EXECUTION COPY
________________________________________________________________________
ASSET PURCHASE AGREEMENT
BY AND AMONG
SECURITY LIFE OF DENVER INSURANCE COMPANY
SECURITY LIFE OF DENVER INTERNATIONAL LIMITED
AND
SCOTTISH RE GROUP LIMITED
SCOTTISH RE (U.S.), INC.
NEWCO, AS DEFINED HEREIN
October 17, 2004
________________________________________________________________________
TABLE OF CONTENTS
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Page
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ARTICLE I Definitions........................................................2
1.1 Definitions.......................................................2
ARTICLE II Transfer and Acquisition of Assets...............................19
2.1 Place and Date of Closing........................................19
2.2 Transfer and Acquisition.........................................19
2.3 Deliveries on Closing............................................19
2.4 Closing Payment..................................................21
2.5 Closing Adjustment...............................................23
ARTICLE III Representations and Warranties of Sellers.......................27
3.1 Organization and Good Standing...................................27
3.2 Enforceability...................................................28
3.3 Consents and Approvals...........................................29
3.4 Financial Statements.............................................29
3.5 Pro Forma Statements.............................................30
3.6 Contingent Liabilities...........................................31
3.7 Assets...........................................................31
3.8 Actions Pending; Orders and Proceedings..........................31
3.9 Real Property....................................................32
3.10 Business Contracts...............................................32
3.11 Assigned Contracts...............................................33
3.12 Intellectual Property............................................33
3.13 Computer Programs................................................35
3.14 Compliance with Legal Requirements...............................37
3.15 Permits..........................................................37
3.16 Reinsurance Assumed..............................................38
3.17 Reinsurance Retroceded...........................................39
3.18 Investment Company...............................................41
3.19 Employees........................................................41
3.20 Employee Benefits................................................41
3.21 Labor Relations..................................................41
3.22 Brokers or Finders...............................................41
3.23 Absence of Certain Changes and Events............................42
3.24 Books and Records................................................42
3.25 Taxes............................................................43
ARTICLE IV Representations and Warranties of Purchaser and Purchaser
Subsidiaries.....................................................44
4.1 Status of Purchaser Entities.....................................44
4.2 Enforceability...................................................44
4.3 Certain Proceedings..............................................44
4.4 Financial Statements.............................................45
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4.5 Ratings..........................................................45
4.6 Brokers or Finders...............................................45
4.7 Purchaser's Approvals............................................45
4.8 Investment Company...............................................45
4.9 Financing........................................................46
4.10 Purchaser Licenses...............................................46
ARTICLE V Additional Agreements of Seller and Purchaser.....................46
5.1 Conduct of Business..............................................46
5.2 Expenses.........................................................48
5.3 Access; Certain Communications...................................48
5.4 Regulatory Matters; Third Party Consents; Assigned Contracts.....49
5.5 Further Assurances...............................................50
5.6 Notification of Certain Matters..................................50
5.7 Maintenance and Transfer of Records..............................51
5.8 Employee Matters.................................................52
5.9 Intellectual Property; Computer Programs.........................54
5.10 Real Property Leases.............................................57
5.11 Quarterly Financial Information..................................57
5.12 Letters of Credit; Guaranties....................................57
5.13 Cooperation after Closing........................................58
5.14 Regulatory Compliance............................................59
5.15 Use of Names.....................................................59
5.16 Trust Arrangements...............................................59
5.17 Tax Treatment of Transaction.....................................60
5.18 Enforcement of Rights............................................60
5.19 Post-Closing Access..............................................61
5.20 Termination of New Business......................................62
5.21 Non-Compete......................................................62
5.22 Non-Solicitation.................................................64
5.23 Enforcement......................................................64
5.24 Credit Support...................................................65
5.25 SLD-SLDI Retrocession Agreements.................................67
5.26 Newco; Keepwell Agreements.......................................67
5.27 Industry Risks Retrocession Arrangement..........................68
5.28 Recapture of Certain Business....................................69
5.29 Term Sheets......................................................69
5.30 Experience Refunds...............................................69
5.31 Certain Unexecuted Reinsurance Contracts.........................69
5.32 Investment Portfolio.............................................70
ARTICLE VI Conditions Precedent To The Obligation Of Purchaser To Close.....70
6.1 Representations, Warranties and Covenants........................70
6.2 Related Agreements...............................................70
6.3 Secretary's Certificates.........................................71
6.4 Approvals and Consents...........................................71
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6.5 Injunction and Litigation........................................71
6.6 Material Adverse Effect..........................................71
6.7 Sundry Assets....................................................71
6.8 New Business Under Assumed Reinsurance Contracts.................72
ARTICLE VII Conditions Precedent To The Obligation Of Sellers To Close......72
7.1 Representations, Warranties and Covenants........................72
7.2 Related Agreements...............................................72
7.3 Secretary's Certificates.........................................72
7.4 Approvals and Consents...........................................73
7.5 Injunction and Litigation........................................73
7.6 Purchaser Financial Condition....................................73
7.7 Purchaser Financing..............................................73
7.8 Newco............................................................73
ARTICLE VIII Termination....................................................73
8.1 Termination of Agreement.........................................74
8.2 Procedure on Termination.........................................74
ARTICLE IX Tax Matters......................................................74
9.1 Tax Matters......................................................74
ARTICLE X Indemnification...................................................76
10.1 Sellers' Indemnification......................................76
10.2 Purchaser's Indemnification...................................77
10.3 Indemnification Procedures....................................77
10.4 Indemnification Limits........................................78
10.5 Exclusive Remedy..............................................80
10.6 Tax Losses....................................................80
ARTICLE XI Miscellaneous Provisions.........................................80
11.1 Notices.......................................................80
11.2 Sole Agreement................................................81
11.3 Successors and Assigns........................................81
11.4 Captions......................................................82
11.5 Governing Law and Jurisdiction................................82
11.6 No Third Party Beneficiaries..................................82
11.7 Counterparts..................................................82
11.8 Severability..................................................82
11.9 Waiver of Jury Trial; Multiplied and Punitive Damages.........83
11.10 Purchaser Guaranty............................................83
11.11 ING Guaranty and Covenant.....................................83
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LIST OF EXHIBITS
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Exhibit A Assignment and Assumption Agreement
Exhibit B Bill of Sale and General Assignment
Exhibit C SLD Administrative Services Agreement Term Sheet
Exhibit D SLD Coinsurance Agreement
Exhibit E SLD Funds Withheld Coinsurance Agreement Term Sheet
Exhibit F SLD Modified Coinsurance Agreement Term Sheet
Exhibit G SLD Coinsurance / Modified Coinsurance Agreement Term Sheet
Exhibit H SLD Security Trust Agreement
Exhibit I SLDI Administrative Services Agreement Term Sheet
Exhibit J SLDI Coinsurance Agreement
Exhibit K SLDI Funds Withheld Coinsurance Agreement Term Sheet
Exhibit L SLDI Coinsurance / Modified Coinsurance Agreement Term Sheet
Exhibit M SLDI Modified Coinsurance Agreement Term Sheet
Exhibit N SLDI Reserve Trust Agreement
Exhibit O Technology Transfer and License Agreement Term Sheet
Exhibit P Trademark and Trade Name License Agreement Term Sheet
Exhibit Q Transition Services Agreement Term Sheet
Exhibit R Assignment of Confidentiality Agreements
Exhibit S Denver Lease Term Sheet
Exhibit T-1 Sample SLD Closing Statements
Exhibit T-2 Sample SLDI Closing Statements
Exhibit U Investment Guidelines
Exhibit V SLD Reserve Trust Agreement
Exhibit W SLDI Security Trust Agreement
Exhibit X-1 SLD Industry Risks Retrocession Agreements Term Sheet
Exhibit X-2 SLDI Industry Risks Retrocession Agreements Term Sheet
Exhibit Y Newco Keepwell
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LIST OF SCHEDULES
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Schedule 1.1(a) List of Assigned Contracts
Schedule 1.1(b) Methodologies for Determining Estimated Market Value and
Market Value
Schedule 1.1(c) Excluded Business
Schedule 1.1(d) Initial Portfolio
Schedule 1.1(e) Sellers' Knowledge People
Schedule 1.1(f) Purchaser's Knowledge People
Schedule 1.1(g) Sellers' Severance Plan
Schedule 1.1(h)-1 Certain Transferred Assets
Schedule 1.1(h)-2 Business Employee Related Assets
Schedule 1.1(i) Certain Insurance Contracts Included
Schedule 2.4(a) SLD Accounting Policies
Schedule 2.4(b) SLDI Accounting Policies
Schedule 2.5(h) 2004 Production Adjustment
Schedule 3.3 Sellers' Consents and Approvals
Schedule 3.4 Exceptions to Financial Statements
Schedule 3.5 Exceptions to Pro Forma Statements
Schedule 3.6 Contingent Liabilities
Schedule 3.7(a) Encumbrances Exceptions to Assets
Schedule 3.7(b) Exceptions to Transferred Assets
Schedule 3.8 Actions Pending
Schedule 3.9 Real Estate Leases
Schedule 3.10(a) Business Contracts
Schedule 3.10(b) Exceptions to Business Contracts
Schedule 3.11 Exceptions to Assigned Contracts
Schedule 3.12(a) Patent
Schedule 3.12(b) List of Other Intellectual Property
Schedule 3.12(c) Infringement of Intellectual Property
Schedule 3.12(d) Encumbrances to Intellectual Property
Schedule 3.12(e) Licensed Intellectual Property
Schedule 3.12(f) Exceptions to Owned Intellectual Property
Schedule 3.12(h) Data Base Infringement
Schedule 3.13(a) Owned Principally-Used Computer Programs
Schedule 3.13(b) Owned Generally-Used Computer Programs
Schedule 3.13(c) Licensed Computer Programs
Schedule 3.13(d) Retained Computer Programs
Schedule 3.13(e) Infringement of Computer Programs
Schedule 3.13(g) Exceptions to Computer Programs
Schedule 3.13(h) License Agreements
Schedule 3.14 Compliance with Legal Requirements
Schedule 3.15 Permits
Schedule 3.16(a) Material Assumed Reinsurance Contracts
Schedule 3.16(b) Exceptions to Material Assumed Reinsurance Contracts
Schedule 3.16(c) Exceptions to Assumed Reinsurance Contracts
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Schedule 3.16(d) Unexecuted Assumed Reinsurance Contracts
Schedule 3.17(a) Material Retroceded Reinsurance Contracts
Schedule 3.17(b) Exceptions to Material Retroceded Reinsurance Contracts
Schedule 3.17(c) Exceptions to Retroceded Reinsurance Contracts
Schedule 3.17(d) Retroceded Reinsurance Reserve Credit
Schedule 3.17(e) Retrocession Pools
Schedule 3.17(f) Unexecuted Retroceded Reinsurance Contracts
Schedule 3.19 Business Employees
Schedule 3.23 Absence of Certain Changes and Events
Schedule 3.25(a) Taxes
Schedule 4.7 Purchaser's Consents and Approvals
Schedule 5.1 Exceptions to Conduct of Business
Schedule 5.15(a) Restricted Names
Schedule 5.24(a) SLD-SLDI Retrocession Agreements
Schedule 5.24(c) Current Permanent Facilities of Purchaser
Schedule 5.28 Reinsurance Contracts Eligible for Recapture
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of October 17, 2004 (this
"Agreement"), has been made and entered into by and among Security Life of
Denver Insurance Company, a Colorado insurance company ("SLD"); Security Life of
Denver International Limited, a Bermuda insurance company ("SLDI" and, together
with SLD, "Sellers" and each a "Seller"); solely for purposes of Section 11.11,
ING (as defined below); Scottish Re Group Limited, a holding company organized
under the laws of the Cayman Islands ("Purchaser"); Scottish Re (U.S.), Inc., a
Delaware insurance company ("SRUS"); solely for purposes of Section 5.26,
Scottish Annuity & Life Insurance Company (Cayman) Ltd., a company organized
under the laws of the Cayman Islands ("Scottish Annuity & Life"); for purposes
of Section 5.24, Scottish Re Life Corporation, a Missouri insurance company
("Scottish Re Life"); and effective on the date its duly authorized officer
signs this Agreement, Newco (as defined below).
WITNESSETH:
WHEREAS, Sellers wish to sell and transfer to Purchaser, and Purchaser
wishes to purchase and assume, Sellers' individual life reinsurance business and
the Assumed Liabilities (as defined below);
WHEREAS, pursuant to the terms set forth in this Agreement and certain
reinsurance, administrative and other agreements and arrangements to be entered
into in connection herewith, SLD wishes to cede or retrocede to a Purchaser
Subsidiary on an indemnity basis the Insurance Contracts (as defined below) of
SLD;
WHEREAS, pursuant to the terms set forth in this Agreement and certain
reinsurance, administrative and other agreements and arrangements to be entered
into in connection herewith, SLDI wishes to cede or retrocede to a Purchaser
Subsidiary on an indemnity basis the Insurance Contracts (as defined below) of
SLDI; and
WHEREAS, Sellers also wish to sell, and Purchaser wishes to purchase,
certain assets primarily used in connection with Sellers' individual life
reinsurance business, upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the promises and the covenants and
conditions contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE I
Definitions
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1.1 Definitions.
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The following terms shall have the respective meanings set forth below
throughout this Agreement:
180-Day Treasury Rate means the annual yield rate, on the date to which the
180-Day Treasury Rate relates, of actively traded U.S. Treasury securities
having a remaining duration to maturity of six (6) months, as such rate is
published under "Treasury Constant Maturities" in Federal Reserve Statistical
Release H.15(519).
Affiliate means, with respect to any Person, at the time in question, any other
Person controlling, controlled by or under common control with such Person.
Applicable Law means any Legal Requirement applicable to a Person or any such
Person's subsidiaries, properties, or assets, or to such Person's
Representatives.
Assigned Contracts means, subject to Section 5.4(c), (i) the contracts of
Sellers and their Affiliates that are utilized in the Business and listed on
Schedule 1.1(a) and (ii) any other similar contracts of Sellers and their
Affiliates that are principally used in the Business and that are entered into
by Sellers or their Affiliates between the date hereof and the Closing Date in
compliance with Section 5.1(e) and which will be added to Schedule 1.1(a) prior
to the Closing Date.
Assignment and Assumption Agreement means the assignment and assumption
agreement by and among SLD, SLDI, Purchaser and one or more Purchaser
Subsidiaries substantially in the form of Exhibit A.
Assignment of Confidentiality Agreements means the assignment agreement
substantially in the form of Exhibit R pursuant to which ING will assign to
Purchaser the confidentiality agreements entered into with other potential
purchasers of the Business.
Assumed Liabilities means (a) the liabilities and obligations arising under the
Assigned Contracts, (b) any other liabilities and obligations expressly assumed
by Purchaser or any Purchaser Subsidiary under this Agreement and the Related
Agreements, including without limitation the Reinsured Liabilities, and (c) the
Purchaser Assumed Employee Liabilities. Without limiting the generality of the
preceding sentence and for the avoidance of doubt, Assumed Liabilities will not
include (x) any liability or obligation of either Seller or any ERISA Affiliate
arising under or relating to any Employee Benefit Plan established, maintained,
sponsored or contributed to by either Seller or any ERISA Affiliate, any
liability or obligation of either Seller or any ERISA Affiliate relating to any
current or former employee, director, shareholder, agent or independent
contractor of either Seller or any ERISA Affiliate or any liability or
obligation arising under or relating
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to occurrences before or after the Closing Date out of any employee grievance,
claim or complaint relating to the conduct of the Business whether or not the
employee is hired by Purchaser, other than the Purchaser Assumed Employee
Liabilities, or (y) any liability or obligation of either Seller or any
Affiliate of either Seller that is (A) not otherwise attributable to the
Business, (B) based upon any pro-rating or other cost chargeback methodology or
(C) of the kind described in clause (a) of the preceding sentence arising prior
to the Closing Date, except for any such liability or obligation described in
clause (a) of the preceding sentence to the extent that such liability or
obligation is reflected on the Final Closing Statements.
Assumed Reinsurance Contracts shall have the meaning given in Section 3.16(a).
Bill of Sale and General Assignment means the bill of sale and general
assignment substantially in the form of Exhibit B.
Book Value means with respect to Transferred Statutory Assets, the carrying
value thereof on the books of SLD or SLDI, as the case may be, for statutory
statement blank purposes determined as of the Effective Time by SLD or SLDI, as
the case may be, in accordance with SAP.
Books and Records means all records and all Data, Databases and other data and
information (in whatever form maintained) in the possession or control of either
Seller or any Affiliate of Sellers and relating primarily to the Business as
currently conducted, including administrative records, internal reports relating
to internal controls designed to comply with Section 404 of the Sarbanes-Oxley
Act of 2002, claim records, policy files, sales records, files and records
relating to regulatory matters, reinsurance records, underwriting records and
accounting records, but excluding any Tax Returns and Tax records and all other
data and information with respect to Tax and any files, records, data and
information with respect to the Business Employees and any records, data and
information with respect to any Seller Plan; provided, that if any such records
or data contain information which does not relate to the Business or relates
solely to the Excluded Business or Sellers' and their Affiliates' risk retention
management other than that relating exclusively to the Business, such
information shall not constitute "Books and Records".
Business means the individual life reinsurance business of Sellers represented
by the Assigned Contracts and the Insurance Contracts, which business is
represented as of December 31, 2003 and June 30, 2004 by the Pro Forma
Statements; provided, that the Business does not include the Excluded Business.
Business Day means any day other than a Saturday, Sunday or a day on which
commercial banks in New York City, Denver, Colorado or Hamilton, Bermuda are
required or authorized by Applicable Law to be closed.
Business Employees shall have the meaning set forth in Section 3.19.
Business Leases shall have the meaning given in Section 3.9.
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Cause shall mean, with respect to a Transferred Employee, (a) failing to abide
by the policies of the Purchaser or any Affiliate of Purchaser employing such
Transferred Employee, (b) being convicted of, or pleading nolo contendere to, a
felony, any other crime or illegal activity, (c) willful neglect of duties, or
(d) persistent failure to perform duties consistent with a commercially
reasonable standard of care.
Change of Control means, with respect to any Person (other than to or with an
Affiliate of such Person) (i) a merger, consolidation, liquidation, dissolution,
reorganization or share exchange to which such Person is a party and is not the
surviving entity; (ii) a sale, transfer or other disposition of all or
substantially all of the assets of such Person; or (iii) a sale, transfer or
other disposition or other change of ownership, directly or indirectly, of more
than fifty percent (50%) of the capital stock of such Person.
Claim shall have the meaning given in Section 10.3(a).
Claims Notice shall have the meaning given in Section 10.3(a).
Closing shall have the meaning given in Section 2.1.
Closing Date shall have the meaning given in Section 2.1.
Closing Statement Date means the last day of the month preceding the month in
which the Closing occurs.
COBRA means Section 601 et seq. of ERISA and Section 4980B of the Code.
Code means the Internal Revenue Code of 1986, as amended.
Competing Business shall have the meaning given in Section 5.21(a).
Computer Programs means current versions of all existing (i) computer programs,
including all object code, all executables, copy books and modules, if any,
required to compile programs, all available source code, and, with respect to
the Owned Principally-Used Computer Programs, Owned Generally-Used Computer
Programs and Licensed Computer Programs, any program to program and user
interfaces related to such Computer Programs; (ii) descriptions, flow-charts and
other work product used to design, plan, organize and develop any of the
foregoing; and (iii) documentation, including operator and user manuals and
training materials, relating to any of the foregoing.
Confidentiality Agreement means the Confidentiality Agreement between ING and
Purchaser dated as of May 4, 2004.
Covered Amount shall have the meaning given in Section 5.24(d).
