfolios on a prospective basis. Both Seller and Buyer accept the financial
impact of the securities purchased previously for the portfolios and will work
together to optimize the economic results.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF BUYER TO CLOSE
Buyer's obligation to consummate the transactions contemplated by this
Agreement is subject to the fulfillment on or prior to the Closing Date of the
following conditions, any one or more of which may be waived by Buyer to the
extent permitted by law:
Section 6.01. Representations and Covenants. The representations and
warranties of Seller contained in this Agreement shall be true and correct on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date, except that any such representations and warranties that
are given as of a particular date and relate solely to a particular date or
period shall be true and correct as of such date or period. Seller shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by Seller
on or prior to the Closing Date. On the Closing Date, Seller shall have
30
delivered to Buyer a certificate dated as of the Closing Date, and signed by a
senior officer of Seller, to the effect contemplated by this Section 6.01.
Section 6.02. Administrative Services Agreement(a) . Seller and the
Company shall have entered into an administrative services agreement (the
"Administrative Services Agreement") on terms acceptable to Buyer in its sole
discretion, pursuant to which the Company shall administer Non-Buyer Business,
if such business remains with the Company, or Seller or an Affiliate of Seller
will assume the administration thereof.
Section 6.03. Approvals and Consents. The approvals and consents
listed on Schedules 3.03 and 4.03 hereto shall have been received, or deemed
received; provided, however, that if Seller cannot obtain a consent listed in
Schedule 3.03 from a Person other than a Governmental Entity, Seller shall have
the option (but not the requirement) to provide Buyer with substantially
equivalent arrangements with respect to the item for which such consent could
not be obtained, in which event the condition contained in this Section 6.03
shall be deemed satisfied. All applicable waiting periods under any federal or
state statute or regulation shall have expired or been terminated.
Section 6.04. Injunction and Litigation. There shall not be in effect
or threatened any injunction, writ, preliminary restraining order or any order
of any nature directing that the transactions contemplated by this Agreement not
be consummated as herein provided.
Section 6.05. Employee Matters. Immediately prior to the Closing,
Seller shall have caused the Company to terminate the employment of all Company
Employees. Buyer shall have the right, but not the obligation, to offer
employment to any or all Company Employees on such terms and conditions as may
be determined by Buyer. From and after the Closing Date, Buyer shall grant all
Company Employees who become employees of Buyer or any subsidiary of Buyer
(including the Company) ("Transferred Employees"), for purposes of all such
benefit rights, credit for all service with Seller, the Company or any other
Affiliate of Seller prior to the Closing Date (to the same extent that such
service would have been taken into account if it had been service with Buyer)
except, in the case of retirement benefits, to the extent that this would result
in duplication of accruals. Buyer and Seller agree that where applicable with
respect to any medical or dental benefit plan of Buyer, (i) Buyer shall waive,
with respect to any Transferred Employee, any pre-existing condition exclusion
and actively-at-work requirements (to the extent such exclusion or requirement
would not have applied under the applicable Company Employee Plan) and (ii) any
covered expenses incurred on or before the Closing Date by a Transferred
Employee or a Transferred Employee's covered dependents shall be taken into
account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions after the Closing Date to the same extent as
such expenses would be taken into account if incurred by similarly situated
employees of Buyer.
31
Section 6.06. Lease Obligations. Seller shall have assumed all
obligations, including, without limitation, rental obligations, related to all
Leased Real Property.
Section 6.07. Certificate of Non-Foreign StatusSection 6.08. . Buyer
shall have received a certificate from Seller (which complies with Section 1445
of the Code) of non-foreign status executed in accordance with the provisions of
Section 897 of the Code.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SELLER TO CLOSE
Seller's obligation to consummate the transactions contemplated by
this Agreement is subject to the fulfillment on or prior to the Closing Date of
the following conditions, any one or more of which may be waived by Seller to
the extent permitted by law.
Section 7.01. Representations, Warranties and Covenants. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date, except that any such representations
and warranties that are given as of a particular date and relate solely to a
particular date or period shall be true and correct as of such date or period.
Buyer shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by Buyer on or prior to the Closing Date. On the Closing Date, Buyer shall
have delivered to Seller a certificate dated as of the Closing Date, and signed
by a senior officer of Buyer, to the effect contemplated by this Section 7.01.
Section 7.02. Approvals and Consents. The approvals and consents
listed in Schedule 3.03 and 4.03 hereto shall have been received or deemed
received. All applicable waiting periods under any federal or state statute or
regulation shall have expired or been terminated.
Section 7.03. Injunction and Litigation. There shall not be in effect
or threatened any injunction, writ, preliminary restraining order or any order
of any nature directing that the transactions contemplated by this Agreement not
be consummated as herein or therein provided.
ARTICLE VIII
POST-CLOSING COVENANTS
Section 8.01. Cooperation. After Closing, Seller and Buyer shall, and
Buyer shall cause the Company to, cooperate with each other by furnishing any
additional information and executing and delivering any additional documents as
may be
32
reasonably requested by the other to further perfect or evidence the
consummation of, or otherwise implement, any transaction contemplated by this
Agreement, or to aid in the preparation of any regulatory filing, financial
statement or Tax Return; 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.
Section 8.02. Post-Closing Obligation to Obtain Permits. Following the
Closing, Seller and Buyer will, and Buyer will cause the Company to, cooperate
fully in obtaining all necessary additional foreign, federal, state, local and
any other approval and/or consents and complying with any notice or filing
requirements of any such jurisdiction, as may be required in connection with the
consummation of the transactions contemplated hereby.
Section 8.03. Regulatory Compliance. Buyer and Seller and their
agents, representatives and Affiliates shall, and Buyer shall cause the Company
to, comply in all material respects with all laws, regulations, administrative
orders, bulletins and governmental pronouncements applicable to their conduct in
performing their obligations under this Agreement.