Data means (i) all information created in the conduct of the Business that is
stored in or accessible using any computer, network, operating system, software
or any combination thereof owned or controlled by Sellers or any Affiliate of
Sellers and (ii) statistical data, compilations and analyses used or created by
Sellers in the Business to support business
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processes such as underwriting decisions, risk management, pricing and
transaction processing, that is stored in or accessible using any computer,
network, operating system, software or any combination thereof owned or
controlled by Sellers of any Affiliate of Sellers; provided, however, that
"Data" shall not include any Excluded Data. For the avoidance of doubt, "Data"
shall not be construed to include any portion of any Computer Program.
Database means any electronic compilation of Data (including any documentation
needed to run, modify or interpret the same) that is (i) used in, or generated
by, the operation of the Owned Principally-Used Computer Programs, Owned
Generally-Used Computer Programs or Licensed Computer Programs, (ii) operating
on any of the Retained Computer Programs, provided that nothing in this
Agreement shall obligate Sellers or any Affiliate of Sellers to transfer such
Retained Computer Programs or any portion thereof, or (iii) necessary to the
operation of the Business, but shall exclude any portion of any such Database to
the extent it contains any Excluded Data or any other information that is not
Data.
Delivered Unexecuted Assumed Reinsurance Contracts shall have the meaning given
in Section 3.16(d).
Delivered Unexecuted Retroceded Reinsurance Contracts shall have the meaning
given in Section 3.17(f).
Denver Lease means the lease agreement, substantially on the terms set forth in
Exhibit S, pursuant to which SLD will lease to Purchaser or a Purchaser
Subsidiary a portion of the premises located at 1290 Broadway, Denver, Colorado
as of the Closing Date.
Direct Insurance Contracts shall have the meaning given in Section 3.25(d).
Effective Time means 11:59 p.m. Eastern Time on the last calendar day of the
month in which the Closing Date falls.
Embedded Computer Programs means Computer Programs included in the Owned
Principally-Used Computer Programs and the Owned Generally-Used Computer
Programs that (i) are owned by third parties, and (ii) either have been produced
or substantially modified through custom development provided specifically to
meet Sellers' requirements, or are integrated inseparably with the Owned
Principally-Used Computer Programs or the Owned Generally-Used Computer
Programs, but excluding Computer Programs that are readily available for
commercial licensing or purchase from third-party owners.
Employee Benefit Plan means any employee benefit plan, program, policy,
practice, agreement or other arrangement under which any current or former
employee, director, shareholder, agent or independent contractor of either
Seller or any ERISA Affiliate, or any beneficiary or dependent thereof, has any
present or future rights in benefits and which is sponsored or maintained by
either Seller or any ERISA Affiliate or to which either Seller or any ERISA
Affiliate contributes or is obligated to contribute, including without
limitation any ERISA Plan, and any bonus, incentive, deferred compensation,
5
vacation, stock purchase, stock option, severance, employment, change in
control, collective bargaining, employee loan or fringe benefit plan, program,
policy, practice, agreement or other arrangement, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or not.
Employee Information shall have the meaning given in Section 5.8(a).
Encumbrance means any pledge, security interest, mortgage, community property
interest, right, lien (including but not limited to liens for unpaid Taxes),
attachment, automatic or other stay in a bankruptcy or insolvency proceeding,
trust agreement, constructive or resulting trust, voting trust or agreement,
restricted stock agreement, right of first refusal, or option, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership, except such restrictions as may be contained in
the respective articles of incorporation, bylaws or comparable organizational
documents of the Sellers and restrictions on subsequent transfer contained in
U.S. federal and state securities and insurance laws and Bermuda securities and
insurance laws.
End Date shall have the meaning given in Section 8.1(c).
Enforceability Exceptions shall have the meaning given in Section 3.2(a).
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate means any entity that would be deemed a "single employer" with
either Seller under Section 414(b), (c), (m) or (o) of the Code or Section 4001
of ERISA.
ERISA Plan means an employee benefit plan as defined in Section 3(3) of ERISA.
Estimated Book Value means with respect to Transferred Statutory Assets, the
carrying value thereof on the books of SLD and SLDI, as the case may be, for
statutory statement blank purposes in accordance with SAP to be estimated in
good faith as of the last calendar day of the month preceding the month in which
the Closing shall occur.
Estimated Market Value means, as to any Investment Asset, the market value
thereof estimated in good faith by SLD and SLDI, as the case may be, as of the
last calendar day of the month preceding the month in which the Closing shall
occur in accordance with the methodologies set forth on Schedule 1.1(b).
Excess Reserves Amount shall have the meaning given in Section 5.24(a).
Excess Retention Risk shall have the meaning given in Section 5.27.
Excluded Business means those businesses, contracts and policies identified on
Schedule 1.1(c).
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Excluded Data means any data, information, statistical data, compilations or
analyses relating solely to (i) the Excluded Business, (ii) Sellers' and their
Affiliates' risk retention management, other than that related exclusively to
the Business, or (iii) the Shared Services. For the avoidance of doubt, the
Excluded Data shall not include any data that is included in the Transferred
Assets.
Excluded Extra Contractual Obligations means any liability for fines, penalties,
forfeitures, punitive, special, exemplary or other form of extra-contractual
damages, which liabilities or obligations arise from any actual or alleged act,
error or omission, whether or not intentional, negligent, or in bad faith by
Sellers or any of their Affiliates prior to the Closing Date in connection with
the issuance, delivery, cancellation or administration of any of the Insurance
Contracts.
Excluded Tax Liability means the following Losses: (i) all liabilities for Taxes
and related Losses now or hereafter owed by Sellers (or any Affiliate thereof),
including (but not limited to) any liability for Taxes owed by Sellers as a
result of the transfers described in Sections 2.2, 2.4 and 2.5 of this
Agreement, except for any liabilities for Taxes relating to the Transferred
Assets with respect to any Tax period or portion thereof beginning after the
Closing Date; (ii) all liabilities for Taxes and related Losses relating or
attributable to the Business or the ownership, use or operation of the
Transferred Assets for any Tax period or portion thereof ending on or before the
Closing Date; or (iii) all liabilities for Transfer Taxes allocated to Sellers
(or any Affiliate thereof) pursuant to Section 9.1(c), provided, however, that
no liability for Taxes or related Losses shall constitute an Excluded Tax
Liability to the extent it is shown on the Final Closing Statements.
Excluded Undelivered Contracts shall have the meaning given in Section 5.31.
Facility Fee shall have the meaning given in Section 5.24(d).
Final and Binding shall have the meaning given in Section 2.5(c).
Final Closing Statements shall have the meaning given in Section 2.5(c).
Final Retrocessionaire Accruals Calculation shall have the meaning given in
Section 2.5(i).
FIRPTA Affidavit means an affidavit dated as of the Closing Date, sworn under
penalty of perjury, stating that each Seller is not a "foreign person" within
the meaning of Treasury Regulations section 1.1445-2(b).
GAAP means United States generally accepted accounting principles.
Governmental Authority means any government or political subdivision, board,
commission, court, administrative agency or other instrumentality thereof,
whether federal, state, local or foreign and including any regulatory authority
which may be partly or wholly autonomous.
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Indemnified Party shall have the meaning given in Section 10.3(a).
Indemnifying Party shall have the meaning given in Section 10.3(a).
Independent Accountant shall have the meaning given in Section 2.5(c).
Industry Risks Retrocession Agreements means collectively the retrocession
agreements between one or more Purchaser Subsidiaries and SLD substantially on
the terms set forth in Exhibit X under which each Purchaser Subsidiary will
retrocede certain risks to SLD.
Initial Portfolio means the portfolio of investment assets listed on Schedule
1.1(d) hereto.
ING means ING America Insurance Holdings, Inc., a Delaware corporation.
ING Facility shall have the meaning given in Section 5.24(a).
ING Statements shall have the meaning given in Section 3.4(d).
Insurance Contracts means collectively, (a) all individual life reinsurance
contracts (ceded, retroceded or assumed), those reinsurance contracts identified
on Schedule 1.1(i) and other similar arrangements (including all Unexecuted
Assumed Reinsurance Contracts and Unexecuted Retroceded Reinsurance Contracts)
identified or described on the internal systems, books, records or other data of
Sellers as constituting part of the "Individual Re" business of SLD and SLDI,
either specifically, generally or by product code, which were entered into by
SLD or SLDI prior to the Effective Time, and (b) any "Post-Closing Insurance
Contracts" as defined in the Reinsurance Agreements, provided that in no event
shall Insurance Contracts include any Excluded Business. "Insurance Contracts"
shall include (i) any reinsurance treaties, facultative certificates, cover
notes and endorsements issued as or in connection with the contracts identified
in clause (a) of the preceding sentence, (ii) placement slips and binders issued
as or in connection with such contracts, and (iii) any reinsurance contract
identified in clause (a) that has expired or been terminated but under which
either Seller may still have liability. "Insurance Contracts" shall exclude any
reinsurance treaty (other than an Unexecuted Assumed Reinsurance Contract or an
Unexecuted Retroceded Reinsurance Contract) that is entered into after the date
of this Agreement without Purchaser's consent.
Intellectual Property means, in connection with each Seller, intellectual
property rights owned, licensed or otherwise used by such Seller in the Business
as currently conducted, including but not limited to all Trademarks, designs,
logos, slogans and general intangibles of like nature, registrations and
applications relating to the foregoing; patents, copyrights (including
registrations and applications for any of the foregoing); databases and
compilations (excluding any Databases), including any and all data, collections
of data and documentation (excluding any Data) related to any of the foregoing;
confidential information, technology, know-how, inventions, processes, formulae,
algorithms, models and methodologies, and any licenses to use any of the
foregoing (but excluding Computer Programs) together with the goodwill of each
of the respective businesses associated therewith, and together with any and all
(i) renewals thereof; and (ii) rights to sue for past, present and future
infringement or misappropriation thereof.
8
Investment Assets means the assets included in the Initial Portfolio, with such
additions thereto and deletions therefrom as may be agreed upon by Purchaser and
Sellers and such other deletions as (i) may be identified by Purchaser in a
notice provided to Sellers not later than November 15, 2004 or (ii) may result
from maturation or redemption or other similar events outside the control of
Sellers.
Knowledge shall mean, (i) with respect to Sellers, the actual knowledge, after
reasonable internal investigation in connection with the transactions
contemplated by this Agreement and the Related Agreements, of those individuals
listed on Schedule 1.1(e), and (ii) with respect to Purchaser, the actual
knowledge, after reasonable internal investigation in connection with the
transactions contemplated by this Agreement and the Related Agreements, of those
individuals listed on Schedule 1.1(f).
Legal Requirement means any constitution, code, statute, law, applicable court
decision, ordinance, regulation, writ, injunction, rule, established principle
of common law, decree or administrative ruling of any Governmental Authority.
Licensed Computer Programs shall have the meaning set forth in Section 3.13(c).
Licensed Computer Program Licenses shall have the meaning set forth in Section
3.13(c).
Licensed Intellectual Property shall have the meaning given in Section 3.12(e).
Loss means all losses, costs, obligations, liabilities, settlement payments,
awards, judgments, fines, penalties, damages, and expenses (including but not
limited to reasonable and necessary fees of counsel, investigators, expert
witnesses, consultants and other professionals, court filing fees, court costs,
arbitration fees or costs, witness fees and other similar expenses).
Market Value means, as to any Investment Asset, the market value thereof
determined in good faith as of the Effective Time in accordance with the
methodologies set forth on Schedule 1.1(b).
Material Adverse Effect means a material adverse effect on either (A) the
ability of Sellers or any of their Affiliates to consummate the transactions
contemplated by this Agreement and the Related Agreements or (B) the financial
condition or results of operations of the Business, taken as a whole; provided,
however, that with respect to the foregoing clause (B) only, the following shall
be excluded from the definition of "Material Adverse Effect" and from any
determination as to whether a Material Adverse Effect has occurred or may occur:
(i) any adverse change or effect that is caused by or that arises out of
conditions affecting the economy or financial, banking, currency or capital
markets in general; (ii) any adverse change or effect that is caused by or that
arises out of conditions that (A) affect the life reinsurance industry, or the
insurance or financial services industries generally, including without
limitation changes in Applicable Law, and (B) do not have a disproportionate
effect on the Business; and (iii) any adverse change or effect resulting from
the announcement or the pendency of the transactions
9
contemplated by this Agreement (including, but not limited to, changes in
relations with employees and declines in sales volumes).
Material Assumed Reinsurance Contracts shall have the meaning given in Section
3.16(a).
Material Retroceded Reinsurance Contracts shall have the meaning given in
Section 3.17(a).
NAIC Annual Statement Blank means the form of annual report promulgated by the
National Association of Insurance Commissioners (2003 format).
Newco means a wholly-owned subsidiary of Purchaser to be formed under the laws
of Bermuda and the regulations set forth in Section 953(d) of the Code, or
alternatively, the Substitute Newco, an existing Affiliate of Purchaser, in
either case as contemplated by Section 5.26.
Newco Keepwell shall have the meaning given in Section 5.26(a).
Non-Compete means Sellers' obligations under Section 5.21.
Non-Compete Term shall have the meaning given in Section 5.21(a).
Non-Insurance Liabilities shall have the meaning given in Section 5.17(a).
Nonmaterial Contracts shall have the meaning given in Section 5.4(c).
Owned Generally-Used Computer Programs shall have the meaning given in Section
3.13(b).
Owned Intellectual Property shall have the meaning given in Section 3.12(d).
Owned Principally-Used Computer Programs shall have the meaning given in Section
3.13(a).
Permanent Facility shall have the meaning given in Section 5.24(c).
Permit means any license, permit, order, approval, registration, membership,
authorization or qualification under any Applicable Law or with any Governmental
Authority or under any industry or non-governmental self-regulatory
organization.
Permitted Encumbrances, means (i) as to any asset, Encumbrances for Taxes,
assessments and governmental charges or levies (A) not yet due and payable or
(B) which are being contested in good faith and which have been properly
reserved for on the Final Closing Statements, (ii) as to any asset, such
Encumbrances, minor imperfections of title or easements on leasehold estate or
personalty subject thereto that do not in the aggregate impair the value of or
interfere with or prohibit the current use or operation of such asset in the
Business; and (iii) as to any asset other than any Investment Asset,
Encumbrances
10
imposed by Applicable 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, that do not in the aggregate impair
the value of or interfere with or prohibit the current use or operation of such
asset in the Business.
Person means any natural person, corporation, partnership, limited liability
company, trust, joint venture or other entity.
Pro Forma Statements shall have the meaning given in Section 3.5(a).
Purchaser shall have the meaning given in the preamble.
Purchaser Assumed Employee Liabilities means (i) any claims by any Business
Employee arising out of or relating to any act or omission by Purchaser or an
Affiliate of Purchaser or any Representative of Purchaser or any Affiliate of
Purchaser, including but not limited to, any act or omission in connection with
the recruitment, solicitation, interviewing, hiring, failure to hire, selection,
or failure to select a Business Employee, or other activities in violation of
any Applicable Law governing the hiring, interviewing, or selection of employees
or potential employees, including but not limited to Applicable Law prohibiting
discrimination in hiring on the basis of race, age, national origin, sex,
religion, pregnancy, military status, sexual orientation or actual or perceived
disability, except to the extent that the act(s) or omission(s) on which such
claims, liabilities or obligations in this clause (i) are based were expressly
authorized by either Seller or any of their Affiliates in writing, and (ii) any
liability or obligation arising out of or relating to any act or omission of
either Seller or any of their Affiliates taken at the request of Purchaser or
any Affiliate of Purchaser upon, before or after the Closing Date in connection
with the recruitment, solicitation, interviewing, hiring, failure to hire,
selection or failure to select a Business Employee.
Purchaser Extra Contractual Obligations means any liability for fines,
penalties, forfeitures, punitive, special, exemplary or other form of
extra-contractual damages, which liabilities or obligations arise from any
actual or alleged act, error or omission, whether or not intentional, negligent,
or in bad faith by Purchaser or any of its Affiliates after the Closing Date in
connection with the issuance, delivery, cancellation or administration of any of
the Insurance Contracts.
Purchaser Facility shall have the meaning given in Section 5.24(b).
Purchaser Financial Statements shall have the meaning given in Section 4.4.
Purchaser Indemnified Parties shall have the meaning given in Section 10.1.
Purchaser Subsidiary means SRUS, Newco or any other Affiliate of Purchaser that
enters into any Reinsurance Agreement in accordance with the terms of this
Agreement.
Quarterly Statutory Statements shall have the meaning given in Section 5.11(a).
Recaptured Business shall have the meaning given in Section 5.24(b).
11
Reinsurance Agreements means collectively the SLD Coinsurance Agreement, the SLD
Modified Coinsurance Agreement, the SLD Funds Withheld Coinsurance Agreement,
the SLD Coinsurance / Modified Coinsurance Agreement, the SLDI Coinsurance
Agreement, the SLDI Modified Coinsurance Agreement, the SLDI Funds Withheld
Coinsurance Agreement and the SLDI Coinsurance / Modified Coinsurance Agreement.
Reinsured Liabilities means all gross liabilities and obligations arising out of
or relating to the Insurance Contracts (excluding Excluded Extra Contractual
Obligations) whether incurred before or after the Effective Time, including,
without limitation: (a) the Reserves; (b) all liabilities for incurred but not
reported claims, benefits, interest on death claims or unearned premiums arising
under or relating to the Insurance Contracts, whether or not included within the
Reserves; (c) all liabilities arising out of any changes to the terms and
conditions of the Insurance Contracts mandated by Applicable Law; (d) (i) Taxes
due in respect of premiums (without giving effect to any credits due to Sellers
(or any Affiliate thereof) for any guaranty fund assessments paid by Sellers (or
any Affiliate thereof) prior to Closing) to the extent such Taxes (A) relate to
premiums received by or accrued by Purchaser (and any Affiliate thereof)
beginning after the Closing Date or (B) are reflected on the Final Closing
Statements, and (ii) all other Tax liabilities arising out of or relating to the
Insurance Contracts to the extent such Taxes (A) relate to a Tax period (or
portion thereof) beginning after the Closing Date or (B) are reflected on the
Final Closing Statements (except for, in each case, Excluded Tax Liabilities);
(e) assessments and similar charges in connection with participation by either
Sellers (or any Affiliate thereof) or Purchaser (or any Affiliate thereof)
whether voluntary or involuntary, in any guaranty association established or
governed by any state or other jurisdiction; (f) commissions payable with
respect to the Insurance Contracts to or for the benefit of the producers or
intermediaries who marketed or produced the Insurance Contracts; (g) all
liabilities for amounts payable for returns or refunds of premiums; (h) all
expense allowances payable under the Insurance Contracts, (i) all unclaimed
property liabilities arising under or relating to the Insurance Contracts; (j)
all amounts payable under the Retroceded Reinsurance Contracts; and (k) all
Purchaser Extra Contractual Obligations.
Related Agreements means each of the agreements the forms or terms of which are
Exhibits A through S and Exhibits U through Y hereto.
Representatives means, with respect to any Person, such Person's officers,
directors, employees, managing directors, agents, advisors and other
representatives.
Reserves means the aggregate amount of reserves and other liabilities with
respect to the Insurance Contracts issued or reinsured by SLD or SLDI that would
be appropriately includable in line items 1, 2, 3, 4.1, 4.2, 5, 6.1, 6.2, 6.3,
7, 8, 9.1, 9.2, 9.3, 10, 11, 12, 13, 14 (excluding any Excluded Tax Liability),
17, 18, 19, 24.2, 24.3, 24.6, 24.7, 25.02 and 25.03 except OPEB of the
Liabilities, Surplus and Other Funds page of the NAIC Annual Statement Blank.
Restricted Area shall have the meaning given in Section 5.21(b).
12
Retained Computer Programs shall have the meaning set forth in Section 3.13(d).