Section 8.04. Use of Names
(a) Notwithstanding any inference contained herein or in any prior
course of conduct to the contrary, except as permitted by written agreement, in
no event shall Buyer or any of its Affiliates have any right to use, nor shall
Buyer or any of its Affiliates use, any corporate name or acronym of Seller or
any of its Affiliates (other than the Company) in any jurisdiction, including
the names and acronyms set forth in Schedule 8.04, or any Intellectual Property,
domain name or URL or any application or registration therefor, owned by,
licensed to, or used by Seller or any of its Affiliates (other than the
Company), or any other name, term or identification that suggests, simulates or
is otherwise confusing due to its similarity to the foregoing. It is further
understood that Buyer and its Affiliates shall not have the right to use, and
shall not use, the name "SCOR."
(b) The parties hereto acknowledge that any damage caused to Seller or
any of its Affiliates by reason of the breach by Buyer or any of its Affiliates
of this Section 8.04 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 an injunction issued by a court of competent
jurisdiction restraining and enjoining any violation by Buyer or any of its
Affiliates of this Section 8.04, and Buyer further agrees that it will stipulate
to the fact that Seller or any of its Affiliates, as applicable, has been
irreparably harmed by such violation and not oppose the granting of such
injunctive relief.
Section 8.05. Investment Intent of Buyer. Buyer will refrain from
transferring or otherwise disposing of any of the Shares acquired by it, or any
interest
33
therein, in such manner as to violate any registration provision of the
Securities Act or any applicable state securities law regulating the disposition
thereof.
Section 8.06. Transfer Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees incurred in connection with
this Agreement shall be borne equally by Seller and Buyer.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 9.01. Survival of Representations, Warranties and Covenants.
The representations and warranties contained in Sections 3.01, 3.02, 3.04, 3.12,
3.22, 4.01 and 4.02 shall survive the Closing for 45 days following the
expiration of all applicable statutes of limitations including all extensions,
whether automatic or permissive. Except as provided in the previous sentence,
all representations, warranties and covenants made by Seller and Buyer in
Articles III, IV and VIII of this Agreement shall survive for a period of two
years after the Closing Date, whereupon they shall expire, and all claims for
breach of said representations and warranties will be deemed waived unless the
nonbreaching party notifies in writing the breaching party of the matters
constituting the breach prior to the expiration of said two-year period.
ARTICLE X
INDEMNIFICATION
Section 10.01. Obligation to Indemnify
(a) Seller agrees to indemnify, defend and hold harmless Buyer and its
directors, officers, employees, Affiliates and assigns from and against (i) the
financial impact, if any, of Founders' Policies, (ii) all claims, losses,
liabilities, damages, deficiencies, costs or expenses, penalties and reasonable
outside attorneys' fees and disbursements (collectively, "Losses," and
individually a "Loss"), asserted against, imposed upon or incurred by Buyer
directly or indirectly, by reason of or arising out of or in connection with
in-force contracts and Non-Buyer Business, (iii) Losses and liabilities incurred
by the Company or Buyer related to the Specified Matter, but only to the extent
that such Losses have not previously been deducted from the Purchase Price; (iv)
Losses and liabilities incurred by the Company or Buyer for capital
expenditures, long term contracts and TPA Agreements as to which Buyer has
timely objected pursuant to Sections 5.02(c), 5.08, or 5.13, as applicable, but
only to the extent that such Losses have not previously been deducted from the
Purchase Price; (v) current and projected Losses incurred (1) by the Buyer
pursuant to Section 5.12 or (2) by the Company pursuant to Section 5.17, as
applicable, but only to the extent such Losses have not previously been deducted
from the Purchase Price; (vi) Losses incurred by the Company from investments
not made in accordance with the investment guidelines established pursuant to
Section 5.20; (viii) Losses asserted against, imposed upon or incurred by Buyer
directly or indirectly, by reason of or arising out of or in connection with any
misrepresentation, breach of or failure to perform any representation, warranty,
covenant
34
undertaking or agreement of Seller in this Agreement; and (ix) liability
incurred by Buyer or the Company related to or arising out of the employment of
the Employees or any other employees of the Company or its Affiliates on or
prior to the Closing Date (including any liability related to or arising out of
any Plan and any liability related to termination of employment on or prior to
the Closing Date). The maximum amount for which Seller shall be liable under
this Article X shall not exceed in the aggregate the Purchase Price. No
individual Loss not in excess of $25,000 shall be indemnifiable under this
Article X or considered in determining the amounts for which indemnity would
otherwise be provided under this Section 10.01(a).
(b) Buyer agrees to indemnify, defend and hold harmless SCOR, the
ultimate parent holding company of Seller ("SCOR"), from and against (i) any
claims relating to business generated by LMG arising under (1) that certain
Letter of Guarantee Agreement from SCOR dated as of September 1, 2000, (2)
Letter of Guarantee dated February 1, 2002 and (3) Guarantee Agreement dated
December 27, 2002, pursuant to which SCOR guaranteed that the Company would
perform its claims payment obligations, and any renewals or extensions thereof,
(ii)Losses asserted against, imposed upon or incurred by Seller directly or
indirectly, by reason of or arising out of or in connection with any
misrepresentation, breach of or failure to perform any representation, warranty,
covenant undertaking or agreement of Buyer in this Agreement, and (iii) the
conduct of the business of the Company from and after the Closing. The maximum
amount for which Buyer shall be liable under this Article X shall not exceed in
the aggregate the Purchase Price and no individual Loss not in excess of $25,000
shall be indemnifiable under this Article X or considered in determining the
amounts for which indemnity would otherwise be provided under this Section
10.01(b).
Section 10.02. Notice of Asserted Liability. Promptly after receipt by
an indemnified party hereunder of notice of any demand, claim or circumstances
which, with or without the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, such
indemnified party shall give notice thereof (the "Claims Notice") to the
indemnifying party. The Claims Notice shall describe the Asserted Liability in
reasonable detail and shall indicate the amount (estimated, if necessary) of the
Loss that has been or may be suffered by such indemnified party and shall
include a statement as to the basis for the indemnification sought. Failure to
provide a Claims Notice in a timely manner shall not be deemed a waiver of the
indemnified party's right to indemnification other than to the extent that such
failure prejudices the defense of the claim by the indemnifying party.
Section 10.03. Opportunity to Defend. The indemnifying party may elect
to compromise or defend, at its own expense and by its own counsel, any Asserted
Liability; provided, however, the indemnifying party may not compromise or
settle any Asserted Liability without the consent of the indemnified party
(which consent shall not be unreasonably withheld or delayed) unless such
compromise or settlement requires no more than a monetary payment for which the
indemnified party hereunder is fully indemnified or involves no other matters
binding upon the indemnified party. If the indemnifying party elects to
compromise or defend such Asserted Liability, it shall
35
within 30 days from receipt of the Claims Notice notify the indemnified party of
its intent to do so, and the indemnified party shall cooperate, at the expense
of the indemnifying party, in the compromise of, or defense against, such
Asserted Liability.
Section 10.04. Exclusive Remedy. The parties hereto expressly
acknowledge that (a) the provisions of this Article X shall be the sole and
exclusive remedy for damages caused as a result of breaches of the
representations, warranties and covenants contained in this Agreement, except
that the parties shall not be limited to the remedies provided in this Article X
with respect to any covenants or agreements to be performed after the Closing
Date and (b) no indemnifying party shall be liable or otherwise responsible to
any other Person for special, consequential, incidental or punitive damages or
for diminution in value or lost profits that arise out of or relate to this
Agreement or the Related Agreements or the performance or breach hereof or
thereof.
Section 10.05. Third Party Beneficiaries. All indemnified parties are
intended to be third party beneficiaries of this Article X.
Section 10.06. Tax Loss. Any Losses with respect to Taxes shall be
subject to indemnification solely pursuant to the provisions of Article XI and
the provisions of this Article X shall not apply.
Section 10.07. After-tax Basis. The Parties agree to treat any payment
made with respect to any Losses pursuant to this Article X as an adjustment to
the Purchase Price to the extent permissible under Applicable Law. In the event
such payment can not be treated as an adjustment to purchase price, the payment
will be made on after-Tax basis, computed as though the indemnified party will
be taxed on such payment at the highest applicable marginal income tax rate
under federal, state and local law.
ARTICLE XI
TAX MATTERS
Section 11.01. Tax Indemnification
(a) Seller shall be liable for and shall indemnify and hold Company,
Buyer and its Affiliates harmless from and against Taxes of the Company arising
out of, relating to or otherwise attributable to (i) any Pre-Closing Tax Period,
(ii) Treasury Regulation Section 1.1502-6 (or any similar provision of foreign,
state or local law) with respect to Taxes of Seller or the Seller Consolidated
Group, (iii) any Tax Sharing Agreement in effect on or prior to the Closing
Date, (iv) misrepresentations or breaches of warranties provided on Section 3.12
and 3.22 of this Agreement, or (v) Transfer Taxes (as defined below), including
in each case, but not limited to, any Taxes attributable to any transaction
specifically contemplated by this Agreement other than any election under Code
section 338(h)(10), ((i), (ii), (iii), (iv) and (v) being referred to as a "Tax
Loss"); provided, however, that Seller shall only be liable for and shall only
be required to indemnify and hold Buyer harmless from and against the Tax Loss
to the extent, if any,
36
that the Tax Loss exceeds the amount specifically reserved and accrued as a
liability for Taxes on the June 30, 2002 SAP balance sheet with respect to such
Tax Loss (the "Excepted Amounts"). Buyer shall be liable for and shall pay (and
shall promptly indemnify and hold Seller and their Affiliates harmless from and
against) all Post-Closing Period Taxes of or attributable to the Company that
are not indemnifiable or payable by Seller pursuant to this Agreement. The term
"Pre-Closing Tax Period" shall mean all taxable periods ending on or before the
Closing Date and the portion ending on the Closing Date of any taxable period
that includes the Closing Date. The term "Post-Closing Tax Period" shall mean
all taxable periods that begin after the Closing Date and the portion beginning
after the Closing Date of any taxable period that includes (but does not end on)
the Closing Date.
(b) For purposes of this Section 11.01, in the case of any Taxes that
are imposed on a periodic basis and are payable for a Tax period that includes
(but does not end on) the Closing Date, the portion of such Tax related to the
portion of such Tax period ending on the Closing Date shall (i) in the case of
any Taxes other than Income Taxes (as defined below), be deemed to be the amount
of such Tax for the entire Tax period multiplied by a fraction the numerator of
which is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (ii) in
the case of any Tax directly or indirectly based upon or related to gross
income, net income, gains, sales, gross receipts, premiums, wages, capital
expenditures or expenses ("Income Taxes"), be deemed to be equal to the amount
which would be payable if the relevant Tax period ended on the Closing Date. In
the case of Income Taxes described in the preceding sentence, if either Buyer or
its Affiliates, on the one hand, or Seller or their Affiliates, on the other
hand, incurs a material Tax Detriment as a result of a Tax period not ending on
the Closing Date, and the other party is materially benefited from such
circumstance, the party benefited shall reimburse the party adversely affected
to the extent of the lesser of (1) the Tax benefit realized or (2) the Tax
Detriment incurred. Seller and Buyer agree to cause the Company to file all Tax
Returns for the period including the Closing Date on the basis that the relevant
taxable period ended as of the close of business on the Closing Date, unless the
relevant Governmental Entity will not accept a Tax Return filed on that basis.