Retained IP Rights means (i) the Excluded Data (ii) any Intellectual Property
used in the Business and related primarily to either (A) the Excluded Business
or (B) the Shared Services, (iii) the Trademarks, trade names, service marks,
corporate names or acronyms of Sellers or any of their Affiliates, including the
Trademarks, service marks, names and acronyms set forth in Schedule 5.15(a), and
any Intellectual Property, domain name or URL (or any application or
registration therefor) related to those listed in Schedule 5.15(a), owned by,
licensed to or used by Sellers or any of their Affiliates, and any other name,
mark, acronym or domain name that is confusingly similar to such marks,
corporate names or acronyms of Sellers, and (iv) the names, Trademarks and any
other intellectual property licensed to Purchaser and Purchaser Subsidiaries
pursuant to the Trademark and Trade Name License Agreement, to the extent not
included in clause (iii) above; provided, however, that "Retained IP Rights"
shall not include any of the Owned Intellectual Property identified as part of
the Transferred Assets on Schedule 1.1(h)-1.
Retained Liabilities means any liabilities of either Seller that are not Assumed
Liabilities, including, without limitation, Excluded Extra Contractual
Obligations or any Reinsured Liabilities recaptured by either Seller in
accordance with the terms of the Reinsurance Agreements.
Retained Licenses means the licenses, sublicenses and other rights retained by
Sellers and any Affiliate of Sellers pursuant to the Technology Transfer and
License Agreement.
Retroceded Business shall have the meaning given in Section 5.24(a).
Retroceded Reinsurance Contracts shall have the meaning given in Section
3.17(a).
Retrocessionaire Accruals Calculation shall have the meaning given in Section
2.5(i).
Sage System shall have the meaning given in Section 2.5(i).
SAP means, as to either Seller, any Purchaser Subsidiary or Scottish Annuity &
Life, the statutory accounting practices prescribed or permitted by the
insurance regulatory authorities of the jurisdiction in which such Seller or
Purchaser Subsidiary is domiciled.
Scottish Annuity & Life shall have the meaning given in the preamble.
Scottish Re Life shall have the meaning given in the preamble.
Seller(s) shall have the meaning given in the preamble.
Seller Plan(s) shall have the meaning given in Section 3.20.
Sellers' Severance Plan means payments or benefits extended under the ING
Americas Severance Pay Plan or any other applicable and effective written
policy, program or arrangement of any Business Employee's employer providing for
payments or benefits
13
upon termination of employment (other than qualified or non-qualified retirement
plans) (including, but not limited to, outplacement services), as listed on
Schedule 1.1(g).
Shared Services means those functions and services shared by either Seller with
one or more of Sellers' Affiliates, which may include Sellers' back-office
administrative, accounting and human resources functions, investment asset
management functions and financial processes, or general IT support such as
network operations, telecommunications, database management, training and
development, security, and platforms.
Shared Services Computer Programs means those Computer Programs (other than the
Owned Principally-Used Computer Programs, the Owned Generally-Used Computer
Programs or the Licensed Computer Programs) utilized in the performance of the
Shared Services.
SLD shall have the meaning given in the preamble.
SLD Administrative Services Agreement means the administrative services
agreement by and between SLD and SRUS, substantially in the form of Exhibit C.
SLD Closing Date Liabilities means, as of a given date, the liabilities of SLD
relating to the Business that would be appropriately includable in line items 1
(minus the amount of modified coinsurance reserves), 2, 3, 4.1, 4.2, 5, 6.1,
6.2, 6.3, 7, 8, 9.1, 9.2, 9.3, 10, 11, 12, 13, 14 (excluding any Excluded Tax
Liability), 16, 17, 18, 19, 20, 21, 24.2, 24.6, 24.8 (to the extent related to
the Investment Assets to be transferred hereunder), 25.02 and 25.03 except OPEB
of the Liabilities, Surplus and Other Funds page of the NAIC Annual Statement
Blank; provided, that the SLD Closing Date Liabilities will not include the
amount of any liability to be retained or paid by SLD or any Affiliate of SLD
pursuant to the terms of this Agreement or any Related Agreement. The SLD
Closing Date Liabilities shall be (a) estimated and reflected in the SLD Closing
Statements as of the last day of the month preceding the month in which the
Closing Date shall occur; and (b) subsequently adjusted and reflected in the SLD
Revised Closing Statements and the Final Closing Statements as of the Effective
Time.
SLD Closing Statements shall have the meaning given in Section 2.4(a)
SLD Coinsurance Agreement means the coinsurance agreement by and between SLD and
SRUS, substantially in the form of Exhibit D.
SLD Coinsurance / Modified Coinsurance Agreement means the coinsurance /
modified coinsurance agreement by and between SLD and SRUS substantially on the
terms set forth in Exhibit G.
SLD Funds Withheld Coinsurance Agreement means the funds withheld coinsurance
agreement by and between SLD and SRUS substantially on the terms set forth in
Exhibit E.
14
SLD Modified Coinsurance Agreement means the modified coinsurance agreement by
and between SLD and SRUS substantially on the terms set forth in Exhibit F.
SLD Pro Forma Statements shall have the meaning given in Section 3.5(a).
SLD Reserve Trust Account means the trust account established pursuant to the
SLD Reserve Trust Agreement.
SLD Reserve Trust Agreement means the trust agreement by and among SLD, the
Trustee and SRUS substantially in the form of Exhibit V.
SLD Revised Closing Statements shall have the meaning given in Section 2.5(a).
SLD Security Trust Account means the trust account established pursuant to the
SLD Security Trust Agreement.
SLD Security Trust Agreement means the trust agreement by and among SLD, the
Trustee and SRUS substantially in the form of Exhibit H.
SLD-SLDI Retrocession Agreements shall have the meaning given in Section
5.24(a).
SLD Trust Accounts means the trust accounts established pursuant to the SLD
Reserve Trust Agreement and the SLD Security Trust Agreement.
SLDI shall have the meaning given in the preamble.
SLDI Administrative Services Agreement means the administrative services
agreement by and between SLDI and Newco, substantially on the terms set forth in
Exhibit I.
SLDI Closing Date Liabilities means, as of a given date, the liabilities of SLDI
relating to the Business that would be appropriately includable in line items 1
(minus the amount of modified coinsurance reserves), 2, 3, 4.1, 4.2, 5, 6.1,
6.2, 6.3, 7, 8, 9.1, 9.2, 9.3, 10, 11, 12, 13, 14 (excluding any Excluded Tax
Liability), 16, 17, 18, 19, 20, 21, 24.2, 24.6, 24.8 (to the extent related to
the Investment Assets to be transferred hereunder), 25.02 and 25.03 except OPEB
of the Liabilities, Surplus and Other Funds page of the NAIC Annual Statement
Blank; provided, that the SLDI Closing Date Liabilities will not include the
amount of any liability to be retained or paid by SLDI or any Affiliate of SLDI
pursuant to the terms of this Agreement or any Related Agreement. The SLDI
Closing Date Liabilities shall be (a) estimated and reflected in the SLDI
Closing Statements as of the last calendar day of the month preceding the month
in which the Closing Date shall occur; and (b) subsequently adjusted and
reflected in the SLDI Revised Closing Statements and the Final Closing
Statements as of the Effective Time.
SLDI Closing Statements shall have the meaning given in Section 2.4(b).
SLDI Coinsurance Agreement means the coinsurance agreement by and between SLDI
and Newco, substantially in the form of Exhibit J.
15
SLDI Coinsurance / Modified Coinsurance Agreement means the coinsurance /
modified coinsurance agreement by and between SLDI and Newco substantially on
the terms set forth in Exhibit L.
SLDI Funds Withheld Coinsurance Agreement means the funds withheld coinsurance
agreement by and between SLDI and Newco substantially on the terms set forth in
Exhibit K.
SLDI Modified Coinsurance Agreement means the modified coinsurance agreement by
and between SLDI and Newco substantially on the terms set forth in Exhibit M.
SLDI Pro Forma Statements shall have the meaning given in Section 3.5(a).
SLDI Reserve Trust Account means the trust account established pursuant to the
SLDI Reserve Trust Agreement.
SLDI Reserve Trust Agreement means the trust agreement by and among SLDI, the
Trustee and Newco substantially in the form of Exhibit N.
SLDI Revised Closing Statements shall have the meaning given in Section 2.5(b).
SLDI Security Trust Agreement means the trust agreement by and among SLDI, the
Trustee and Newco substantially in the form of Exhibit W.
SLDI Security Trust Account means the trust account established pursuant to the
SLDI Security Trust Agreement.
SLDI Trust Accounts means the trust accounts established pursuant to the SLDI
Reserve Trust Agreement and the SLDI Security Trust Agreement.
SRUS shall have the meaning given in the preamble.
Standby Commitment shall have the meaning given in Section 5.12(c).
Statutory Statements shall have the meaning given in Section 3.4(a).
Substitute Newco shall have the meaning given in Section 5.26(b).
Tax Authority means, with respect to any Tax, any governmental entity or
political subdivision thereof that imposes such Tax, and any agency charged with
the collection of such Tax for such entity or subdivision.
Taxes or Tax means (i) any and all taxes (including any amounts (including
ancillary amounts) paid pursuant to a closing agreement entered into pursuant to
Section 7121 of the Code or any similar provision of Applicable Law), fees,
Transfer Taxes, levies, duties, tariffs, imposts and other similar charges
(together with any and all interest, penalties, or additions to tax with respect
thereto) imposed by a governmental or Tax Authority, including without
limitation: taxes or other similar charges imposed with
16
respect to income, gross receipts, franchise, earned surplus, windfall, profits,
severance, real or personal property, intangible property, sales, use,
occupation, service, service use, payroll, capital, premiums or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, employment,
social security, stamp, transfer, value added, license or gains taxes; and
escheat liabilities, customs duties, tariffs, and similar charges and (ii) any
liability in respect of any items described above payable by reason of contract,
assumption, transferee liability, operation of law, Treasury Regulation Section
1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar
provision under state, local or foreign law) or otherwise (including without
limitation any amounts due under any Tax Sharing Agreements).
Tax Claim shall have the meaning given in Section 3.25(b).
Tax Return means any return, report, claim, certificate, form, statement,
disclosure, declaration, election, information return, estimate or other
document (including any related or supporting information attached and any
amended materials provided with respect to any of the foregoing) supplied to, or
filed with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax, including where permitted or
required any Tax return filed on a consolidated, combined, unitary or other
similar basis.
Tax Sharing Agreement means any Tax allocation, indemnity, sharing or similar
contract or arrangement.
Technology Transfer and License Agreement means the technology transfer and
license agreement by and between SLD or an Affiliate of SLD and Purchaser or a
Purchaser Subsidiary, substantially on the terms set forth in Exhibit O,
pursuant to which SLD or an Affiliate of SLD will transfer the Owned
Principally-Used Computer Programs to Purchaser or a Purchaser Subsidiary and
grant a license to Purchaser or a Purchaser Subsidiary to use certain Computer
Programs owned by either Seller or any of its Affiliates and used in the
Business.
Trademark and Trade Name License Agreement means the trademark and trade name
license agreement, substantially on the terms set forth in Exhibit P, pursuant
to which Sellers will license to Purchaser or a Purchaser Subsidiary certain
intellectual property used in the conduct of the Business.
Trademarks means all United States and foreign trademarks (including service
marks and trade names, whether registered or at common law), registrations and
applications therefor, registered copyrights, registrations and applications
therefor, domain names, logos and designs owned by a Seller and used in
connection with the Business as currently conducted, together with the goodwill
of each of the respective businesses associated therewith, together with any and
all (i) renewals thereof; and (ii) rights to sue for past, present and future
infringement or misappropriation thereof.
17
Transfer Taxes means any sales, use, stamp, documentary, filing, recording,
transfer, real estate, stock transfer, intangible property transfer, personal
property transfer, gross receipts, registration, duty, securities transactions
or similar fees or Taxes or governmental charges (together with any interest or
penalty, addition to Tax or additional amount imposed) as levied by any Tax
Authority in connection with the transactions contemplated by this Agreement.
Transferred Assets means, collectively (i) the Books and Records, (ii) the
Assigned Contracts, (iii) the Transferred Statutory Assets, (iv) the Owned
Principally-Used Computer Programs, (v) the Investment Assets to be transferred
to the Purchaser Subsidiaries by Sellers or Affiliates of Sellers on the Closing
Date pursuant to the terms of this Agreement, (vi) the Owned Intellectual
Property as identified on Schedule1.1(h)-1, (vii) all of the fixed assets
identified on Schedule 1.1(h)-1 and those assets identified on Schedule 1.1(h)-2
that are used primarily by the Transferred Employees, and (viii) the going
concern, goodwill, and other similar intangible assets of the Business, but
excluding any rights under the Retained Computer Programs and under any contract
or agreement other than an Assigned Contract.
Transferred Statutory Assets means those assets of SLD and SLDI included within
the Business that would be appropriately includable in line items 12.1, 12.2,
12.3, 13.1, 13.2, 13.3, 16 and 17 of the Assets page of the NAIC Annual
Statement Blank plus, in the case of SLDI, the deferred acquisition cost asset
permitted by the Bermuda Monetary Authority as a sundry asset as described in
Schedule 2.4(b).
Transferred Employees shall have the meaning given in Section 5.8(a).
Transition Services Agreement means the transition service agreement,
substantially on the terms set forth in Exhibit Q, pursuant to which Sellers, or
one or more Affiliates of Sellers, will provide Purchaser and the Purchaser
Subsidiaries certain services relating to the Business on an interim basis
following Closing.
Treasury Regulations means the Treasury Regulations (including temporary and
proposed Treasury Regulations) promulgated by the United States Department of
Treasury with respect to the Code or other federal Tax statutes.
Trustee means the trustee named in the SLD Reserve Trust Agreement, the SLD
Security Trust Agreement, the SLDI Reserve Trust Agreement and the SLDI Security
Trust Agreement and any successor trustee appointed as such pursuant to the
terms of such trust agreements.
2004 Production Adjustment shall have the meaning given in Section 2.5(h).
Undelivered Contracts shall have the meaning given in Section 5.31.
Unexecuted Assumed Reinsurance Contracts shall have the meaning given in Section
3.16(d).
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Unexecuted Retroceded Reinsurance Contracts shall have the meaning given in
Section 3.17(f).
Warn Act shall have the meaning given in Section 5.8(i).
ARTICLE II
Transfer and Acquisition of Assets
----------------------------------
2.1 Place and Date of Closing.
-------------------------
Unless otherwise agreed to by the parties hereto, the closing (the
"Closing") of the transactions contemplated hereby will take place in the
offices of Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, D.C., at 10:00 a.m., Eastern time, on (a) the last Business Day of
the calendar month in which all of the conditions set forth in Articles VI and
VII are satisfied or waived by the party or parties entitled to waive the same;
provided, that if such conditions are satisfied or waived less than five (5)
Business Days before the end of such month, the Closing shall take place on the
last Business Day of the immediately following month, or (b) such other date as
Sellers and Purchaser shall mutually agree. The day on which the Closing takes
place is referred to herein as the "Closing Date." The Closing shall be deemed
for all purposes to have occurred at 11:59 p.m., Eastern time, on the Closing
Date.
2.2 Transfer and Acquisition.
------------------------
Upon the terms and subject to the conditions set forth in this Agreement,
at the Closing:
(a) SLD and SLDI will cede or retrocede to a Purchaser Subsidiary the
Insurance Contracts and such Purchaser Subsidiary shall reinsure the Insurance
Contracts pursuant to the Reinsurance Agreements, including, without limitation,
the right to premiums received by either Seller pursuant to any Insurance
Contract as provided in the Reinsurance Agreements;
(b) Sellers and their Affiliates shall transfer and sell to Purchaser or a
Purchaser Subsidiary, and Purchaser or a Purchaser Subsidiary shall purchase,
the Transferred Assets; and
(c) Purchaser or a Purchaser Subsidiary shall assume the Assumed
Liabilities; provided that Purchaser or a Purchaser Subsidiary is not assuming,
or in any way becoming liable or responsible for, any Retained Liability.
2.3 Deliveries on Closing.
---------------------
Upon the terms and subject to the conditions set forth in this Agreement,
Sellers, as applicable, or an Affiliate of Sellers shall enter into and deliver,
and Purchaser or a
19
Purchaser Subsidiary, as applicable, shall enter into and deliver on or prior to
the Closing Date:
(a) the SLD Coinsurance Agreement;
(b) the SLD Modified Coinsurance Agreement;
(c) the SLD Funds Withheld Coinsurance Agreement;
(d) the SLD Coinsurance / Modified Coinsurance Agreement;
(e) the SLD Administrative Services Agreement;
(f) the SLDI Coinsurance Agreement;
(g) the SLDI Funds Withheld Coinsurance Agreement;
(h) the SLDI Modified Coinsurance Agreement;
(i) the SLDI Coinsurance / Modified Coinsurance Agreement;
(j) the SLDI Administrative Services Agreement;
(k) the Assignment and Assumption Agreement;
(l) the Transition Services Agreement;
(m) the SLD Reserve Trust Agreement;
(n) the SLD Security Trust Agreement;
(o) the SLDI Reserve Trust Agreement;
(p) the SLDI Security Trust Agreement;
(q) the Industry Risks Retrocession Agreements;
(r) the Trademark and Trade Name License Agreement;
(s) the Technology Transfer and License Agreement;
(t) the Assignment of Confidentiality Agreements;
(u) the Denver Lease;
(v) the Asset Management Agreement;
(w) the Newco Keepwell;
(x) the FIRPTA Affidavit;
20
(y) the Bill of Sale and General Assignment and any other necessary asset
purchase and sale documents, bills of sale and assignments and other
appropriate evidence of transfer in respect of the Transferred Assets
and the Assigned Contracts; and
(z) there shall be executed and delivered such other agreements,
instruments and documents as are required under this Agreement to be
executed and delivered by Sellers, Purchaser and any Affiliates of
Sellers and Purchaser.
2.4 Closing Payment.
---------------
(a) Not later than the third Business Day prior to the Closing Date, SLD
will deliver to Purchaser pro forma financial statements (consisting of a
balance sheet and a statement of income) of SLD in the same format as the SLD
Pro Forma Statements with respect to the Business as of and for the period ended
on the last calendar day of the month preceding the month in which the Closing
shall occur (the "SLD Closing Statements"), together with a certification of
SLD's Chief Financial Officer that the SLD Closing Date Liabilities and all
other items appearing on the SLD Closing Statements were:
(i) estimated in good faith;
(ii) based upon the books and records of SLD; and
(iii) calculated in a manner consistent with SAP, the accounting
policies generally described in Schedule 2.4(a) and the methodologies
utilized in preparing SLD's Pro Forma Statements and SLD's 2003 Statutory
Statements, except that:
(A) the SLD Closing Statements will reflect any change in SAP
since December 31, 2003, which shall be specifically described in the SLD
Closing Statements;
(B) the SLD Closing Statements will not reflect the recapture
transaction contemplated by Section 5.28;
(C) the SLD Closing Statements will not reflect any change in
assumptions with respect to mortality, persistency, expenses, letter of
credit costs, interest, investment earnings or other actuarial assumptions
from those assumptions utilized in preparing the December 31, 2003 balance
sheet included in SLD's Statutory Statements; and
(D) Investment Assets will be valued at Estimated Market Value
and Transferred Statutory Assets will be valued at their Estimated Book
Value.
For illustrative purposes, an example of the SLD Closing Statements, prepared as
at June 30, 2004, are attached as Exhibit T-1.