For the purposes of this paragraph (b), a Tax benefit or Tax Detriment is
"material" to the extent it exceeds $100,000.
(c) Except as otherwise provided under this Agreement, to the extent
that any party has an indemnification or payment obligation (a "Tax Indemnifying
Party") to another party pursuant to this Article XI (a "Tax Indemnitee"), the
Tax Indemnitee shall provide the Tax Indemnifying Party with its calculation of
the amount of any liability owning hereunder (the "Tax Indemnified Liability").
Such calculation shall provide sufficient detail to permit the Indemnifying
Party to reasonably understand the calculations, the existence of a Tax
Indemnity Liability or the appropriate indemnity amount. All indemnification
payments shall be made to such Tax Indemnitee or to the appropriate Governmental
Entity as specified by the Tax Indemnitee within the time prescribed for payment
in this Agreement, or if no period is prescribed, within thirty (30) days after
delivery by the Tax Indemnitee to the Tax Indemnifying Party of written notice
of a payment or if such Tax Indemnified Liability is contested pursuant to
Section 11.01 of this Agreement, within thirty (30) days of the incurrence of
such an amount based on a
37
Final Determination, together with a computation of the amounts due. Any
disputes with respect to indemnification payments shall be resolved in
accordance with the procedures provided under Section 11.04(d).
(d) If, after the date of this Agreement:
(1) Seller or any Seller Affiliate receives written notice of, or
relating to, an Audit from a Governmental Entity that asserts, proposes or
recommends a deficiency, claim or adjustment (a "Tax Contest") that, if
sustained, could result in Taxes for which Buyer, Company or any Buyer
Affiliate is responsible under this Agreement, then Seller shall provide or
cause to be provided a copy of such notice to Buyer within ten (10)
Business Days of receipt thereof and Seller shall promptly forward or cause
to be forwarded to Buyer relevant portions of any reports or other
communications which relate to such matters.
(2) Buyer, Company or any Buyer Affiliate receives written notice
of, or relating to, a Tax Contest that, if sustained, could result in Taxes
for which Seller or any Seller Affiliate is responsible under this
Agreement, then Buyer shall provide or cause to be provided a copy of such
notice to Seller within ten (10) Business Days of receipt thereof and Buyer
shall promptly forward or cause to be forwarded to Seller relevant portions
of any reports or other communications which relate to such matters.
(e) Tax Indemnifying Party may discharge, at any time, its
indemnification obligation under this Section 11.01 by paying to Tax Indemnitee
the amount of the applicable Tax Loss (in excess of the Excepted Amounts, if
any) calculated on the date of such payment. Tax Indemnifying Party may, at its
own expense, participate in and, upon notice to Tax Indemnitee, assume the
defense of any Tax Contest for which the Tax Indemnifying Party has sole
liability by providing written notice to the Tax Indemnitee within 10 (ten)
Business Days of the receipt of the notice required under Section 11.01(d) of
this Agreement. If the Indemnifying Party does not assume the defense of any
such Tax Contest, the Tax Indemnitee may defend the same in such manner as it
may deem appropriate, including, but not limited to, settling such Tax Contest
after giving ten (10) Business Days' prior written notice to the Tax
Indemnifying Party setting forth the terms and conditions of settlement.
(f) In the event of a Tax Contest that involves issues (i) relating to
a potential adjustment for which the Tax Indemnifying Party has liability and
(ii) that are required to be dealt with in a proceeding that also involves
separate issues relating to a potential adjustment for which any Tax Indemnitee
would be liable, (A) the Tax Indemnifying Party shall have the right at its
expense to control the Tax Contest but only with respect to the former issues
and (B) the Tax Indemnitee shall have the right at its expense to control the
Tax Contest but only with respect to the latter issues.
(g) With respect to a Tax Contest involving an issue for which both
(i) Seller or their Affiliates or (ii) Buyer or any Buyer Affiliate could be
liable or otherwise
38
bear the burden of any Tax liability or Tax Detriment relating to such issue,
each party may participate in the Tax Contest, and the Tax Contest may be
controlled by that party which would bear the burden of the greater portion of
the sum of the adjustment and any corresponding adjustments that may reasonably
be anticipated for future taxable periods. The principle set forth in the
immediately preceding sentence shall govern also for purposes of deciding any
issue that must be decided jointly (including, without limitation, choice of
judicial forum) in situations in which separate issues are otherwise controlled
under Section 11.01(f) of this agreement by Seller or Buyer.
(h) Whether or not the Tax Indemnifying Party chooses to defend or
prosecute any Tax Contest, all of the parties hereto shall cooperate in the
defense or prosecution thereof. The Tax Indemnifying Party shall not be liable
under this Section 11.01 for (i) any Tax claimed or demanded by any Governmental
Entity, the payment of which was made without the Indemnifying Party's prior
written consent unless the Tax Indemnifying Party refused to participate in the
proceedings and assume the defense or (ii) any settlements effected without the
consent of the Tax Indemnifying Party, resulting from any Audit in which the Tax
Indemnifying Party was not permitted an opportunity to participate as provided
herein.