21
(b) Not later than the third Business Day prior to the Closing Date, SLDI
will deliver to Purchaser pro forma financial statements (consisting of a
balance sheet and a statement of income) of SLDI in the same format as the SLDI
Pro Forma Statements with respect to the Business as of and for the period ended
on the last calendar day of the month preceding the month in which the Closing
shall occur (the "SLDI Closing Statements"), together with a certification of
SLDI's Chief Financial Officer that the SLDI Closing Date Liabilities and all
other items appearing on the SLDI Closing Statements were:
(i) estimated in good faith;
(ii) based upon the books and records of SLDI; and
(iii) calculated in a manner consistent with SAP, the accounting
policies generally described in Schedule 2.4(b) and except as specifically
described in Schedule 2.4(b), the methodologies utilized in preparing
SLDI's Pro Forma Statements and SLDI's 2003 Statutory Statements, except
that:
(A) the SLDI Closing Statements will reflect any change in SAP
since December 31, 2003, which changes shall be specifically described in
the SLDI Closing Statements;
(B) the SLDI Closing Statements will not reflect the recapture
transaction contemplated by Section 5.28;
(C) the SLDI Closing Statements will not reflect any change in
assumptions with respect to mortality, persistency, expenses, letter of
credit costs, interest, investment earnings or other actuarial assumptions
from those assumptions utilized in preparing the December 31, 2003 balance
sheet included in SLDI's Statutory Statements; and
(D) Investment Assets will be valued at Estimated Market Value
and Transferred Statutory Assets will be valued at their Estimated Book
Value.
For illustrative purposes, an example of the SLDI Closing Statements, prepared
as at June 30, 2004, are attached as Exhibit T-2.
(c) On the Closing Date, upon the terms and subject to the conditions set
forth in this Agreement, the SLD Coinsurance Agreement, the SLD Coinsurance /
Modified Coinsurance Agreement, the SLD Security Trust Agreement and the SLD
Reserve Trust Agreement, as part of the Transferred Assets to be transferred by
Sellers pursuant to Section 2.2 hereof, SLD will transfer:
(i) (A) to SRUS, Transferred Statutory Assets, and (B) to the SLD
Reserve Trust Account, Investment Assets and cash (if necessary), such
Transferred Statutory Assets, Investment Assets and cash having an
aggregate estimated value
22
equal to the amount of the SLD Closing Date Liabilities as of the Closing
Statement Date; and
(ii) to the SLD Security Trust Account, Investment Assets and cash
having an aggregate Estimated Market Value equal to $160 million;
all as reflected on the SLD Closing Statements.
(d) On the Closing Date, upon the terms and subject to the conditions set
forth in this Agreement, the SLDI Coinsurance Agreement, the SLDI Coinsurance /
Modified Coinsurance Agreement, the SLDI Security Trust Agreement and the SLDI
Reserve Trust Agreement, as part of the Transferred Assets to be transferred by
Sellers pursuant to Section 2.2 hereof, SLDI will transfer:
(i) (A) to Newco, cash in the amount of $70 million and Transferred
Statutory Assets, and (B) to the SLDI Reserve Trust Account, Investment
Assets and cash (if necessary), such cash, Transferred Statutory Assets,
and Investment Assets having an aggregate estimated value equal to the sum
of (x) the amount of the SLDI Closing Date Liabilities as of the Closing
Statement Date plus (y) $70 million; and
(ii) to the SLDI Security Trust Account, Investment Assets and cash
having an aggregate Estimated Market Value equal to $330 million;
all as reflected on the SLDI Closing Statements.
(e) No later than the second Business Day prior to the Closing Date,
Purchaser shall provide written instructions to Sellers regarding the allocation
of (i) Investment Assets owned by SLD between the SLD Reserve Trust Account and
the SLD Security Trust Account and (ii) Investment Assets owned by SLDI between
the SLDI Reserve Trust Account and the SLDI Security Trust Account. All cash
required to be transferred on the Closing Date pursuant to Section 2.4(c) or (d)
will be transferred by wire transfer of immediately available funds in U.S.
Dollars in the amounts and to the bank account or accounts designated in writing
by the relevant party at least three (3) Business Days prior to the Closing
Date.
2.5 Closing Adjustment.
------------------
(a) Purchaser shall, on or before the date that is sixty (60) calendar days
after the Closing Date, deliver to SLD: (i) pro forma financial statements
(consisting of a balance sheet and a statement of income) of SLD with respect to
the Business as of and for the period ended on the Effective Time (the "SLD
Revised Closing Statements"), in the same format as the SLD Closing Statements;
and (ii) a certification of Purchaser's Chief Financial Officer to the same
effect with respect to the SLD Revised Closing Statements as the certification
of SLD's Chief Financial Officer delivered with respect to the SLD Closing
Statements. The SLD Revised Closing Statements will specify the Market Value
rather than the Estimated Market Value with respect to Investment Assets, and
Book Value rather than the Estimated Book Value with respect to Transferred
23
Statutory Assets. For the avoidance of doubt, the exceptions set forth in
Sections 2.4(a)(iii)(A) through (C) with respect to the SLD Closing Statements
shall also apply with respect to the SLD Revised Closing Statements.
(b) Purchaser shall, on or before the date that is sixty (60) calendar days
after the Closing Date, deliver to SLDI: (i) pro forma financial statements
(consisting of a balance sheet and a statement of income) of SLDI with respect
to the Business as of and for the period ended on the Effective Time (the "SLDI
Revised Closing Statements"), in the same format as the SLDI Closing Statements;
and (ii) a certification of Purchaser's Chief Financial Officer to the same
effect with respect to the SLDI Revised Closing Statements as the certification
of SLDI's Chief Financial Officer delivered with respect to the SLDI Closing
Statements. The SLDI Revised Closing Statements will specify the Market Value
rather than the Estimated Market Value with respect to Investment Assets, and
Book Value rather than the Estimated Book Value with respect to Transferred
Statutory Assets. For the avoidance of doubt, the exceptions set forth in
Sections 2.4(b)(iii)(A) through (C) with respect to the SLDI Closing Statements
shall also apply with respect to the SLDI Revised Closing Statements.
(c) Sellers shall have the right to review the SLD Revised Closing
Statements and the SLDI Revised Closing Statements and comment thereon for a
period of sixty (60) calendar days after receipt thereof. Any changes in the SLD
Revised Closing Statements and the SLDI Revised Closing Statements that are
agreed to by Purchaser, on the one hand, and SLD and SLDI, on the other hand,
within such 60-day period shall be incorporated into final financial statements
of each of SLD and SLDI with respect to the Business as of and for the period
ended as of the Effective Time (the "Final Closing Statements"). In the event
that Purchaser, on the one hand, and SLD and SLDI, on the other hand, are unable
to agree on the manner in which any item or items should be treated in the Final
Closing Statements within such 60-day period, each of SLD and SLDI on the one
hand, and Purchaser, on the other hand, shall prepare separate written reports
of such item or items and refer such reports to Deloitte & Touche LLP (the
"Independent Accountant") within thirty (30) calendar days after the expiration
of such 60-day period. The Independent Accountant shall determine within thirty
(30) calendar days the manner in which such item or items shall be treated in
the Final Closing Statements; provided, however, that the dollar amount of each
item in dispute shall be determined within the range of dollar amounts proposed
by SLD and SLDI, on the one hand, and Purchaser, on the other hand. The
determinations by the Independent Accountant as to the items in dispute shall be
in writing and shall be Final and Binding on the parties and shall be so
reflected in the Final Closing Statements. For purposes of this Agreement,
"Final and Binding" shall mean that the aforesaid determinations and the
determinations, if any, made by the Independent Accountant shall have the same
preclusive effect for all purposes as if such determinations had been embodied
in a final judgment, no longer subject to appeal, entered by any court
identified in Section 11.5 to reduce such decision to judgment. The fees, costs
and expenses of retaining the Independent Accountant shall be allocated by the
Independent Accountant between SLD and SLDI, on the one hand, and Purchaser, on
the other hand, in accordance with the Independent Accountant's judgment as to
the relative merits of the parties' proposals in respect of the disputed items.
Following the resolution of all disputed items (or, if there is no dispute,
promptly
24
after the parties reach agreement on the Final Closing Statements), Purchaser
shall prepare the Final Closing Statements and shall deliver copies thereof to
SLD and SLDI.
(d) In the event that the aggregate value of the Investment Assets and
Transferred Statutory Assets as of the Effective Time plus the amount of cash
transferred by SLD to SRUS and the SLD Trust Accounts on the Closing Date is
less than the sum of (i) $160 million plus (ii) the amount of the SLD Closing
Date Liabilities as of the Effective Time, all as reflected on SLD's Final
Closing Statements, SLD shall, within two (2) Business Days of the determination
thereof, transfer to the applicable SLD Trust Account the amount of such
difference, together with interest thereon from and including the Closing Date
to but not including the date of such transfer, computed at the 180-Day Treasury
Rate, by wire transfer of immediately available funds.
(e) In the event that the aggregate value of the Investment Assets and
Transferred Statutory Assets as of the Effective Time plus the amount of cash
transferred by SLD to SRUS and the SLD Trust Accounts on the Closing Date is
greater than the sum of (i) $160 million plus (ii) the amount of the SLD Closing
Date Liabilities as of the Effective Time, all as reflected on SLD's Final
Closing Statements, SRUS shall, within two (2) Business Days of the
determination thereof, transfer to SLD the amount of such difference, together
with interest thereon from and including the Closing Date to but not including
the date of such transfer, computed at the 180-Day Treasury Rate, by wire
transfer of immediately available funds.
(f) In the event that the aggregate value of the Investment Assets and
Transferred Statutory Assets as of the Effective Time plus the amount of cash
transferred by SLDI to Newco and the SLDI Trust Accounts on the Closing Date is
less than the sum of (i) the amount of the SLDI Closing Date Liabilities as of
the Effective Time plus (ii) $400 million, all as reflected on SLDI's Final
Closing Statements, SLDI shall, within two (2) Business Days of the
determination thereof, transfer to the applicable SLDI Trust Account the amount
of such difference, together with interest thereon from and including the
Closing Date to but not including the date of such transfer, computed at the
180-Day Treasury Rate, by wire transfer of immediately available funds.
(g) In the event that the aggregate value of the Investment Assets and
Transferred Statutory Assets as of the Effective Time plus the amount of cash
transferred by SLDI to Newco and the SLDI Trust Accounts on the Closing Date is
greater than the sum of (i) the amount of the SLDI Closing Date Liabilities as
of the Effective Time plus (ii) $400 million, all as reflected on SLDI's Final
Closing Statements, Newco shall, within two (2) Business Days of the
determination thereof, transfer to SLDI the amount of such difference, together
with interest thereon from and including the Closing Date to but not including
the date of such transfer, computed at the 180-Day Treasury Rate, by wire
transfer of immediately available funds.
(h) Concurrent with its delivery of the SLD Revised Closing Statements and
the SLDI Revised Closing Statements in accordance with Section 2.5(a) and (b),
Purchaser shall deliver to Sellers a calculation of an adjustment (the "2004
Production Adjustment") reflecting variations between the actual amount of 2004
business
25
production and certain agreed-upon assumptions. The amount of the 2004
Production Adjustment shall be determined, and such adjustment shall be made, in
accordance with Schedule 2.5(h) and shall be subject to review by Sellers
concurrent with their review of the SLD Revised Closing Statements and the SLDI
Revised Closing Statements, and any disputes shall be resolved by the
Independent Accountant in accordance with the procedures set forth in Section
2.5(c). "Exhibit A" to the SLDI Security Trust Agreement shall be adjusted to
reflect any additions to or withdrawals from the SLDI Security Trust Account
pursuant to this Section 2.5(h).
(i) On the earlier of (i) the fifth (5th) Business Day following the
completion of the loading of all retrocessionaire information with respect to
periods prior to January 1, 2005 onto the Sage reinsurance administration system
(the "Sage System") and (ii) June 30, 2005, Purchaser shall deliver to Sellers a
detailed calculation (the "Retrocessionaire Accruals Calculation") of any net
difference between (i) the amounts reflected on the Final Closing Statements as
being payable to or receivable from any retrocessionaire under any Retroceded
Reinsurance Contract and (ii) the amounts calculated by the Sage System as being
payable or receivable from such retrocessionaires as of the Closing Date
following the inputting of data reflecting new business production in 2002, 2003
and 2004; provided, that Purchaser shall use commercially reasonable efforts to
complete loading of such information onto the Sage System as promptly as
practicable following the Closing. In making the Retrocessionaire Accruals
Calculation, Purchaser shall utilize the Sage System in the same manner as it is
currently being utilized by Sellers (except to the extent Sellers and Purchaser
mutually agree that Sellers had been utilizing the Sage System incorrectly) that
such calculations will reflect the completion of Sellers' ongoing process of
loading ceding company and retrocessionaire data into the Sage System and will
not reflect any modifications to the Sage System processes for calculating
payables or receivables as utilized by Sellers. Sellers shall be entitled to
review the Retrocessionaire Accruals Calculations for sixty (60) calendar days
following their receipt thereof, and any dispute regarding the Retrocessionaire
Accruals Calculations that the parties are unable to resolve during such period
shall be submitted to the Independent Accountant, and the Independent
Accountant's determinations as to such dispute shall be Final and Binding. Not
later than three (3) Business Days following the date upon which the parties
have agreed upon the appropriate calculations or the date upon which any
disputes have been resolved by the Independent Accountant, Purchaser shall
incorporate any changes to the Retrocessionaire Accruals Calculation that were
agreed upon by the parties or required by the final determination of the
Independent Accountant into a final calculation (the "Final Retrocessionaire
Accruals Calculation"). On the next following Business Day, the parties shall
make such payments in cash as are necessary to put each party in the same net
economic position as it would have been in had the amounts of payables and
receivables reflected on the Final Retrocessionaire Accruals Calculation been
included the Final Closing Statements, together with interest thereon from and
including the Closing Date to but not including the date of such payment,
computed at the 180-Day Treasury Rate. In no event will any payment be required
by this Section 2.5(i) be duplicative of any amount paid under any other
provision of this Article II.
26
(j) Not later than three (3) Business Days prior to the Closing Date, SLD
shall provide to Purchaser an estimate of the interest maintenance reserve that
SRUS will be required to establish on the Effective Date with respect to the
Reserves of SLD allocable to the Business (the "IMR Amount"). Purchaser shall be
entitled to review the calculation of the IMR Amount for a period of sixty (60)
calendar days following its receipt thereof, and any dispute regarding the IMR
Amount that the parties are unable to resolve during such period shall be
submitted to the Independent Accountant, and the Independent Accountant's
determinations as to such dispute shall be Final and Binding. Not later than
three (3) Business Days following the date upon which the parties have agreed
upon the IMR Amount or the date upon which any disputes have been resolved by
the Independent Accountant, SLD shall deposit an amount equal to twenty percent
(20%) of the IMR Amount up to a maximum of $7.5 million, together with interest
thereon from and including the Closing Date to but not including the date of
such payment, computed at the 180-Day Treasury Rate, in the SLD Security Trust
Account.
(k) Notwithstanding anything to the contrary in Section 2.4 or in any
investment guideline applicable to the SLD Security Trust and the SLDI Security
Trust, in the event that the amount of Investment Assets and cash transferred to
the SLD Trust Accounts or the SLDI Trust Accounts is less than the amount
required to fund such accounts, then Purchaser or Newco, as the case may be,
shall be permitted to fund the shortfall by including Transferred Statutory
Assets in the SLD Security Trust Account or the SLDI Security Trust Account, as
the case may be, for a period not to exceed one hundred twenty (120) calendar
days following the Closing. Following the end of such 120-day period, Purchaser
or Newco, as the case may be, shall transfer assets or cash to the SLD Security
Trust Account or the SLDI Security Trust Account, as the case may be, as may be
necessary to insure that such account is fully funded with investment assets or
cash in conformance with the applicable investment guidelines.
(l) The parties hereto acknowledge and agree that no certification provided
by any individual pursuant to this Article II shall be the basis for any
personal liability of such individual, and none of the parties hereto will seek
any recovery from any such individual on the basis of any such certification.
ARTICLE III
Representations and Warranties of Sellers
-----------------------------------------
Sellers hereby represent and warrant, severally and not jointly, to
Purchaser as follows (it being understood that each Seller hereby makes only
those representations and warranties that specifically relate to it or to its
portion of the Business):
3.1 Organization and Good Standing.
------------------------------
27
Each Seller (a) is duly incorporated and is validly existing as a
corporation under the laws of its respective jurisdiction of incorporation; (b)
has full corporate power and authority to carry on the Business as it is now
being conducted and to own, lease and operate its properties and assets
primarily relating to the Business; and (c) is duly qualified or licensed to do
business as a foreign corporation in good standing in each jurisdiction in which
the conduct of the Business or the ownership, leasing or operation of its
properties or assets relating to the Business makes such qualification
necessary, except where the failure to so qualify, would not, individually or in
the aggregate, have a Material Adverse Effect.
3.2 Enforceability.
--------------
(a) Each Seller and ING has full corporate power and authority to execute
and to deliver this Agreement, and to carry out the transactions contemplated
herein. Each Seller and ING has taken all necessary corporate action to
authorize its execution and performance of this Agreement. This Agreement has
been duly executed and is the valid and binding obligation of each Seller and
ING, and is enforceable against each Seller and ING in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors of insurance companies or creditors' rights generally and general
principles of equity (the "Enforceability Exceptions"). Assuming the consents
and approvals referred to in Sections 3.3 and 4.7 are obtained, the execution,
delivery and performance of this Agreement by Sellers and ING will not, with or
without the giving of notice or passage of time or both, (i) conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any lien, charge or encumbrance pursuant to any provision of any
mortgage, deed of trust, lease, license agreement or other agreement to which
either Seller or ING is a party or by which any of them is bound or affected,
(ii) conflict with or result in a default under any provision of the corporate
charter, by-laws or similar organizational documents of either Seller or ING, or
any effective resolution of the directors or stockholders of either Seller or
ING, or (iii) conflict with or result in a violation of any Legal Requirement;
provided, that no representation or warranty is made in the foregoing clauses
(i) or (iii) with respect to matters that, individually or in the aggregate,
would not be reasonably expected to have a Material Adverse Effect.
(b) Each Seller, ING and any ING Affiliate that executes any Related
Agreement has full corporate power and authority, respectively, to execute and
to deliver the Related Agreements to which it is a party, and to carry out the
transactions contemplated therein. Each Seller, ING and any such Affiliate has
taken all necessary corporate action to authorize the execution and performance
of such Related Agreements. The Related Agreements, if executed by the relevant
Seller, ING or any such Affiliate will have been validly executed and will be
the valid and binding obligations, respectively, of such Seller, ING or such ING
Affiliate, and enforceable against such party in accordance with their terms,
subject to the Enforceability Exceptions. Assuming the consents and approvals
referred to in Sections 3.3 and 4.7 are obtained, the execution, delivery and
performance of the Related Agreements by the Sellers, ING and any ING Affiliate
will not, with or without the giving of notice or passage of time or both, (i)
28
conflict with, result in a default, right to accelerate or loss of rights under,
or result in the creation of any lien, charge or encumbrance pursuant to any
provision of any mortgage, deed of trust, lease, license agreement or other
agreement to which either Seller, ING or any such Affiliate is a party or by
which it is bound or affected, (ii) conflict with or result in a default under
any provision of the corporate charters or by-laws or similar organizational
documents of either Seller, ING or any such Affiliate, or any effective
resolution of the directors or stockholders of either Seller, ING or any such
Affiliate, or (iii) conflict with or result in a violation of any Legal
Requirement; provided, that no representation or warranty is made in the
foregoing clauses (i) or (iii) with respect to matters that, individually or in
the aggregate, would not be reasonably expected to have a Material Adverse
Effect.
3.3 Consents and Approvals.
----------------------
Except as set forth on Schedule 3.3, no consent, approval or authorization
of, or declaration, filing or registration with, any Governmental Authority or
any other Person, is required to be made or obtained by either Seller in
connection with the execution, delivery and performance of this Agreement or the
Related Agreements or the consummation of the transactions contemplated hereby
and thereby, other than the consents, approvals, authorizations, declarations or
filings that, if not obtained or made, would not be reasonably expected to,
individually or in the aggregate, result in a Material Adverse Effect.