(i) In the case of any Tax Contest, the party that is controlling the
Tax Contest pursuant to Sections 11.01(e), (f) or (g) (the "Controlling Party")
shall:
(1) in the case of any material correspondence or filing
submitted to a Governmental Entity or any judicial authority that relates
to the merits of such Tax Contest (A) provide the other party (the
"Non-Controlling Party") in advance of submission, but subject to
applicable time constraints imposed by such Governmental Entity, with a
draft copy of the portion of such correspondence or filing that relates to
such Tax Contest, (B) incorporate, subject to applicable time constraints
imposed by such Governmental Entity, the Non-Controlling Party's reasonable
comments and changes on such draft copy of such correspondence or filing,
and (C) provide the Non-Controlling Party with a final copy of the portion
of such correspondence or filing that relates to such Tax Contest; and
(2) provide the Non-Controlling Party with notice reasonably
in advance of, and the Non-Controlling Party shall have the right to
attend, any meetings with a Governmental Entity (including meetings with
examiners) or hearings or proceedings before any Governmental Entity to the
extent they relate to such Tax Contest.
(j) The failure of a Tax Indemnitee to promptly notify the Tax
Indemnifying Party of any matter relating to a particular Tax for a taxable
period or to take any action specified in Section 11.01 of this Agreement shall
not relieve the Tax Indemnifying Party of any liability and/or obligation which
it may have under this Agreement with respect to such Tax for such Tax period
except to the extent that Tax Indemnifying Party's rights hereunder are
materially prejudiced by such failure and in no event shall such failure relieve
the Tax Indemnifying Party of any other liability and/or obligation which it may
have to a Tax Indemnitee.
39
(k) The Tax Indemnifying Party shall have no right to contest any Tax
Contest in accordance with Section 11.01 unless:
(1) within thirty (30) Business Days of a reasonable request by
the Tax Indemnitee, the Tax Indemnifying Party shall deliver to the Tax
Indemnitee a written opinion of a nationally recognized Tax attorney or Tax
accountant that is a member of a recognized law firm or accounting firm, to the
effect that the Tax Indemnifying Party's position with respect to such
deficiency, claim or adjustment is supported by a reasonable basis (within the
meaning of Treasury Regulations Section 1.6662-3(b)(3));
(2) the Tax Indemnifying Party shall have agreed to be bound by a
Final Determination of such Tax Contest;
(3) the Tax Indemnifying Party shall have agreed to pay, and
shall be currently paying, all reasonable costs and expenses incurred by the Tax
Indemnitee to contest such deficiency, claim or assessment including reasonable
outside attorneys', accountants' and investigatory fees and disbursements to the
extent such costs relate to the issue being contested by the Tax Indemnitee, and
(4) the Tax Indemnifying Party shall have advanced to the Tax
Indemnitee, on an interest-free basis (and with no additional net after-tax cost
to the Tax Indemnitee), the amount of Tax in controversy (but not in excess of
the lesser of (A) the amount of Tax for which the Tax Indemnifying Party could
be liable under this Agreement or (B) the amounts actually expended by the Tax
Indemnitee) to the extent necessary for the contest to proceed in the forum
selected by the Tax Indemnifying Party.
Section 11.02. Tax Sharing Agreements and Powers of Attorney.
(a) All Tax Sharing Agreements with respect to or involving the
Company, shall be terminated as of the Closing Date and, after the Closing Date,
the Company shall not be bound thereby or have any liability thereunder.
(b) Any powers of attorney with respect to any Tax matter related to
the Company shall be cancelled, revoked or otherwise terminated as of the
Closing Date.
Section 11.03. Transfer Taxes. Seller shall prepare, execute and file
all Tax Returns regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes or fees which become payable
in connection with the transactions contemplated by this Agreement ("Transfer
Taxes"). Seller shall bear any Transfer Taxes arising out of or in connection
with the transactions effected pursuant to this Agreement.
Section 11.04. Return Filings, Payments, Refunds and Credits.
(a) Seller shall include the income of the Company for the Pre-Closing
Tax Period in (I) the federal consolidated Income Tax Returns of Seller
Consolidated Group and (II) any state consolidated, combined or unitary Income
Tax Returns that are
40
required and that include the Company and any other member of Seller
Consolidated Group other than the Company (together the "Consolidated Returns"),
and shall file and be responsible for remitting all Taxes reflected on such
Consolidated Returns. Buyer shall cause the Company to provide to Seller on a
timely basis pro forma Income Tax Returns for the Pre-Closing Tax Period to be
included in the Consolidated Returns. Seller shall prepare or cause to be
prepared, and file or cause to be filed, all Tax Returns with respect to the
Company, other than the Consolidated Returns, due on or before the Closing Date
(taking into account extensions) and all Tax Returns that are required to be
filed by or with respect to the Company for taxable years or periods ending on
or before the Closing Date and shall be responsible for remitting or causing to
be remitted all Taxes reflected on such Tax Returns. All Tax Returns prepared by
Seller pursuant to this Section 11.04(a) shall be prepared in a manner
consistent with past practice and without any change in elections or accounting
methods (except as required by Applicable Law). Copies of all such Tax Returns
(or the relevant portion thereof relating to the Company) shall be furnished to
Buyer.
(b) Buyer shall prepare or cause to be prepared, and file or cause to
be filed, on a timely basis, all Tax Returns, other than the Consolidated
Returns referred to in Section 11.04(a), with respect to the Company for taxable
years or periods ending after the Closing Date and shall be responsible for
remitting all Taxes reflected on such Tax Returns.
(c) Seller and Buyer shall reasonably cooperate, and shall cause their
respective Affiliates, agents, auditors, representatives, officers and employees
to reasonably cooperate, in preparing and filing all Tax Returns (including
amended Tax Returns and claims for refund), including maintaining and making
available to each other all records necessary in connection with Taxes (at the
sole expense of the requesting party) and in resolving all disputes and audits
with respect to all taxable periods relating to Taxes. Seller and Buyer agree to
retain or cause to be retained all books and records pertinent to the Company
until the last relevant applicable period for assessment under Applicable Law
(giving effect to any and all extensions or waivers) has expired, and to abide
by or cause the abidance with all record retention agreements entered into with
any Governmental Entity. Seller and Buyer shall cooperate with each other in the
conduct of any Audit or other proceedings involving the Company for any Tax
purposes and each shall execute and deliver such powers of attorney and other
documents as are necessary to carry out the intent of this subsection.
(d) Any Tax Return prepared by Seller pursuant to Section 11.04(a) for
which Seller intends to seek reimbursement from Buyer or, effective after
Closing, the Company, for any portion of the Taxes reflected on such Return, or
any Tax Return prepared by, or at the direction of, Buyer pursuant to Section
11.04(b) for which Buyer intends to seek indemnification from Seller for any
portion of the Taxes reflected on such Tax Return, shall be prepared in a manner
consistent with past practice and without a change of any election or any
accounting method (except as required by Applicable Law) and shall be submitted
to Seller or Buyer, as the case may be, in sufficient time to permit a
reasonable review prior to the due date (including extensions) of such Tax
Return. Buyer or Seller, as the case may be, shall have the right to review (at
such party's
41
expense and upon reasonable notice in a manner so as not to disrupt the orderly
conduct of business) all work papers and procedures used to prepare any such Tax
Return. Buyer or Seller, as the case may be, shall pay to the other party any
amounts shown as due at least five (5) Business Days prior to filing of such Tax
Return unless such Person, within twenty (20) Business Days after delivery of
any such Tax Return, notifies the other party in writing that it objects to any
items in such Tax Return. In connection with any disputed item, the parties
shall proceed in good faith to resolve the disputed items and, if they are
unable to do so within ten (10) Business Days, the disputed items shall be
resolved (within a reasonable time, taking into account the deadline for filing
such Tax Return) by the Accountant. Upon resolution of all disputed items, the
relevant Tax Return shall be adjusted to reflect such resolution and shall be
binding upon the parties without further adjustment. The costs, fees and expense
of such Accountant shall be borne equally by Buyer and Seller.
(e) Any refunds with respect to Income Tax Returns paid to Buyer, or
the Company for any Pre-Closing Tax Period shall be paid to Seller by Buyer
within ten (10) Business Days after receipt in cash or as a credit to Buyer's or
the Company's Tax liability; provided, however, that any refund of a Tax
relating to a Pre-Closing Tax Period resulting from the carryback of a net
operating or capital loss of the Company arising in a Post-Closing Tax Period
shall be paid to Buyer within ten (10) Business Days after receipt in cash or as
a credit to Seller's or any member of the Company's Consolidated Group's Tax
liability. Upon a request by Buyer, Seller Consolidated Group shall be required
to include on a Consolidated Return any net operating losses or net capital loss
of the Company in a Post-Closing Tax Period to the extent allowed under the
Code; provided, that if Seller or any member of Seller Consolidated Group incurs
a Tax Detriment, Buyer shall indemnify Seller for the amount of such Tax
Detriment.
(f) Seller shall not file or cause to be filed any amended
Consolidated Return or Tax election if such return or election results in a Tax
Detriment to the Company for any Post-Closing Tax period without the prior
written consent of Buyer.
Section 11.05. Defects with Respect to Insurance Products. To the
extent that any Insurance Contract issued, assumed, modified, exchanged or sold
by Company on or before the Closing Date is materially different from that which
such Company represented at the time of its issuance, purchase, modification,
exchange or assumption, any adverse consequences or damages relating to Taxes
resulting therefrom will be cured at the expense of Seller within a reasonable
time from notification of such defect.
Section 11.06. Treatment of Indemnity Payments.
(a) The Parties agree to treat any payment made with respect to any
Tax Indemnified Liability or Transfer Taxes as an adjustment to the Purchase
Price to the extent permissible under applicable Tax Law. In the event such
payment can not be treated as an adjustment to purchase price, the payment will
be made on after-Tax basis, computed as though the Tax Indemnitee will be taxed
on such payment at the highest applicable marginal income tax rate under
federal, state and local law.
42
Section 11.07. Section 338(h)(10) Election.
(a) At Buyer's direction, Buyer and Seller shall make a joint election
under Section 338(h)(10) of the Code and under any comparable or equivalent
provisions of foreign, state or local law with respect to the purchase of by
Buyer (the "Election"). Seller and Buyer shall report, in connection with the
determination of Taxes, the transactions contemplated by this Agreement in a
manner consistent with the Election, including the determination of the fair
market value of the assets of the Company and the allocation of the deemed
purchase price among the assets of the Company within the meaning of Section
338(h)(10) of the Code and the Treasury Regulations promulgated thereunder.
(b) Buyer and Seller agree that they shall use their best efforts to
enter into an agreement (the "Allocation Agreement") concerning the computation
of the Aggregate Deemed Sale Price (as defined under applicable Treasury
Regulations) of the assets of the Company and the allocation of such Aggregate
Deemed Sale Price among such assets. Buyer and Seller agree that they shall use
their best efforts to revise the Allocation Agreement to the extent necessary to
reflect the differences, if any, between such computations and post-Closing Date
adjustments to the Purchase Price no later than sixty (60) days before the last
date on which the Election may be filed. If, sixty (60) days before the last
date on which the Election may be filed, Buyer and Seller have not adopted or
revised the Allocation Agreement as described above, any disputed aspects of the
Allocation Agreement or such revision shall be resolved at a time prior to 35
days before the last date on which the Election may be filed, by the Accountant,
or other independent accountants of nationally recognized standing (the
"Accounting Firm") reasonably satisfactory to Buyer and Seller and having no
material relationship with Buyer or Seller. The costs, expenses and fees of the
Accounting Firm shall be borne equally by Buyer and Seller. Buyer and Seller
agree to act in accordance with the allocations contained in the Allocation
Agreement in any relevant Tax Returns or similar filings and to abide by any
determination made by the Accounting Firm.