3.4 Financial Statements.
--------------------
(a) Except as set forth on Schedule 3.4, Sellers have previously made
available to Purchaser (i) the annual audited statutory statements as of and for
the years ended December 31, 2001, 2002 and 2003 of each of SLD and SLDI,
including the audit reports thereon, and the annual statements (consisting of
balance sheets and statements of income and cash flows) as of and for the years
ended December 31, 2001, 2002 and 2003 of each of SLD and SLDI, including the
exhibits, schedules and notes thereto, and (ii) the unaudited quarterly
statutory statements of SLD for the calendar quarters ended March 31 and June
30, 2004 (collectively, the "Statutory Statements").
(b) The Statutory Statements (i) present fairly, in all material respects,
the financial condition and results of operations of SLD and SLDI as of and for
the periods therein specified, and (ii) were prepared in accordance with SAP
consistently applied, except as expressly set forth within the subject Statutory
Statements, including the notes thereto; provided that the unaudited quarterly
statutory statements are subject to normal recurring year-end adjustments.
(c) Except as set forth on Schedule 3.4, the reserves reflected on the
Statutory Statements as of the date specified in such statements (i) were
determined in accordance with generally accepted actuarial principles,
consistently applied, (ii) were based on actuarial assumptions that were
reasonable in relation to relevant policy and contract provisions, (iii) as of
their respective dates met the applicable requirements of the insurance laws and
regulations of the jurisdiction of domicile of SLD and SLDI, as
29
applicable, including applicable statutory accounting principles, and (iv) are
in compliance with SAP (it being understood by Purchaser that in making the
representations and warranties in Sections 3.4(b) and (c) Sellers are not
representing or warranting that the reserves reflected on the Statutory
Statements have been or will be sufficient or adequate for the purposes for
which they were established or that reinsurance recoverables taken into account
in determining the amount of such reserves will be collectible).
(d) Except as set forth on Schedule 3.4, ING has previously made available
to Purchaser (i) the annual audited financial statements of ING for the years
ended December 31, 2001, 2002 and 2003, including the audit reports thereon, and
(ii) the unaudited quarterly financial statements of ING for the calendar
quarters ended March 31 and June 30, 2004 (collectively, the "ING Statements").
The ING Statements (i) present fairly, in all material respects, the financial
condition and results of operations of ING as of and for the periods therein
specified, and (ii) were prepared in accordance with GAAP, consistently applied,
except as expressly set forth within the ING Statements, including the notes
thereto; provided that the unaudited quarterly statements are subject to normal
recurring year-end adjustments.
3.5 Pro Forma Statements.
--------------------
(a) Sellers have previously delivered to Purchaser pro forma financial
statements (consisting of balance sheets and statements of income) of each of
SLD and SLDI with respect to the Business as of and for the year ended December
31, 2003 and for the six months ended June 30, 2004 (respectively, the "SLD Pro
Forma Statements" and the "SLDI Pro Forma Statements" and together, the "Pro
Forma Statements") in each case, accompanied by supporting documentation.
(b) Except as set forth on Schedule 3.5, the Pro Forma Statements present
fairly, in all material respects, the financial condition and results of
operations of the Business as of and for the year ended December 31, 2003 and
for the six months ended June 30, 2004, respectively, in accordance with SAP,
and were prepared in a manner consistent with the methodologies utilized in
preparing SLD's and SLDI's 2003 Statutory Statements and the accounting policies
generally described in Schedules 2.4 (a) and (b).
(c) Except as set forth on Schedule 3.5, the reserves reflected on the Pro
Forma Statements as of the date specified in such statements (i) were determined
in accordance with generally accepted actuarial principles, consistently applied
for the periods presented, (ii) were based on actuarial assumptions that were
reasonable in relation to relevant policy and contract provisions, (iii) as of
their respective dates met the applicable requirements of the insurance laws and
regulations of the jurisdiction of domicile of SLD and SLDI, as applicable,
including applicable statutory accounting principles, (iv) are in compliance
with SAP, and (v) were prepared using methodologies consistent with those
utilized in the preparation of the 2003 Statutory Statements of SLD and SLDI and
the accounting policies generally described in Schedules 2.4(a) and (b) (it
being understood by Purchaser that in making the representations and warranties
in Sections 3.5(b) and (c) Sellers are not representing or warranting that the
reserves
30
reflected in the Pro Forma Statements have been or will be sufficient or
adequate for the purposes for which they were established or that reinsurance
recoverables taken into account in determining the amount of such reserves will
be collectible).
3.6 Contingent Liabilities.
----------------------
Except as set forth in Schedule 3.6, neither Seller has liabilities with
respect to the Business that should be reflected in its Statutory Statements,
including, without limitation, contingent liabilities required to be disclosed
under SAP regarding the Business, except for (i) liabilities set forth in the
balance sheet included in the Pro Forma Statements as of and for the six (6)
months ended June 30, 2004 and (ii) liabilities that were incurred after June
30, 2004 in the ordinary course of business and would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
3.7 Assets.
------
(a) Each Seller has good title to its respective assets, properties, rights
and privileges constituting the Transferred Assets free and clear of any
Encumbrance, except for (i) Encumbrances which are identified on Schedule
3.7(a), or (ii) Permitted Encumbrances. Each Seller has the power and right to
sell, transfer, convey, assign and deliver to Purchaser or a Purchaser
Subsidiary, and upon consummation of the transactions contemplated by this
Agreement, Purchaser or a Purchaser Subsidiary will acquire good, valid and
marketable title to all of its respective assets, properties, rights and
privileges constituting the Transferred Assets free and clear of any Encumbrance
other than any Encumbrance created by Purchaser or a Purchaser Subsidiary.
(b) Other than (i) the assets and services identified on Schedule 3.7(b),
(ii) the rights to use the Retained Computer Programs, (iii) the assets and
services available to Purchaser and Purchaser Subsidiaries under the Transition
Services Agreement and (iv) the assets identified on Schedule 1.1(h)-2 that are
used primarily by Business Employees who are not Transferred Employees and the
services of such Business Employees, the Transferred Assets include all the
assets, properties, rights and privileges necessary to permit Purchaser or
Purchaser Subsidiaries to conduct the Business in all material respects in the
same manner as the Business has been conducted prior to the date hereof.
(c) The Transferred Assets, taken as a whole, are in all material respects
in reasonable and usable operating condition and in a reasonable state of
maintenance and repair.
3.8 Actions Pending; Orders and Proceedings.
---------------------------------------
Except as set forth in Schedule 3.8, there are no outstanding orders,
judgments, injunctions, awards or decrees relating to the Business against or
involving either Seller, or any assets, properties, rights or privileges of
either Seller (including the Transferred Assets) by or before any Governmental
Authority, which individually or in the aggregate would reasonably be expected
to have a Material Adverse Effect. Except as set forth in Schedule 3.8, as of
the date of this Agreement there is no material claim, action, suit,
31
litigation, legal, administrative or arbitration proceeding relating to the
Business which is pending or, to the Knowledge of Sellers, threatened against or
involving either Seller, or any assets, properties, rights or privileges of
either Seller relating to the Business (including the Transferred Assets) or
challenging any of the transactions contemplated by this Agreement.
3.9 Real Property.
-------------
Schedule 3.9 lists all real property used primarily in the Business,
identifies all leases and subleases relating to the use of such real property in
connection with the Business, and states the date and parties to each such lease
or sublease (the "Business Leases"), true and correct copies of which have
previously been provided to Purchaser. Each Business Lease is in full force and
effect and enforceable by Sellers or their Affiliates, as applicable, in
accordance with their terms, subject to Enforceability Exceptions. Except as
stated in Schedule 3.9, there are no material defaults under the Business
Leases, provided that as to defaults by parties to the Business Leases other
than Sellers or any Affiliate of Sellers, the only defaults required to be
disclosed in Schedule 3.9 are those of which Sellers have Knowledge. Neither
Sellers nor any of their Affiliates have assigned or placed any Encumbrance upon
any Business Lease.
3.10 Business Contracts.
------------------
Except as provided in this Section 3.10, Schedule 3.10(a) lists all of the
following written contracts to which either Seller or a Seller Affiliate is a
party and which relate primarily to the Business:
(a) contracts the performance of which is expected to involve consideration
payable subsequent to the date of this Agreement in excess of $300,000 in the
aggregate or $100,000 in any twelve-month period and which are not terminable on
ninety (90) calendar days' notice or less without penalty or premium;
(b) contracts pursuant to which any Encumbrance, other than a Permitted
Encumbrance, is placed or imposed on any Transferred Asset;
(c) contracts under which either Seller is a licensor or licensee of any
Intellectual Property;
(d) employment agreements, employee severance or change in control
agreements, employee confidentiality agreements, work for hire agreements, and
any other similar contracts with Business Employees;
(e) partnership, joint venture or limited liability company agreements;
(f) any agreements with third party administrators;
(g) any material indemnification agreement or guarantee; or
32
(h) any other contract material to the Business and not terminable upon
ninety (90) calendar days' written notice.
Schedule 3.10(a) excludes (i) ERISA Plans, (ii) Insurance Contracts, (iii)
licenses or other agreements relating to Computer Programs, and (iv) leases of
real property, which are discussed elsewhere in this Agreement. True and correct
copies of the contracts listed in Schedule 3.10(a) have been made available or
provided to Purchaser. Neither Seller has received written notice of a
cancellation of or an intent to cancel any contract listed on Schedule 3.10(a).
Except as stated in Schedule 3.10(b), neither Seller is in material default
under such contracts, and, to the Knowledge of Sellers, no third parties are in
material default under such contracts. Except for those contracts listed on
Schedule 3.10(b), the contracts listed in Schedule 3.10(a) are enforceable by
Sellers in accordance with their terms, subject to the Enforceability
Exceptions.
3.11 Assigned Contracts.
------------------
True and correct copies of each Assigned Contract have been provided to
Purchaser. Except as set forth in Schedule 3.11, (i) each of the Assigned
Contracts is in full force and effect and is valid and enforceable in accordance
with its terms, subject to the Enforceability Exceptions, (ii) there are no
breaches or defaults under any of the Assigned Contracts by Sellers or their
Affiliates or, to the Knowledge of Sellers, any other party thereto, (iii)
neither Seller has received written notice of a cancellation of or an intent to
cancel any Assigned Contracts, and (iv) each Assigned Contract is fully and
legally assignable by Sellers to the Purchaser.
3.12 Intellectual Property.
----------------------
For purposes of Sections 3.12, 3.13 and 5.9 and the definitions of Data and
Intellectual Property, "in the Business", "in connection with the Business", "in
the conduct of the Business" or "in the operation of the Business" shall mean
the line functions of Sellers' individual reinsurance business.
(a) Except as identified on Schedule 3.12(a), and except for any Retained
IP Rights, neither Seller nor any Affiliate of Sellers owns, or is the licensee
(except for implied licenses existing in equipment or Computer Programs that
have been purchased, leased or licensed) of, any patents (including issued
patents and patent applications) which are used in the conduct of the Business.
For each scheduled item, the country or countries in which the application or
patent is filed is listed together with the date of filing and, if applicable,
of issuance, and the unique identifying number or file designation used by such
filing office.
(b) Schedule 3.12(b) sets forth a list or description, except for any
Retained IP Rights, of (i) all registered copyrights owned by either Seller or
any Affiliate of Sellers and used in the conduct of the Business, (ii) all other
Trademarks that are the subject of federal or state or foreign registrations or
pending applications made or held by either Seller or any Affiliate of Sellers
pertaining to any products or services offered publicly by Sellers in connection
with the Business, (iii) any other Trademarks that are used in
33
connection with the Business but are not the subject of federal or state or
foreign registrations or pending applications, and (iv) any domain names of
either Seller used exclusively in the operation of the Business.
(c) Except as provided in Schedule 3.12(c), (i) neither Sellers nor their
Affiliates have received any notice from any Person that the use of any
Intellectual Property other than Retained IP Rights in the operation of the
Business infringes upon the intellectual property rights or other rights of any
other Person, and (ii) neither Seller nor their Affiliates have any Knowledge of
any such infringement.
(d) A Seller or an Affiliate of Sellers owns all right, title and interest
in and to the Intellectual Property identified on Schedule 3.12(a) and (b) as
owned by a Seller or an Affiliate of Sellers (the "Owned Intellectual Property")
free and clear of any Encumbrance, except any Permitted Encumbrances, and except
as described in Schedule 3.12(d). Except as set forth on Schedule 3.12(d), the
use of any Owned Intellectual Property in the operation of the Business does not
infringe upon the intellectual property rights or other rights of any other
Person.
(e) A Seller or an Affiliate of Sellers has a license to use the
Intellectual Property as to which either Seller is a licensee pursuant to an
agreement listed in Schedule 3.12(e) ("Licensed Intellectual Property"). Except
as disclosed in Schedule 3.12(e), all licenses of Licensed Intellectual Property
are fully transferable at Closing to Purchaser. Neither Seller nor any of their
Affiliates is in breach of or default in any material respects under any license
or other agreement under which either Seller has rights to use the Licensed
Intellectual Property. Sellers have not licensed any of such Licensed
Intellectual Property for use by any third persons (including but not limited to
Affiliates of Sellers) except as disclosed in Schedule 3.12(e).
(f) Except as described in Schedule 3.12(f), all registrations,
applications therefor, filings, issuances and other actions with respect to any
Owned Intellectual Property are in full force and effect at the United States
Patent and Trademark Office, the United States Copyright Office, any applicable
domain name registrar, or any other domestic or foreign filing offices, and, as
of the date hereof, there are no actions that must be taken within one hundred
eighty (180) calendar days following the Closing that, if not taken, will result
in the loss of any rights in any registrations of or applications to register
any Owned Intellectual Property, including without limitation, the payment of
any registration, maintenance or renewal fees or the filing of any responses,
documents, applications or certificates.
(g) The Owned Intellectual Property, the Licensed Intellectual Property and
the Retained IP Rights constitute all of the Intellectual Property used in the
conduct of the Business as of the date of this Agreement.
(h) Except as provided in Schedule 3.12(h), (i) neither Sellers nor their
Affiliates have received any notice from any Person that the use of any
Databases in the operation of the Business infringes upon the intellectual
property rights or other rights of any other Person, and (ii) neither Seller nor
their Affiliates have any Knowledge of any
34
such infringement. The relevant Seller or an Affiliate of Sellers has ownership
or other rights in the Databases such that Purchaser shall obtain, pursuant to
the Technology Transfer and License Agreement, subject to the Retained License,
all rights as are necessary for Purchaser to use the Databases in the same
manner as used by Sellers as of the date of this Agreement.
3.13 Computer Programs.
-----------------
(a) Schedule 3.13(a) contains a list of all Computer Programs owned by
either Seller or any of their Affiliates that are used in the Business and will
be conveyed, assigned and set over to Purchaser or a Purchaser Affiliate at and
as of the Closing Date (the "Owned Principally-Used Computer Programs"). Subject
to the Retained License, at and as of the Closing Date, all of Sellers' and
their Affiliates' right, title and interest in the Owned Principally-Used
Computer Programs, including any utilities, macros and spreadsheet definitions
related thereto, will be conveyed, assigned and set over to Purchaser or a
Purchaser Affiliate. Except for the third-party rights and other exceptions
described in Schedule 3.13(a), the relevant Seller or an Affiliate of Sellers
has exclusive ownership of the Owned Principally-Used Computer Programs such
that Purchaser shall obtain, pursuant to the Technology Transfer and License
Agreement, subject to the Retained License and the third-party rights and other
exceptions described in Schedule 3.13(a), at and as of the Closing Date, the
exclusive ownership rights in the Owned Principally-Used Computer Programs
(including, subject to the Retained License, (i) all of Sellers' rights in the
Embedded Computer Programs thereof and (ii) any utilities, macros and
spreadsheet definitions related to the Owned Principally-Used Computer Programs
or the Embedded Computer Programs,) as are necessary for Purchaser to use the
Owned Principally-Used Computer Programs in the same manner as used by Sellers
as of the date of this Agreement. Except as described in Schedule 3.13(a),
Purchaser shall obtain, pursuant to the Technology Transfer and License
Agreement, all source code for the Owned Principally-Used Computer Programs,
except for any source code related to the Embedded Computer Programs.
(b) Schedule 3.13(b) contains a list of all Computer Programs owned by
either Seller or any of their Affiliates that are used in the Business and in
other business operations of either Seller or its Affiliates and will be
licensed by the relevant Seller or an Affiliate of Sellers to Purchaser or an
Affiliate of Purchaser as of the Closing Date (the "Owned Generally-Used
Computer Programs"). Except for the third-party rights and other exceptions
described in Schedule 3.13(b), the relevant Seller or an Affiliate of Sellers
has ownership or other rights in the Owned Generally-Used Computer Programs such
that Purchaser shall obtain, pursuant to the Technology Transfer and License
Agreement, subject to the Retained License and the third-party rights and other
exceptions described in Schedule 3.13(b), all rights necessary for Purchaser to
use the Owned Generally-Used Computer Programs (including, subject to the
Retained License, (i) all of Sellers' rights in the Embedded Computer Programs
and (ii) any utilities, macros and spreadsheet definitions related to the Owned
Generally-Used Computer Programs) in the same manner as used by Sellers as of
the date of this Agreement.
35
(c) Schedule 3.13(c) contains a complete and accurate list of (i) all
Embedded Computer Programs and (ii) all other Computer Programs, except for any
Retained Computer Programs, used in the Business under which a Seller or an
Affiliate of Sellers is a licensee, lessee, or otherwise has obtained the right
to use such Computer Programs and which both Purchaser and Sellers have agreed
are critical to the operation of the Business and are or can be segregated from
each Seller's other business operations (the current versions of such Computer
Programs described in subparagraphs (i) and (ii) above, including any
modifications thereto, are collectively referred to herein as the "Licensed
Computer Programs"). Each license, contract or other agreement governing the
Licensed Computer Programs is hereinafter referred to as the "Licensed Computer
Program Licenses." The relevant Seller or an Affiliate of Sellers (x) has the
right and license to use the Licensed Computer Programs, subject to the terms
and restrictions of the applicable Licensed Computer Program License and the
payment of license fees or royalties or other payments due thereunder; and (y)
is in compliance in all material respects with all provisions of the Licensed
Computer Program Licenses.
(d) Schedule 3.13(d) sets forth a complete list of those Computer Programs
other than Shared Services Computer Programs used in the Business (all of which
are commercially available from third-party suppliers or licensors) all of which
will be retained by Sellers and their Affiliates for the reason that they are or
will be required for Sellers to meet their remaining responsibilities pertaining
to the Business, are used in other businesses of Sellers and their Affiliates,
are associated with equipment or systems that Sellers are not selling to
Purchaser, are not transferable, or are not expected to be needed by Purchaser.
The Computer Programs listed on Schedule 3.13(d) together with the Shared
Services Computer Programs, are collectively referred to herein as the "Retained
Computer Programs" .
(e) Except as set forth in Schedule 3.13(e), Sellers have not received any
notice of any infringement pertinent to Sellers with respect to the Owned
Principally-Used Computer Programs, the Owned Generally-Used Computer Programs
or the Licensed Computer Programs. The use of the Owned Principally-Used
Computer Programs and the Owned Generally-Used Computer Programs, and to the
Knowledge of Sellers, the use of the Licensed Computer Programs in the conduct
of the Business does not infringe upon or otherwise violate the rights of any
Person. Sellers have not made, asserted or threatened any claim of infringement
against any Person with respect to the Owned Principally-Used Computer Programs,
the Owned Generally-Used Computer Programs or the Licensed Computer Programs. To
the Knowledge of Sellers, no other Person's operations or intellectual property
conflicts with or infringes on the use or registering of the Owned
Principally-Used Computer Programs, the Owned Generally-Used Computer Programs
or the Licensed Computer Program Licenses as such programs are currently used by
Sellers in the Business.
(f) The Owned Principally-Used Computer Programs, the Owned Generally-Used
Computer Programs, the Licensed Computer Programs and the Retained Computer
Programs constitute all of the Computer Programs used in the conduct of the
Business as of the date of this Agreement.
36
(g) Neither Sellers nor any of their Affiliates is in breach of or default
under any license or other agreements under which Sellers have the right to use
the Licensed Computer Programs, and, to the Knowledge of Sellers, no other party
thereto is in breach or default thereof. Sellers have made available to
Purchaser a copy of each Licensed Computer Program License. Except as set forth
in Schedule 3.13(g), each of the agreements under which Sellers have the right
to use the Licensed Computer Program Licenses is in full force and effect and is
valid and enforceable in accordance with its terms.
(h) Except as set forth on Schedule 3.13(h), neither Seller nor any
Affiliate of Sellers has (i) licensed any of the Owned Principally-Used Computer
Programs, Owned Generally-Used Computer Programs or Licensed Computer Programs
to any other Person or (ii) entered into any agreements granting rights to such
Computer Programs to any other Person.
(i) The Sellers have established and are in material compliance with a
security program, including technology, practices and procedures generally
consistent with common practice in its industry, that is designed to protect (i)
the integrity of transactions executed through their computer systems, including
encryption and/or other security protocols and techniques when appropriate, (ii)
the security, confidentiality and integrity of data housed in their systems,
(iii) the security, confidentiality and integrity of data and systems as to
which they have permitted access by third party service providers, and (iv)
against unauthorized access to their systems or the systems of third party
service providers which have access to their data.
3.14 Compliance with Legal Requirements.
----------------------------------
Except as set forth on Schedule 3.14, each Seller is in compliance in all
material respects with all Applicable Laws with respect to the Business. In
addition, except as disclosed in Schedule 3.14, (i) neither Seller has been
charged with or, to the Knowledge of Sellers, is now under investigation with
respect to, a violation of any Applicable Law with respect to the Business,
which violations or penalties would reasonably be expected, individually or in
the aggregate, to have or result in a Material Adverse Effect and (ii) neither
Seller is a party to or bound by any order, judgment, decree or award of a
Governmental Authority or other regulatory body with respect to the Business
which has or would reasonably be expected to have or result in, individually or
in the aggregate, a Material Adverse Effect.
3.15 Permits.
-------
Schedule 3.15 contains a true and complete list of all material Permits
issued to the Sellers with respect to the Business as of the date of this
Agreement. Except as set forth in Schedule 3.15, (i) each Seller has all
material Permits required by Applicable Law for the operation of the Business
and is in material compliance with the terms of such Permits, (ii) all Permits
are in full force and effect, (iii) there is no proceeding pending or threatened
to revoke or suspend such Permits and (iv) Sellers have not received any written
notice from any Governmental Authority of the failure to have any
37
required Permits. Except as set forth in Schedule 3.15, as of the date of this
Agreement, there is no suit, proceeding or investigation with respect to
revocation, cancellation, suspension or nonrenewal of any such Permit, which is
pending or, to the Knowledge of Sellers, threatened in writing.
3.16 Reinsurance Assumed.
-------------------
(a) Insurance Contracts under which either Seller has assumed any risk
included within the Business from insurers or other reinsurers as of the date
hereof are referred to herein as the "Assumed Reinsurance Contracts." Schedule
3.16(a) identifies each Assumed Reinsurance Contract under which (i) more than
$1,000,000,000 in face amount of new business was assumed by Sellers in 2003, or
(ii) there was more than $2,000,000,000 in face amount of in force assumed
business as of June 30, 2004. The aggregate face amount of new business assumed
during 2003 under the Assumed Reinsurance Contracts identified on Schedule
3.16(a) constitutes at least 80% of the aggregate face amount of new business
assumed by Sellers in 2003, and the aggregate face amount of in force business
assumed under such Assumed Reinsurance Contracts as of June 30, 2004 constitutes
at least 70% of the aggregate face amount of in force business assumed by
Sellers under all Assumed Reinsurance Contracts as of such date. The Assumed
Reinsurance Contracts identified on Schedule 3.16(a) are referred to herein as
the "Material Assumed Reinsurance Contracts." Sellers have made available to
Purchaser true and complete copies of the Material Assumed Reinsurance Contracts
and all amendments thereto. The Sellers shall use commercially reasonable
efforts to produce at or prior to the Closing a schedule of all Assumed
Reinsurance Contracts that are in-force as of September 30, 2004.
(b) Except as set forth in Schedule 3.16(b), since December 31, 2003 no
reinsured has given notice of termination (provisional or otherwise) in respect
of any Material Assumed Reinsurance Contract. Neither the relevant Seller nor,
to the Knowledge of Sellers, the reinsured is in default in any material respect
under any Material Assumed Reinsurance Contracts, nor do Sellers have actual
knowledge that any such reinsured is the subject of a rehabilitation,
liquidation, conservatorship, receivership, bankruptcy or similar proceeding.
Except as disclosed on Schedule 3.16(b), each such Material Assumed Reinsurance
Contract is in full force and effect and is valid and enforceable in accordance
with its terms subject to the Enforceability Exceptions. Except as set forth in
Schedule 3.16(b), no Material Assumed Reinsurance Contract contains any
provision under which the reinsured may terminate such agreement by reason of
the transactions contemplated by this Agreement.
(c) Except as set forth in Schedule 3.16(c), with respect to each Assumed
Reinsurance Contract that is not a Material Assumed Reinsurance Contract, (i)
since December 31, 2003 no reinsured has given notice of termination
(provisional or otherwise) in respect of such Assumed Reinsurance Contract, (ii)
neither the relevant Seller nor, to the Knowledge of Sellers, the reinsured is
in default in any material respect under such Assumed Reinsurance Contract, nor
do Sellers have actual knowledge that any such reinsured is the subject of a
rehabilitation, liquidation, conservatorship, receivership, bankruptcy or
similar proceeding, (iii) such Assumed Reinsurance Contract
38
is in full force and effect and is valid and enforceable in accordance with its
terms subject to the Enforceability Exceptions, and (iv) such Assumed
Reinsurance Contract does not contain any provision under which the reinsured
may terminate such agreement by reason of the transactions contemplated by this
Agreement, except for such inaccuracies in clauses (i) through (iv) as would
not, individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect.
(d) Schedule 3.16(d) is a complete and accurate list of all Assumed
Reinsurance Contracts that have not been executed by some or all of the parties
thereto and are referred to herein as the "Unexecuted Assumed Reinsurance
Contracts." Sellers have previously delivered to Purchaser copies of the
Unexecuted Assumed Reinsurance Contracts that exist in written form (the
"Delivered Unexecuted Assumed Reinsurance Contracts"). Except as set forth on
Schedule 3.16(d), the terms of each Delivered Unexecuted Assumed Reinsurance
Contract reflect the "material terms" of the reinsurance arrangement with the
reinsured party named therein. For purposes of this Section, "material terms"
shall mean the terms with respect to pricing, recapture, termination of new
business, extra contractual obligations, ratings triggers and change of control
provisions.
(e) Other than those Insurance Contracts listed in Schedule 1.1(i), (i)
each Assumed Reinsurance Contract involves a contract for individual life
reinsurance and does not involve any annuity, long-term care, health, disability
or group reinsurance and (ii) each Assumed Reinsurance Contract that is not a
Material Assumed Reinsurance Contract is substantially similar in nature to the
Material Assumed Reinsurance Contracts generally and involves payment of premium
by the ceding company for the assumption of individual mortality risk by SLD or
SLDI, as the case may be, under life insurance contracts.
3.17 Reinsurance Retroceded.
-----------------------
(a) Insurance Contracts under which either Seller has ceded or retroceded
to reinsurers (other than Affiliates of the Sellers) risks included within the
Business as of the date hereof are referred to herein as the "Retroceded
Reinsurance Contracts." Schedule 3.17(a) identifies each Retroceded Reinsurance
Contract with any retrocessionaire to whom SLD or SLDI has retroceded business
having, in the aggregate, an in-force face amount in excess of $1,000,000,000 as
of June 30, 2004. As of June 30, 2004, the Retroceded Reinsurance Contracts
identified on Schedule 3.17(a) constitute at least 95% of the reinsurance
recoverable under all Retroceded Reinsurance Contracts and are referred to
herein as the "Material Retroceded Reinsurance Contracts." Sellers have made
available to Purchaser true and complete copies of the Material Retroceded
Reinsurance Contracts and all amendments thereto. Sellers shall use commercially
reasonable efforts to produce at or prior to the Closing a schedule of all
Retroceded Reinsurance Contracts as of September 30, 2004.
(b) Except as set forth in Schedule 3.17(b), since December 31, 2003 no
retrocessionaire has given notice of termination (provisional or otherwise) in
respect of any Material Retroceded Reinsurance Contract. Neither the relevant
Seller nor, to the
39
Knowledge of Sellers, the retrocessionaire is in default in any material respect
under any Material Retroceded Reinsurance Contracts. Except as set forth in
Schedule 3.17(b), neither Seller has actual knowledge that any such
retrocessionaire is the subject of a rehabilitation, liquidation,
conservatorship, receivership, bankruptcy or similar proceeding, or that the
financial condition of any such retrocessionaire is impaired to the extent that
a default thereunder is reasonably anticipated. Except as disclosed on Schedule
3.17(b), each such Material Retroceded Reinsurance Contract is in full force and
effect and is valid and enforceable in accordance with its terms subject to the
Enforceability Exceptions. Except as set forth in Schedule 3.17(b), no Material
Retroceded Reinsurance Contract contains any provision under which the
retrocessionaire may terminate such agreement by reason of the transactions
contemplated by this Agreement.
(c) Except as set forth in Schedule 3.17(c), with respect to each
Retroceded Reinsurance Contract that is not a Material Retroceded Reinsurance
Contract, (i) since December 31, 2003 no retrocessionaire has given notice of
termination (provisional or otherwise) in respect of such Retroceded Reinsurance
Contract, (ii) neither the relevant Seller nor, to the Knowledge of Sellers, the
retrocessionaire is in default in any material respect under such Retroceded
Reinsurance Contract, (iii) neither Seller has actual knowledge that any such
retrocessionaire is the subject of a rehabilitation, liquidation,
conservatorship, receivership, bankruptcy or similar proceeding, or that the
financial condition of any such retrocessionaire is impaired to the extent that
a default thereunder is reasonably anticipated, (iv) such Retroceded Reinsurance
Contract is in full force and effect and is valid and enforceable in accordance
with its terms subject to the Enforceability Exceptions, and (v) such Retroceded
Reinsurance Contract does not contain any provision under which the
retrocessionaire may terminate such agreement by reason of the transactions
contemplated by this Agreement, except for such inaccuracies in clauses (i)
through (v) as would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect.
(d) Except as set forth on Schedule 3.17(d), each Retroceded Reinsurance
Agreement complies in all material respects with all relevant provisions
relating to credit for reinsurance of the insurance laws and regulations of all
relevant jurisdictions in which the Business is authorized to be conducted.
(e) SLD's maximum retention limit as of the date of this Agreement is $4
million per life, plus certain additional amounts as described on Schedule
3.17(e). SLDI's maximum retention limit as of the date of this Agreement is $4
million per life.
(f) Schedule 3.17(f) is a complete and accurate list of all Retroceded
Reinsurance Contracts that have not been executed by some or all of the parties
thereto and are referred to herein as the "Unexecuted Retroceded Reinsurance
Contracts." Sellers have previously delivered to Purchaser copies of the
unexecuted Retroceded Reinsurance Contracts that exist in written form (the
"Delivered Unexecuted Retroceded Reinsurance Contracts"). Except as set forth on
Schedule 3.17(f), the terms of each Delivered Unexecuted Retroceded Reinsurance
Contract reflect the "material terms" of the reinsurance arrangement with the
retrocessionaire named therein. For purposes of
40
this Section, "material terms" shall mean the terms with respect to pricing,
recapture, termination of new business, extra contractual obligations, ratings
triggers and change of control provisions.
3.18 Investment Company.
------------------
Neither Seller nor ING is an investment company subject to registration and
regulation under the Investment Company Act of 1940, as amended.
3.19 Employees.
---------
Schedule 3.19 is a true and complete list of each employee of each Seller
and any of such Seller's Affiliates (including each such Person on leave) who
spends fifty percent (50%) or more of his or her business time performing
services for the Business (other than services related to the transactions
contemplated hereby) as of the date hereof including each such Person on leave
but excluding any such employee who is performing such services in Bermuda (the
"Business Employees"), and sets forth each such Business Employee's
classification, hire date, department function, office location, current annual
salary and most recent annual bonus target and "eligible pay" for purposes of
Sellers' Severance Plan. Each Seller is and has been in material compliance with
all federal, state, local and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours.
3.20 Employee Benefits.
-----------------
Each ERISA Plan and each bonus, incentive or deferred compensation,
employment, severance, termination, retention, change in control, equity-based,
performance or other fringe benefit, employee or retiree benefit plan, program,
policy, practice, agreement or arrangement in which Business Employees
participate or are eligible to participate, whether sponsored or maintained by
Sellers or a Seller Affiliate is a "Seller Plan" and, collectively, they are the
"Seller Plans." Sellers have provided or made available to Purchaser copies of
each such Seller Plan or a description of each such Seller Plan (if there is no
written plan document).
3.21 Labor Relations.
---------------
None of the Business Employees is a member of a labor union or subject to a
collective bargaining agreement or involved in any labor organization activities
with respect to their employment with Sellers or their Affiliates. Sellers are
not bound by or subject to (and none of their assets are bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested, or, to the Knowledge of
Sellers, has sought to represent any of the Business Employees. There are no
pending labor disputes with respect to any Business Employees.
3.22 Brokers or Finders.
------------------
41
Other than Lehman Brothers Inc., the fees of which will be paid by Sellers,
no broker or finder has acted directly or indirectly for Sellers, nor have
Sellers incurred any obligation to pay any brokerage or finder's fee or other
commission, in connection with the transactions contemplated by this Agreement
and the Related Agreements.
3.23 Absence of Certain Changes and Events.
-------------------------------------
Except (i) as disclosed in Schedule 3.23, or (ii) as expressly contemplated
by this Agreement and the Related Agreements, since December 31, 2003 the
Business has been conducted in the ordinary course consistent with past
practices (including, without limitation, with regard to underwriting, pricing,
actuarial and investment policies generally) and there has not been:
(a) any material change in the financial, underwriting, pricing, claims,
risk retention, retrocession, investment or accounting policies of Sellers
related to the Business, except for any such change as a result of a concurrent
change in Applicable Law or SAP;
(b) to the extent affecting a Business Employee, any (i) employment,
deferred or incentive compensation, severance, change in control, retirement or
other similar agreement entered into or plan or arrangement established with or
with respect to any director, officer or employee (or any amendment to any such
existing agreement), (ii) grant of any severance or termination pay to any
director, officer or employee, or (iii) change in compensation or other benefits
payable to any director, officer or employee, other than increases in
compensation and bonuses made in the ordinary course of business consistent with
past practice;
(c) any material transaction or commitment other than any Insurance
Contract by Sellers involving assets or rights of either of the Sellers related
primarily to the Business other than in the ordinary course of business
consistent with past practice (it being agreed that for this subsection (c) and
this subsection (c) only, in respect of transactions or commitments that can be
measured monetarily, "material" shall mean a transaction or commitment involving
the payment or receipt of amounts in excess of $100,000 in any one-year period
or $300,000 in the aggregate);
(d) any loss or termination of any material agreement of the type described
in Section 3.10; or
(e) any change, event or circumstance that, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect.
3.24 Books and Records.
-----------------
The Books and Records are true, complete and correct in all material
respects, have been maintained in accordance with sound business practices and
accurately present and reflect in all material respects all of the transactions
and actions therein described and constitute all of the files and data necessary
for the operation of the Business.
42
3.25 Taxes.
-----
Except as set forth with reasonable specificity in Schedule 3.25(a):
(a) (i) Sellers have timely filed (or have had filed on their behalf), in
the manner required by Law, all material Tax Returns required to be filed by
Sellers and have paid (or have had paid on their behalf) all Taxes due as
reflected on such Tax Returns or otherwise due, and all such Tax Returns are
true, correct and complete; (ii) no adjustment relating to such Tax Returns has
been proposed formally or informally by any Tax Authority; and (iii) there are
no liens with respect to Taxes upon the Transferred Assets except for liens for
Taxes not yet due or for Taxes Sellers (or any Affiliate thereof) are contesting
in good faith through appropriate proceedings and such liability for Taxes is
appropriately reflected on the Books and Records of Sellers (or any Affiliate
thereof).
(b) Sellers (or any Affiliate thereof) have previously delivered to
Purchaser (or any Affiliate thereof) (i) copies of all written material
agreements or rulings entered into by Sellers (or any Affiliate thereof) with
any Tax Authority with respect to the Business or the ownership, use or
operation of the Transferred Assets that could (either pursuant to the terms of
such agreement or ruling or the expiration of such agreement or ruling) directly
affect the Taxes of Purchaser (or any Affiliate thereof), (ii) income and
material premium Tax Returns filed by or with respect to Sellers for their
2000-2003 taxable years and (iii) any revenue agents' report or similar claim
for a material amount of additional Taxes (a "Tax Claim") received by Sellers
(or any Affiliate thereof) from any Tax Authority for such taxable years and all
written materials provided by Sellers (or any Affiliate thereof) to any Tax
Authority in connection with any such Tax Claim.
(c) To the Knowledge of Sellers, there are no Tax jurisdictions in which
Sellers (or any Affiliate thereof) own the Transferred Assets or conduct the
Business that require a notification to a Tax Authority of the transactions
contemplated by this Agreement, if the failure to make such notification, or
obtain Tax clearances in connection therewith, would either require Purchaser
(or any Affiliate thereof) to withhold any portion of the consideration or would
subject Purchaser (or any Affiliate thereof) to any liability for any Taxes of
Sellers (or any Affiliate thereof).
(d) To the Knowledge of Sellers, the insurance or investment policies,
plans, or contracts, financial products, employee benefit plans, individual
retirement accounts, or any similar or related policy, contract, plan or
product, whether individual, group or otherwise, including annuity contracts,
life insurance contracts and variable contracts (the "Direct Insurance
Contracts") reinsured by the Sellers from any Person and constituting part of
the Business materially comply (and have materially complied since the time of
issuance, assumption, modification, exchange or sale) with all applicable
requirements, if any, of Code Sections 7702, 7702A and 7702B and the rules and
Treasury Regulations thereunder, relating to the qualifications and/or tax
treatment for which the Direct Insurance Contracts were intended to qualify
(including any record-keeping and administrative services requirements imposed
under such Code Sections).
43
ARTICLE IV
Representations and Warranties of Purchaser and Purchaser Subsidiaries
----------------------------------------------------------------------
Purchaser and each Purchaser Subsidiary hereby represent and warrant to
Sellers as follows (it being understood that each Purchaser Subsidiary makes
only those representations and warranties that specifically relate to it):
4.1 Status of Purchaser Entities.
----------------------------
Each of Scottish Annuity & Life, Purchaser and each Purchaser Subsidiary is
a corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation. Purchaser and each
Purchaser Subsidiary has full corporate power and authority to conduct its
business as it is now being conducted.