(c) Buyer shall be responsible for the preparation and filing of all
forms and documents required in connection with the Election. In connection with
the Election, not later than forty-five (45) Business Days prior to the required
due date thereof, Buyer shall provide Seller with copies of (i) a properly
executed Form 8023A (or any successor form), (ii) all attachments required to be
filed therewith pursuant to applicable treasury regulations and (iii) any
comparable forms and attachments with respect to any applicable state or local
elections being made pursuant to the Election, based upon Buyer's good faith
allocation of the Purchase Price in the event the Parties have not agreed upon
an Allocation Agreement. Seller shall execute and deliver to Buyer within thirty
(30) days of the required due date therefor, such documents or forms as are
required by the Applicable Laws to properly complete the Election as well as
provide any information required to complete any documents or forms or otherwise
required to be provided to any Governmental Entity in connection with the
Election. Seller and Buyer shall cooperate fully with each other and make
available to each other such Tax data and other information as may be reasonably
required by Seller or Buyer in order to timely file the Election and any other
required statements or schedules. Buyer shall promptly execute
43
and deliver to Seller any amendments made to Form 8023A (or any successor form)
(and any comparable state and local forms) subsequent to the filing of the
Election and any attachments which are required to be filed under Applicable
Law, including any amendments to Form 8023A (or any successor form) necessitated
by any indemnification payments made pursuant to Section 11.01.
(d) Seller shall take no action which is inconsistent with the
requirements for filing the Election under the Code and the applicable Treasury
Regulations.
(e) To the extent permitted by state or local laws, the principles and
procedures of this Section shall also apply with respect to any and all
Elections.
(f) Buyer shall have no liability to Seller for, and shall not be
deemed to have indemnified, under any provision of this Agreement or otherwise,
Seller from and against, for or in respect of, any Taxes which may be imposed
upon or assessed against Seller as a result of the Election.
Section 11.08. Reimbursement of Excess Tax Cost. In the event that the
Election under Section 11.07 is made, Buyer shall pay to Seller the Excess Tax
Cost, if any, resulting from such Election. For purposes of this Agreement, the
term "Excess Tax Cost" means the excess of the Tax that Seller would incur on
the sale of the Company resulting from the Election ("Election Cost") over the
Tax that Seller would incur had the Election not been made. In calculating the
Election Cost, any taxable income generated by the Election shall be reduced by
(a) the Company's "net operating losses" and "net capital losses," as defined in
the Code, to the extent any such net operating losses and net capital losses are
actually available to reduce a Tax on the sale. In calculating the Excess Tax
Cost, the payment of the Excess Tax Cost itself shall be taken into account as
additional purchase price.
In order for Buyer to make a timely decision regarding the Election
and prepare such Elections within the periods set forth in Section 11.07, Seller
agrees to provide to Buyer a calculation of the Excess Tax Cost (including
copies of supporting documentation) within 45 days of the Closing Date. If
Seller does not provide Buyer such a calculation within 45 days of the Closing
Date or notifies Buyer prior to the expiration of such 45 days that the Excess
Tax Cost is zero, the Excess Tax Cost shall be zero. If within 30 days of
Buyer's receipt of the computation of the Excess Tax Cost from Seller ("Excess
Tax Cost Computation"), Buyer shall not have objected in writing to the Excess
Tax Cost Computation, the Excess Tax Cost shall be equal to the Excess Tax Cost
Computation. If within 45 days of Buyer's receipt of Excess Tax Cost
Computation, Buyer and Seller have not agreed to the Excess Tax Cost
Computation, the parties shall submit any disputed matter to the independent
Accounting Firm, and cause the independent Accounting Firm to deliver a final,
binding and conclusive written report resolving all such disputed matters within
30 days of the submission thereof to the Independent Accounting Firm.
44
ARTICLE XII
TERMINATION PRIOR TO CLOSING
Section 12.01. Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) By Seller in writing, without liability (except as provided in
Section 12.03), if Buyer shall (i) fail to satisfy in any material respect its
obligations contained herein required to be satisfied by it on or prior to the
Closing Date, or (ii) breach any of its representations or warranties contained
herein, which failure or breach is not cured within thirty (30) days after
Seller has notified Buyer in writing of its intent to terminate this Agreement
pursuant to this subsection (a) of Section 12.01.
(b) By Buyer in writing, without liability (except as provided in
Section 12.03), if Seller shall (i) fail to satisfy in any material respect its
obligations contained herein required to be satisfied by it on or prior to the
Closing Date, or (ii) breach any of its representations or warranties contained
herein, which failure or breach is not cured within thirty (30) days after Buyer
has notified Seller in writing of its intent to terminate this Agreement
pursuant to this subsection (b) of Section 12.01.
(c) If the A.M. Best rating of Company falls below A- prior to the
Closing Date, Buyer shall be entitled to terminate this Agreement.
(d) By Buyer or Seller in writing, without liability (except as
provided in Section 12.03) if there shall be any order, writ, injunction or
decree of any court or Governmental Entity binding on Buyer or Seller which
prohibits or restrains Buyer or Seller from consummating the transactions
contemplated hereby; provided that Buyer and Seller shall have used their
commercially reasonable best efforts to have any such order, writ, injunction or
decree lifted.
(e) By Buyer or Seller if the Closing has not occurred within two (2)
years following the date of this Agreement, provided that the party seeking
termination under this Section 12.01(e) shall have used its reasonable best
efforts to satisfy its obligations under this Agreement during such period.
(f) By Buyer in the event of a change in the ultimate control of
Seller prior to the Closing Date (a change in ownership of stock resulting in
over fifty percent (50%) of the voting power of Seller being held by an
unaffiliated third party) or a breach by Seller prior to the Closing Date of its
obligation to pursue the sale of product or support of capital.