4.2 Enforceability.
--------------
Each of Scottish Annuity & Life, Purchaser and each Purchaser Subsidiary
has full corporate power and authority to execute and to deliver this Agreement
and the Related Agreements, as applicable, and to carry out the transactions
contemplated herein and therein. Each of Scottish Annuity & Life, Purchaser and
each Purchaser Subsidiary has taken all necessary corporate action to authorize
its execution and performance of this Agreement and the Related Agreements, as
applicable. This Agreement and each of the Related Agreements is the valid and
binding obligation of each of Scottish Annuity & Life, Purchaser and each
Purchaser Subsidiary, as applicable, and enforceable against each of Scottish
Annuity & Life, Purchaser and each Purchaser Subsidiary, as applicable, in
accordance with its terms, except as such enforceability may be limited by the
Enforceability Exceptions. Assuming the consents and approvals referred to in
Sections 3.3 and 4.7 are obtained, the execution, delivery and performance of
this Agreement and each of the Related Agreements by each of Scottish Annuity &
Life, Purchaser and each Purchaser Subsidiary, as applicable, will not, with or
without the giving of notice or passage of time or both, (i) conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any lien, charge or encumbrance pursuant to any provision of any
mortgage, deed of trust, lease, license agreement or other agreement to which
Scottish Annuity & Life or Purchaser or any Purchaser Subsidiary is a party or
by which it is bound or affected, (ii) conflict with or result in a default
under any provision of the certificate of incorporation or by-laws of Scottish
Annuity & Life or Purchaser or any Purchaser Subsidiary, or any effective
resolution of the directors or stockholders of Scottish Annuity & Life or
Purchaser or any Purchaser Subsidiary, or (iii) conflict with or result in a
violation of any Legal Requirement; provided, that no representation or warranty
is made in the foregoing clause (i) or (iii) with respect to matters that,
individually or in the aggregate, would not be reasonably expected to have a
material adverse effect on the ability of Scottish Annuity & Life, Purchaser and
the Purchaser Subsidiaries to consummate the transactions contemplated by this
Agreement and the Related Agreements.
4.3 Certain Proceedings.
-------------------
44
There is no pending action against Scottish Annuity & Life, Purchaser or
any Purchaser Subsidiary in any court or with any Governmental Authority that
challenges or may reasonably be expected to have the effect of preventing or
delaying or making unlawful the consummation of the transactions contemplated by
this Agreement and the Related Agreements. To Purchaser's Knowledge, no such
proceeding has been threatened.
4.4 Financial Statements.
--------------------
Sellers have received the audited balance sheet and income statement of
Scottish Annuity & Life, Purchaser, SRUS and Scottish Re Life as of December 31,
2003, and the unaudited balance sheet and income statement of Purchaser, SRUS
and Scottish Re Life as of June 30, 2004 (the "Purchaser Financial Statements").
The Purchaser Financial Statements fairly present in accordance with SAP, or
with respect to the Purchaser, GAAP, the financial condition of Scottish Annuity
& Life, Purchaser, SRUS and Scottish Re Life as of and for the periods ending on
the dates thereof.
4.5 Ratings.
-------
Purchaser has no reason to believe as of the date hereof that the
claims-paying ability, financial strength or other ratings by A.M. Best Company,
Inc. or any other rating agency of Scottish Annuity & Life, Purchaser or any
Purchaser Subsidiary (other than potential changes in "outlook" or "watch" or
similar terms employed by any such rating agency) will be adversely affected by
the announcement or consummation of the transactions contemplated hereby.
4.6 Brokers or Finders.
------------------
Other than Bear Stearns & Co. Inc., the fees and expenses of which shall be
paid by Purchaser, neither Purchaser nor any of its Affiliates has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement or the Related Agreements and the transactions contemplated hereby or
thereby.
4.7 Purchaser's Approvals.
---------------------
Except as set forth on Schedule 4.7, no consent, approval or authorization
of, or declaration, filing or registration with, any Governmental Authority or
any other Person, is required to be made or obtained by Scottish Annuity & Life,
Purchaser or any Purchaser Subsidiary in connection with the execution, delivery
and performance of this Agreement or the Related Agreements or the consummation
of the transactions contemplated hereby and thereby.
4.8 Investment Company.
------------------
None of Scottish Annuity & Life, Purchaser and the Purchaser Subsidiaries
is an investment company subject to registration and regulation under the
Investment Company Act of 1940, as amended.
45
4.9 Financing.
---------
Purchaser and its Affiliates have available, and at the Closing will have
available, sufficient capital to consummate the transactions contemplated by
this Agreement and the Related Agreements and sufficient cash to pay all related
fees and expenses required to be paid by Purchaser hereunder and thereunder.
4.10 Purchaser Licenses.
-------------------
Each of Purchaser and Purchaser Subsidiaries has all Permits necessary to:
(a) conduct the Business in the manner and in the areas in which the Business is
presently being conducted; and (b) perform its obligations under this Agreement
and each Related Agreement. Purchaser and each Purchaser Subsidiary is in
material compliance with the terms of such Permits. As of the date of this
Agreement, there is no suit, proceeding or investigation with respect to
revocation, cancellation, suspension or nonrenewal of any such Permit, which is
pending or, to the Knowledge of Purchaser, threatened in writing.
ARTICLE V
Additional Agreements of Seller and Purchaser
---------------------------------------------
5.1 Conduct of Business.
-------------------
Except as set forth on Schedule 5.1 or as otherwise expressly provided in
this Agreement or the Related Agreements or as expressly required to consummate
the transactions contemplated hereby and thereby, during the period from the
date hereof through the Closing Date (unless Purchaser shall otherwise approve
in writing, such approval not to be unreasonably withheld, conditioned or
delayed) each Seller with respect to the Business or the ownership, use or
operation of the Transferred Assets:
(a) shall exercise its commercially reasonable efforts to maintain itself
at all times in all material respects as a corporation duly organized, validly
existing, in good standing, and duly qualified to conduct the Business;
(b) shall conduct the Business and maintain its Books and Records in the
ordinary course consistent with past practice and it shall exercise its
commercially reasonable efforts not to commit any act which constitutes a
material breach of or default under any contract, agreement, plan, lease,
policy, or Permit or fail to comply in any material respect with any Applicable
Law;
(c) shall use its commercially reasonable efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, reinsurers, retrocessionaires, agents, brokers,
distributors, creditors, lessors, employees and business associates;
(d) shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, asserted or unasserted, contingent or otherwise) other
than the payment,
46
discharge or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms;
(e) shall not enter into any material contract that would constitute an
Assigned Contract, other than in the ordinary course of business consistent with
past practice;
(f) shall not acquire any material asset that would constitute a
Transferred Asset other than in the ordinary course of business consistent with
past practice;
(g) shall not sell, transfer, pledge or otherwise convey or dispose of or
create any Encumbrance on any Transferred Assets other than a Permitted
Encumbrance and other than sales, transfers and disposals of any assets of the
type described under clause (vii) of the definition of Transferred Assets which
are not material;
(h) shall not terminate, or in any manner material thereto modify, amend or
waive compliance with, any provision of any of the Insurance Contracts or any of
the contracts set forth in Schedule 3.10(a) other than in the ordinary course of
business consistent with past practice;
(i) shall not enter into any new retrocession agreements relating to the
Business other than in the ordinary course of business consistent with past
practice;
(j) shall not change any accounting, financial, underwriting, pricing,
actuarial, claims, administrative, marketing, reserving, risk retention,
retrocession, investment or accounting policies of Sellers related to the
Business, except for any such change as a result of a concurrent change in
Applicable Law or SAP;
(k) except as previously agreed to in writing by Sellers and Purchaser,
shall not directly or indirectly, allow, or otherwise facilitate the transfer of
Business Employees to positions not involved in the Business or the transfer of
other Seller or Seller Affiliate employees to employment in the Business;
(l) shall not (i) adopt any plan that would constitute a Seller Plan or
amend any Seller Plan in a manner that would increase any of the obligations of
Purchaser or an Affiliate of Purchaser specified in Section 5.8 other than as
required by Applicable Law, (ii) enter into any agreement with any Business
Employee regarding his or her employment, compensation or benefits, (iii)
increase the benefits of Business Employees, (iv) increase the compensation of
Business Employees, or (v) increase (other than as a result of a compensation
increase permitted by the preceding clause) the amount of severance payable to
any Business Employee;
(m) shall not undertake any of the actions specified in Section 3.23;
(n) shall not conduct the Business in any manner that would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
(o) shall not authorize or enter into an agreement or arrangement of any
kind to do any of the foregoing; and
47
(p) shall not (i) file any Tax Return in a manner inconsistent with past
custom and practice, except as may be required by a change in Law after the date
hereof, (ii) make or change any election concerning any Taxes, change any Tax
accounting method, enter into any closing agreement with respect to Taxes, file
any amended Tax Return, settle any Tax Claim or assessment or (iii) obtain or
enter into any Tax ruling or other Tax agreement, contract, understanding,
arrangement or plan with a Governmental Authority, in each case only to the
extent such change could reasonably be expected to directly and materially
affect the Taxes of Purchaser (and any Affiliate thereof) for any Tax period (or
portion thereof) beginning after the Closing Date.
5.2 Expenses.
--------
Regardless of whether any or all of the transactions contemplated by this
Agreement are consummated, and except as otherwise expressly provided herein,
Purchaser and Sellers shall each bear their respective direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby or thereby, including without limitation, all fees and
expenses of Representatives.
5.3 Access; Certain Communications.
------------------------------
(a) Between the date of this Agreement and the Closing Date, subject to any
Applicable Law relating to antitrust, employment or privacy issues and subject
to the rules applicable to visitors at Sellers' offices generally, Sellers shall
afford to Purchaser and its Representatives copies of (at Sellers' expense) and
access to, upon reasonable notice and during normal business hours, to all Books
and Records, contracts, documents and information of or relating to the assets,
liabilities, business, operations and other aspects of the Business. In the
event that any Purchaser request for such access would not violate any
Applicable Law relating to employment or privacy if a waiver were obtained from
any Business Employee, Sellers shall use commercially reasonable efforts to
obtain such a waiver. Sellers shall cause the Business Employees, other
employees of Sellers, their Affiliates and their respective Representatives to
provide reasonable assistance to Purchaser in its investigation of matters
relating to the transactions contemplated hereby; provided, however, that
Purchaser's investigation shall be conducted in a manner which does not
interfere with Sellers' or their Affiliates' normal operations, customers and
employee relations. Without limiting any of the terms thereof, the terms of the
Confidentiality Agreement shall govern Purchaser's and its Representatives'
obligations with respect to all confidential information with respect to the
Business and Sellers and their Affiliates and other related Persons, which has
been provided or made available to them at any time, including during the period
between the date of this Agreement and the Closing Date.
(b) Notwithstanding anything to the contrary set forth in this Agreement,
the obligations of confidentiality hereof, as they relate to the transactions
contemplated hereby, shall not apply to the federal Tax structure or federal Tax
treatment of such transactions, and each party to this Agreement (and any
employee, representative, or
48
agent of any party hereto) may disclose to any and all persons, without
limitation of any kind, the federal Tax structure and federal Tax treatment of
such transaction.
5.4 Regulatory Matters; Third Party Consents; Assigned Contracts.
------------------------------------------------------------
(a) Sellers and Purchaser shall cooperate and use commercially reasonable
efforts to obtain all consents, approvals and agreements of, and to give and
make all notices and filings with, any Governmental Authority necessary to
authorize, approve or permit the consummation of the transactions contemplated
by this Agreement, the Related Agreements and any other agreements contemplated
hereby or thereby, including, without limitation, as set forth on Schedule 3.3
and Schedule 4.7. Sellers and Purchaser shall also cooperate and use
commercially reasonable efforts to obtain approval or non-disapproval letters
from the domiciliary insurance departments of SLD and any Purchaser Subsidiary
who is, or will become, a party to any Reinsurance Agreement. Purchaser and
Sellers will provide each other and their counsel the opportunity to review in
advance and comment on all such filings with any Governmental Authority.
Purchaser and Sellers will keep each other informed of the status of matters
relating to obtaining the regulatory approvals specified in Schedule 3.3 and
Schedule 4.7. Purchaser shall also provide Sellers opportunity to review and
comment on the business plan of Newco prior to Purchaser's filing with the
Bermuda Monetary Authority of such plan. It is expressly understood by the
parties hereto that each party shall use commercially reasonable efforts to
obtain permission for the Representatives of both Purchaser and Sellers to
attend and participate in any hearing, proceeding, meeting, conference or
similar event before or with a Governmental Authority or other organization
relating to this Agreement or a Related Agreement. In furtherance of the
foregoing, Purchaser and Sellers shall provide each other reasonable advance
notice of any such hearing, proceeding, meeting, conference or similar event.
(b) Sellers and Purchaser shall cooperate and use commercially reasonable
efforts to obtain all consents, approvals and agreements of any third Person
other than a Governmental Authority set forth on Schedules 3.3 and 4.7,
respectively. In the event and to the extent that Sellers and Purchaser are
unable to obtain any such consents, approvals or agreements of any such Person
(i) Sellers shall use commercially reasonable efforts in cooperation with
Purchaser to (A) provide or cause to be provided to Purchaser or a Purchaser
Subsidiary the benefits of any agreement with any such Person, and (B) enforce
for the account of Purchaser or a Purchaser Subsidiary any rights of Sellers
arising from any such agreement, and (ii) Purchaser or a Purchaser Subsidiary
shall use commercially reasonable efforts to perform the obligations of Sellers
arising under any such agreement, to the extent that, by reason of the
transactions consummated pursuant to this Agreement or otherwise, Purchaser or a
Purchaser Subsidiary has control over the resources necessary to perform such
obligations to the extent such obligations are Assumed Liabilities. If and when
any such consent, approval or agreement shall be obtained with respect to any
Assigned Contract, the applicable Seller shall promptly assign all of its rights
and obligations thereunder to Purchaser or a Purchaser Subsidiary without the
payment of further consideration and Purchaser or a Purchaser Subsidiary shall,
without the payment of any further consideration therefor, assume such rights
and
49
obligations and the applicable Seller shall be relieved of any and all
obligation or liability hereunder.
(c) In the event Purchaser or Sellers discover after Closing that one or
more contracts utilized in, but not material to, the Business (collectively the
"Nonmaterial Contracts") were inadvertently omitted from Schedule 1.1(a),
Sellers or Purchaser, as applicable, shall give prompt written notice to the
other party or parties identifying the Nonmaterial Contract and Sellers shall
provide Purchaser with a brief description of the terms thereof. Purchaser shall
thereafter notify Sellers as to whether Purchaser will:
(i) accept the assignment of such Nonmaterial Contract, in which case,
as between Purchaser and Sellers, such Nonmaterial Contract shall, to the
maximum extent practicable and notwithstanding the failure to list such
Nonmaterial Contract on Schedule 1.1(a), be transferred as of the Closing
pursuant to the Assignment and Assumption Agreement; or
(ii)reject the assignment of such Nonmaterial Contract, in which case
(A) neither this Agreement nor the Assignment and Assumption Agreement nor any
other Related Agreement shall constitute a sale, assignment, assumption,
conveyance or delivery or an attempted sale, assignment, assumption, transfer,
conveyance or delivery of such Nonmaterial Contract, and (B) Sellers shall
retain such Nonmaterial Contract and all liabilities arising therefrom or
relating thereto; provided, however, that in the event Purchaser rejects the
assignment of any such Nonmaterial Contract in accordance with the provisions of
this Section 5.4(c)(ii), Purchaser may not thereafter make a claim for
indemnification under Section 10.1 below based on such failure to identify
and/or transfer such Nonmaterial Contract to Purchaser.
5.5 Further Assurances.
------------------
Each of the parties hereto shall execute such documents and other papers
and perform such further acts as may be reasonably required to carry out the
provisions hereof and the transactions contemplated hereby. Each such party
shall, at or prior to the Closing Date, use its commercially reasonable efforts
to fulfill or obtain the fulfillment of the conditions precedent to the
consummation of the transactions contemplated hereby, including the execution
and delivery of any documents, certificates, instruments or other papers that
are reasonably required for the consummation of the transactions contemplated
hereby. In the event that Purchaser believes, based upon further review of the
Business prior to Closing, that the aggregate amount to be deposited in the SLD
Security Trust Account and the SLDI Security Trust Account should be allocated
differently from the allocation set forth in Sections 2.4(c) and (d) hereof,
Sellers shall consider such reallocation in good faith and shall not
unreasonably withhold their consent to the proposed reallocation.
5.6 Notification of Certain Matters.
-------------------------------
(a) Each party shall give prompt notice to the other party of (i) the
occurrence, or failure to occur, of any event or the existence of any condition,
fact, state of
50
circumstances, development, action or omission that (A) in the case of Sellers,
has had or would reasonably be expected to have a Material Adverse Effect or, in
the case of Purchaser and Purchaser Subsidiaries, has had or would reasonably be
expected to have a material adverse effect on Purchaser and the Purchaser
Subsidiaries to consummate the transactions contemplated by this Agreement and
the Related Agreements, or (B) has caused or would reasonably be expected to
cause any of its representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect at any time after the date of this
Agreement, up to and including the Closing Date (except to the extent such
representations and warranties are given as of a particular date or period and
relate solely to such particular date or period), and (ii) any failure on its
part to comply with or satisfy, in any material respect, any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement.
(b) Sellers shall, no less than three (3) calendar days prior to the
Closing, by notice to Purchaser, provide or supplement any Schedule to reflect
any change or event that occurs after the date of this Agreement; provided, that
such supplemental schedules shall not be deemed to have been disclosed as of the
date hereof, to constitute a part of, or an amendment or supplement to, Sellers'
disclosure schedules, or to cure any breach or inaccuracy of a representation or
warranty, unless so agreed to in writing by Purchaser.
(c) Each party shall use commercially reasonable efforts to cause the
conditions set forth in Articles VI and VII to be satisfied.
5.7 Maintenance and Transfer of Records.
----------------------------------
Through the Closing Date, Sellers shall maintain the Books and Records in
all material respects in the same manner and with the same care that the Books
and Records have been maintained prior to the execution of this Agreement. At
the Closing, Sellers will transfer the Books and Records to Purchaser; provided
that Sellers shall be entitled to retain such copies of the Books and Records
(i) as are necessary for Sellers to provide services under the Transition
Services Agreement or (ii) as Sellers are required to retain under Applicable
Law. From and after the Closing Date, each of the parties hereto shall permit
any other party hereto reasonable access, subject to the rules applicable to
visitors at the relevant party's offices generally and provided such access does
not unreasonably interfere with the business or operations of the party
providing such access, to any applicable books and records in its possession
relating to the Business, to the extent that the requesting party has a
reasonable business purpose for requesting such access and such reason relates
to this Agreement, the Related Agreements or the transactions, rights and
obligations contemplated hereby and thereby. Sellers agree, (A) with respect to
the information that is existing and in Sellers' possession at Closing, for a
period of two (2) years from the Closing Date and (B) with respect to the
information that is created or comes into Sellers' possession after the Closing
Date, for a period of two (2) years after the relevant information is created or
comes into the possession of Sellers, to maintain the confidentiality of
information contained in any books and records to the same degree that Purchaser
is required to maintain the confidentiality of "Evaluation Materials" under the
Confidentiality Agreement. Notwithstanding any other provision of this Section
5.7,
51
access to any Books and Records may be denied to the requesting party if the
other party is required under any Applicable Law relating to antitrust,
employment or privacy issues to deny such access. In the event that any request
for such access would not violate any Applicable Law relating to employment or
privacy if a waiver were obtained from an employee, the party that employs such
employee shall use commercially reasonable efforts to obtain such a waiver.