(g) At any time on or prior to the Closing Date, by mutual written
consent of Seller and Buyer.
Section 12.02. Survival(a) . If this Agreement is terminated pursuant
to Section 12.01, this Agreement shall become null and void and of no further
force and effect, except for the provisions of Sections 5.06, 13.01 and 13.09
and this Section 12.02.
45
Section 12.03. Remedies. (a) If (1) Seller has terminated this
Agreement pursuant to Section 12.01(a), or (2) the conditions set forth in
Article VI have been satisfied and either Seller or Buyer terminates this
Agreement pursuant to Section 12.01(e), Seller shall be entitled to retain all
option fees and the Escrow Amount previously paid to Seller pursuant to the
Purchase Option Agreement and this Agreement. Notwithstanding the satisfaction
of the conditions set forth in Article VI, if Buyer is unable to obtain third
party financing on commercially reasonable terms in an amount sufficient to
allow Buyer to consummate the transactions contemplated hereby, Seller's sole
remedy for Buyer's failure to consummate the transactions contemplated by this
Agreement shall be Seller's right to terminate this Agreement in accordance with
the provisions of Section 12.01(e), and to retain the Escrow Amount and option
fees in accordance with the provisions of this Section 12.03(a).
(b) If (1) Buyer has terminated this Agreement pursuant to Sections
12.01(b), 12.01(c), or 12.01(f), or (2) the conditions set forth in Article VI
have not been satisfied and either Seller or Buyer terminates this Agreement
pursuant to Section 12.01(e), Seller shall immediately refund all option fees
and the Escrow Amount previously paid by Buyer pursuant to the Option Purchase
Agreement and this Agreement together with interest at the rate of seven percent
(7%) per annum on each such option fee and Escrow Amount.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Publicity. Except as may otherwise be required by law
or the rules of any applicable stock exchange or other regulatory authority, no
release or announcement concerning this Agreement or the transactions
contemplated hereby shall be made by Buyer or Seller without the advance written
approval of the other party, which approval shall not be unreasonably delayed or
withheld. Each party shall cooperate with the other in making any release or
announcement to the extent reasonably practicable.
Section 13.02. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission (and immediately after transmission confirmed by
telephone) or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally or sent by
facsimile transmission (and immediately after transmission confirmed by
telephone) or, if mailed, ten (10) Business Days after the date of deposit in
the United States mails, as follows:
(i) If to Seller to:
SCOR Life U.S. Re Insurance Company
Colonnade Building III, Suite 700
46
15305 Dallas Parkway
Addison, Texas 75001
Attn: Chief Executive Officer
Fax No.: (972) 560-9535
With a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attn: Kirk M. Reische
Fax No.: (212) 259-6333
(ii) If to Buyer to:
Regan Holding Company
2090 Marina Avenue
Petaluma, California 94954
Attn: Chief Executive Officer
Fax No.: (707) 778-1524
With a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 55th Street
New York, NY 10019
Attn: Joseph L. Seiler III and Jane Boisseau
Fax No.: 212-424-8500
Any party may, by notice given in accordance with this Section 13.02
to the other parties, designate another address or person for receipt of notices
hereunder.
Section 13.03. Entire Agreement. This Agreement and the Purchase
Option Agreement contain the entire agreement between Buyer and Seller with
respect to the subject matter hereof and supersede all prior agreements, written
or oral, with respect thereto.
Section 13.04. Waivers and Amendments; Preservation of Remedies. This
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by each of the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power, remedy or privilege, nor any single or partial exercise of
any such right, power, remedy or privilege, preclude any further exercise
thereof or the exercise of any other such right, remedy, power or privilege. The
rights and remedies herein provided are cumulative and, other than as provided
in Sections 10.04 and 12.03, are not exclusive of any rights or remedies that
any party may otherwise have at law or in equity.
47
Section 13.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the principles of conflicts of laws thereof.
Section 13.06. Jurisdiction. Each of the parties hereto irrevocably
and unconditionally submits to the exclusive jurisdiction of The United States
District Court for the Southern District of New York or, if such court does not
have jurisdiction, New York State Supreme Court, Commercial Division, in the
borough of Manhattan, for purposes of enforcing this Agreement. In any such
action, suit or other proceeding, each of the parties hereto irrevocably and
unconditionally waives and agrees not to assert by way of motion, as a defense
or otherwise any claims that it is not subject to the jurisdiction of the above
court, that such action is brought in an inconvenient forum or that the venue of
such action, suit or other proceeding is improper. Each of the parties hereto
also agrees that any final and unappealable judgment against a party hereto in
connection with any action, suit or other proceeding shall be conclusive and
binding on such party and that such award or judgment may be enforced in any
court of competent jurisdiction, either within or outside the United States. A
certified or exemplified copy of such award or judgment shall be conclusive
evidence of the fact and amount of such award or judgment. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 13.02 shall be deemed effective service of process on such party.
Section 13.07. Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors, assigns and legal representatives, whether by merger,
consolidation or otherwise. This Agreement shall not be assigned by any party
without the prior written consent of the other party.
Section 13.08. No Third Party Beneficiaries. Except as otherwise
expressly set forth in any provision of this Agreement, nothing in this
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 13.09. Expenses. Except as otherwise provided herein, the
parties hereto shall each bear their respective expenses incurred in connection
with the negotiation, preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
fees and expenses of agents, representatives, counsel, actuaries and
accountants.
Section 13.10. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
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Section 13.11. Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SCOR LIFE U.S. RE INSURANCE COMPANY
By:
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Name:
Title:
REGAN HOLDING CORP.
By:
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Name:
Title:
50