5.8 Employee Matters.
----------------
(a) Beginning on the date of this Agreement, Sellers shall make reasonable
efforts to obtain from each Business Employee as soon as practicable thereafter
consent to release to Purchaser all information (the "Employee Information")
reasonably requested by Purchaser in writing about such Business Employees in
order for Purchaser or a Purchaser Affiliate to decide to whom Purchaser or such
Purchaser Affiliate will offer employment, subject, in each case, to any
restrictions on the provision of such information under Applicable Law. Sellers
shall provide the Employee Information to Purchaser within five (5) calendar
days after the date of this Agreement or, with respect to any specific Business
Employee, as soon as reasonably practical after Sellers obtain the Business
Employee's consent, if later. Sellers shall permit the Purchaser or a Purchaser
Affiliate to have reasonable access to the Business Employees beginning on the
date of this Agreement. No later than forty-five (45) calendar days after the
date of this Agreement, Purchaser or a Purchaser Affiliate shall identify and
provide to Sellers a written list of the Business Employees to whom Purchaser or
a Purchaser Affiliate will offer employment effective as of the Closing Date.
Each such offer of employment to a Business Employee shall be for a position
that provides equal or greater base pay plus bonus opportunity compared to the
position that the Business Employee held with a Seller or any Seller Affiliate
as of the day immediately preceding the Closing Date and at a jobsite not in
excess of fifty (50) miles from the Business Employee's jobsite on such date,
each as disclosed in Schedule 3.19. Sellers agree to cooperate with Purchaser or
a Purchaser Affiliate in its efforts to hire such Business Employees. Business
Employees who become employed by Purchaser or by a Purchaser Affiliate in
connection with the transactions contemplated by this Agreement shall be
referred to herein as "Transferred Employees." Purchaser shall have no liability
or responsibility for, and Sellers shall have sole liability and responsibility
for, any and all severance pay and other employment termination obligations for
all Business Employees who are not offered employment by Purchaser or a
Purchaser Affiliate or who otherwise do not become Transferred Employees.
Notwithstanding the foregoing, Sellers shall have no liability or responsibility
for any Purchaser Assumed Employee Liabilities. Sellers shall have no liability
or responsibility for, and Purchaser and its Purchaser Affiliates shall have
sole liability and responsibility for, any and all severance pay and other
employment termination obligations for Transferred Employees to the extent such
obligations relate to termination of employment with Purchaser or a Purchaser
Affiliate. Nothing in this Section 5.8(a) is intended to or shall require
Purchaser or its Affiliates to employ or continue to employ any such employee
for any period of time following the Closing Date or to continue to maintain any
term or condition of employment, including, without limitation, the position,
title, compensation, location or employer, with respect to any
52
such employee or otherwise to treat any such employee on any basis other than as
an employee-at-will.
(b) Service by the Transferred Employees with Sellers or any of their
Affiliates shall be recognized under each benefit plan, program or arrangement
established, maintained or contributed to by Purchaser or any of its Affiliates
after the Closing Date for the benefit of the Transferred Employees, for
purposes of eligibility to participate, eligibility for early retirement,
vesting, and the amount or level of benefits under any vacation, disability,
sick pay or severance plan, but in no event shall such service prior to the
Closing Date be required to be taken into account in (i) determining the accrual
of benefits under any defined benefit pension plan or (ii) to the extent such
benefit plan, program or arrangement established, maintained or contributed to
by Purchaser or any of its Affiliates does not recognize service during such
period.
(c) Any Transferred Employee whose employment is terminated for any reason
other than for Cause within twenty-four (24) months after the Closing Date shall
receive a severance benefit package that is the greater of (i) the severance
benefit package that would be provided under the Sellers' Severance Plan as in
effect for such employee on the day immediately prior to the Closing Date, and
(ii) the severance benefit package that would be provided under the severance
benefit arrangements, plans, programs or contracts as in effect on the day
immediately prior to the Closing Date for employees of the Purchaser or its
Affiliate that employs the Transferred Employee.
(d) Purchaser shall, or shall cause the applicable entity to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Transferred
Employees under any welfare plan (within the meaning of section 3(1) of ERISA)
in which such Transferred Employees may be eligible to participate after the
Closing Date, other than limitations or waiting periods that are already in
effect with respect to such Business Employees and that have not been satisfied
as of the Closing Date under any such welfare plan under which the Business
Employees are covered immediately prior to the Closing Date, and (ii) provide
each Transferred Employee with credit for any co-payments and deductibles paid
prior to the Closing Date (and during the then current plan year of the
applicable Purchaser welfare plan) in satisfying any applicable deductible or
out-of-pocket requirements under any such welfare plans that such Transferred
Employees are eligible to participate in after the Closing Date.
(e) From and after the Closing Date, except as otherwise specified in this
Section 5.8, each Transferred Employee shall be eligible to participate in all
employee benefit plans, programs, policies and arrangements of Purchaser and its
Affiliates on the same basis as similarly situated employees of Purchaser. For
the avoidance of doubt, the determination of whether employees are similarly
situated will take into account the total mix of characteristics of each
employee's position, including, without limitation, job title, level of
responsibility and rate of compensation.
53
(f) Sellers shall be solely responsible for providing required notices
under COBRA to any M&A Qualified Beneficiaries (as defined in Treas. Reg.
Section 54.4980B-9, Q&A 4) and Sellers shall provide or cause to be provided
continuation coverage under COBRA to such individuals. Sellers agree to
indemnify, defend and hold Purchaser and Purchaser Affiliates harmless from and
against any and all liabilities, losses, claims, demands, costs, expenses
(including, without limitation, actual attorneys' fees, expenses and costs) and
any other liability that Purchaser or Purchaser Affiliates may incur as a result
of either Seller's failure to provide the required COBRA continuation notice or
coverage to M&A Qualified Beneficiaries. With respect to any Transferred
Employee who has a "qualifying event" (as that term is defined in Code Section
4980 B(f)(3)) after the Closing Date, Purchaser or a Purchaser Affiliate shall
be solely responsible for any required COBRA continuation coverage under the
group health plan maintained by Purchaser or a Purchaser Affiliate in which such
Transferred Employee participated at the time of termination.
(g) Sellers and their Affiliates shall retain all liabilities under or
relating to any liability or obligation arising under or relating to any
Employee Benefit established, maintained, sponsored or contributed to by either
Seller or any Seller ERISA Affiliate and any obligation to pay salaries, wages
and bonuses to the Business Employees other than the obligation to pay salaries,
wages and bonuses to Transferred Employees with respect to periods following the
Closing Date, and neither Sellers nor any Seller Affiliates shall assume any
liability or obligation arising under or relating to any Employee Benefit Plan
established, maintained, sponsored or contributed to by Purchaser or any
Purchaser ERISA Affiliate.
(h) From and after the Closing Date, Sellers and Purchaser shall cooperate
to ensure an orderly transition of the Transferred Employees.
(i) The parties agree to cooperate in good faith to determine whether any
notification may be required under the Worker Adjustment and Retraining
Notification Act (the "Warn Act") as a result of the transactions contemplated
by this Agreement. Sellers shall be responsible for providing any notification
that may be required under the Warn Act with respect to the Business Employees
to the extent such obligation arises prior to the Closing Date. From and after
the Closing Date, Purchaser shall be responsible for providing any notification
that may be required under the Warn Act with respect to its employees, including
the Transferred Employees.
5.9 Intellectual Property; Computer Programs.
----------------------------------------
(a) On the Closing Date, Sellers or an Affiliate of Sellers will enter into
the Trademark and Trade Name License Agreement with Purchaser or a Purchaser
Subsidiary to license to Purchaser or such Purchaser Subsidiary certain
Trademarks owned by Sellers or their Affiliates and used primarily in the
conduct of the Business.
(b) On the Closing Date, Purchaser or a Purchaser Subsidiary will enter
into the Technology Transfer and License Agreement with Sellers or one or more
Affiliates of Sellers.
54
(c) With respect to each Licensed Computer Program:
(i) Sellers will use commercially reasonable efforts to (A) assign to
Purchaser or an Affiliate of Purchaser the Licensed Computer Program
License under which such Licensed Computer Program is currently used and
provide to Purchaser or an Affiliate of Purchaser any utilities, macros and
spreadsheet definitions related thereto, or (B) obtain on behalf of the
Purchaser or an Affiliate of Purchaser, at Purchaser's request, a separate
license agreement to use such programs (including such utilities, macros
and spreadsheet definitions related thereto) for a duration equal to the
term (or the portion thereof) remaining under the applicable Licensed
Computer Program License so that as of the Closing Date Purchaser will have
the right to use such Licensed Computer Program in the same manner used by
Sellers prior to the Closing Date subject to the terms of the applicable
Licensed Computer Program License and to such other written agreements as
may be entered into pursuant to this Section 5.9.
(ii) Sellers, on the one hand, and Purchaser, on the other hand, shall
share equally the cost of procuring rights from third party vendors of each
Licensed Computer Program in complying with the provisions of this Section
5.9(c); provided that, each party shall bear its own costs of reviewing and
negotiating any agreements required for the implementation of this Section
5.9(c); provided, further, that Purchaser shall be exclusively responsible
for payment of continuing seat charges, upgrade and maintenance fees, and
for performance of other contractual obligations arising with respect to
use by it after the Closing Date of such Computer Programs licensed or
assigned to the Purchaser pursuant to this Section 5.9(c).
(iii) Sellers shall keep Purchaser informed on a contemporaneous basis
as to the general progress of negotiations with each of the licensors and
Purchaser shall have the right to participate in such negotiations at its
election.
(d) Notwithstanding any other provision of this Section 5.9, if despite
commercially reasonable efforts of Sellers to obtain on behalf of Purchaser the
rights described in subsection (c) of this Section 5.9, such rights cannot be
obtained at a reasonable cost, or cannot be obtained at all,
(i) with respect to any Embedded Computer Programs, Sellers shall, at
their election, either (A) use commercially reasonable efforts during the
term of the Transition Services Agreement to (x) subject to any required
third-party consents, provide Purchaser with the benefits of any such
Embedded Computer Program and (y) assist Purchaser in an orderly transition
to an alternative solution; provided that Purchaser shall not incur any
additional costs or fees under the Transition Services Agreement with
respect to any such services, or (B) pay the full cost of Purchaser's
procuring and licensing (which license shall contain reasonable market
terms, be for the sole benefit of Purchaser or an Affiliate of Purchaser
and be subject to Sellers' consent, which consent shall not be unreasonably
withheld) substitute Computer Programs that will perform all of the
55
functions of any Embedded Computers Programs the benefits of which Sellers
were unable to provide to Purchaser and the Licensed Computer Program
Licenses relating to the Embedded Computer Programs which Sellers were
unable to assign to Purchaser; provided, that if the actions described in
clause (A) above are insufficient to support the needs of the Business, as
determined by Purchaser in good faith, then Sellers shall be required to
take the actions described in clause (B); and
(ii) with respect to any Licensed Computer Programs other than the
Embedded Computer Programs, Sellers shall either (A) use commercially
reasonable efforts during the term of the Transition Services Agreement to
(x) subject to any required third-party consents, provide Purchaser with
the benefits of any such Licensed Computer Programs that are material to
the operation of the Business by Sellers at the time of Closing and (y)
assist Purchaser in an orderly transition to an alternative solution;
provided that Sellers on the one hand and Purchaser on the other hand shall
share equally any costs or fees incurred with respect to any such services
provided pursuant to this clause (ii)(A), or (B) if the actions described
in clause (A) above are insufficient to support the needs of the Business,
as determined by Purchaser in good faith, or at Sellers' option, share
equally with Purchaser the cost of Purchaser's procuring and licensing
(which license shall contain reasonable market terms and be for the sole
benefit of Purchaser or an Affiliate of Purchaser) substitute Computer
Programs that will perform all of the functions of any other Licensed
Computer Programs the benefits of which Sellers were unable to provide to
Purchaser and the Licensed Computer Program Licenses relating to which
Sellers were unable to assign.
For the avoidance of doubt, the "Embedded Computer Programs" shall consist of
the e-Wam tools from Wyde obtained pursuant to the CGI agreement and the IMR
Framework Tools from CGI. The foregoing provisions in this Section 5.9(d) shall
not limit in any way Sellers' obligations under Section 3.13 or this Section
5.9, nor do they limit Purchaser's right to seek damages if Sellers fail to use
commercially reasonable efforts to obtain the rights for Purchaser as described
in this Section 5.9(c). Any services provided to Purchaser pursuant to clauses
(i)(A) or (ii)(A) of this Section 5.9(d) will be provided pursuant to the
Transition Services Agreement and in accordance with the terms and conditions
thereof.
(e) If any Computer Program not previously scheduled is placed in service
in the Business between the date of this Agreement and the Closing Date, such
Computer Program shall be subject as of the Closing Date to the representations
and warranties set forth in Section 3.13 and shall be added as of the Closing
Date to Schedule 3.13(a) if it is an Owned Principally-Used Computer Program,
Schedule 3.13(b) if it is an Owned Generally-Used Computer Program, or Schedule
3.13(c) if it is a Licensed Computer Program, or Schedule 3.13(d) if it is a
Retained Computer Program required to be listed on such schedule pursuant to the
terms of Section 3.13(d). Sellers shall notify Purchaser in writing as soon as
reasonably practicable after Sellers' decision to add any such Computer Program
to a schedule (but in any event not less than fifteen (15) business days prior
to the Closing Date). If any new Data or Database is created between the date of
56
this Agreement and the Closing Date, such Data or Database shall be subject as
of the Closing Date to the representations and warranties set forth in Section
3.12.
5.10 Real Property Leases.
--------------------
(a) With respect to each Business Lease, the lessee (either Seller or an
Affiliate) shall sublease or license to Purchaser or a Purchaser Subsidiary for
a period following Closing as determined by Purchaser and communicated to
Sellers within thirty (30) calendar days from the date hereof. The sublease or
license will provide that occupancy of such real property pursuant thereto shall
be subject to the terms of the relevant lease and shall be at a rental equal to
all rental and other charges provided in such lease. Such sublease or license
shall be in a form reasonably acceptable to Sellers and Purchaser.
(b) If, after commercially reasonable efforts by Sellers to obtain landlord
consents to lease subleases and licenses described in Section 5.10(a), such
consents are not granted or are subject to price or other conditions deemed
unreasonably burdensome by Purchaser or Sellers, Purchaser or a Purchaser
Subsidiary agrees to vacate any applicable real property as soon as reasonably
practicable, but in no event later than ninety (90) Business Days after the
later of the (i) the Closing Date, or (ii) the date on which such negotiations
with respect to such consent are terminated. All costs of relocating Transferred
Employees pursuant to this subsection shall be borne by Sellers, but all rental
charges for replacement premises, shall be borne by Purchaser.
5.11 Quarterly Financial Information.
-------------------------------
(a) From the date hereof through the Closing Date, SLD shall make available
to Purchaser, when completed, the unaudited statutory statements of SLD and
Purchaser shall make available to Sellers, when completed, the unaudited
statutory statements of SRUS and Scottish Re Life, as of the end of, and for,
each fiscal quarter (collectively, the "Quarterly Statutory Statements").
(b) The Quarterly Statutory Statements when completed, will present fairly,
in all material respects, the financial condition and results of operations of
SLD, SRUS or Scottish Re Life, as the case may be, as of and for the periods
therein specified and, will be prepared in accordance with SAP, in the case of
SLD, and the statutory accounting practices prescribed or permitted by the
insurance regulatory authorities applicable to SRUS or Scottish Re Life, in the
case of SRUS and Scottish Re Life, except as expressly set forth within the
subject financial statements, including the notes thereto (subject to normal
year-end audit adjustments).
5.12 Letters of Credit; Guaranties.
-----------------------------
(a) Other than any letter of credit that is the subject of Section 5.24
hereof, prior to Closing, with respect to any Assigned Contract or Assumed
Reinsurance Contract that requires a Seller or an Affiliate of Sellers to
maintain or guaranty a letter of credit for the benefit of the ceding company or
other party, the relevant account party of such letter of credit shall instruct
the issuing bank or banks not to renew any outstanding
57
letter of credit so that such letter of credit will expire on its first expiry
date after the Closing Date. Upon such expiration, Purchaser or a Purchaser
Affiliate shall substitute its own letter of credit for the expiring letter of
credit. With respect to any Assigned Contract or Assumed Reinsurance Contract as
to which such a substitution requires the consent of the ceding company or other
party to such Assigned Contract or Assumed Reinsurance Contract, the parties
shall use commercially reasonable efforts to obtain such consent. To the extent
any such consents have not been obtained prior to the Closing, the relevant
Seller or Affiliate of Sellers shall continue to maintain or guaranty the
relevant letters of credit and the parties hereto shall continue their efforts
to obtain such consents after the Closing; provided, however, that if either
Seller or an Affiliate of Sellers is required to maintain or guaranty any such
letters of credit after the Closing, Purchaser shall immediately reimburse such
Seller or such Affiliate for any cost incurred by such Seller following the
Closing to maintain or guaranty any such letter of credit and for the amount of
any draw against such letter of credit or guaranty (including without limitation
any interest imposed on such draw).
(b) With respect to any Assumed Reinsurance Contract or Assigned Contract
the obligations under which are guaranteed by any Affiliate of the Sellers
(including, in the case of SLDI, any guaranty by SLD), Sellers and Purchaser
agree to use all commercially reasonable efforts to obtain all necessary
consents from the relevant ceding company or other party prior to the Closing to
substitute a guaranty of Purchaser with respect to such Assumed Reinsurance
Contract or Assigned Contract. To the extent any such consents have not been
obtained prior to the Closing, the relevant Seller shall cause the relevant
Affiliate to continue to maintain the relevant guaranty and the parties hereto
shall continue their efforts to obtain such consents after the Closing;
provided, however, that if any Affiliate of Sellers is required to maintain any
such guaranty after the Closing, Purchaser shall immediately reimburse such
Seller or Affiliate of Sellers for any amount paid or incurred by such entity
pursuant to such guaranty.
(c) With respect to any Assumed Reinsurance Contract or Assigned Contract
under which either Seller or any Affiliate of the Sellers has a commitment to
assume such Assumed Reinsurance Contract or Assigned Contract or assumption
reinsure certain insurance policies (a "Standby Commitment"), to the extent
either Seller or any Affiliate of the Sellers is required to assume the relevant
Assumed Reinsurance Contract or Assigned Contract or assumption reinsure the
relevant policies, Purchaser or a Purchaser Subsidiary shall immediately assume
such Assigned Contract or reinsure on a 100% coinsurance basis such Assumed
Reinsurance Contract or such policies as if such Assumed Reinsurance Contract or
policies were Insurance Contracts.
5.13 Cooperation after Closing.
-------------------------
After the Closing, Sellers and Purchaser shall cooperate with each other by
furnishing any additional information and executing and delivering any
additional documents as may be reasonably requested by the other to further
perfect or evidence the consummation of, or otherwise implement, any transaction
contemplated by this Agreement or the Related Agreements, or to aid in the
preparation of any regulatory filing or financial statement; provided, however,
that any such additional documents must
58
be reasonably satisfactory to each of the parties and not impose upon either
party any material liability, risk, obligation, loss, cost or expense not
contemplated by this Agreement or the Related Agreements.
5.14 Regulatory Compliance.
---------------------
Purchaser and Sellers and their agents, Representatives and Affiliates
shall comply in all material respects with all Applicable Law in performing
their obligations under this Agreement and the Related Agreements. In addition,
Purchaser shall ensure that each Purchaser Subsidiary shall hold any Permit
required for such Purchaser Subsidiary to perform such Related Agreement in
compliance in all material respects with Applicable Law.
5.15 Use of Names.
------------
(a) On the Closing Date, Purchaser, Purchaser Subsidiaries, Sellers and
certain Affiliates of Sellers, as applicable, shall enter into the Trademark and
Trade Name License Agreement.
(b) Notwithstanding any inference contained herein or prior course of
conduct to the contrary, except as expressly provided herein or in the Trademark
and Trade Name License Agreement, in no event shall Purchaser or any of its
Affiliates have any right to use, nor shall Purchaser or any of its Affiliates
use, the Trademarks, trade names, service marks, corporate names or acronyms of
Sellers or any of their Affiliates, including the Trademarks, service marks,
names and acronyms set forth in Schedule 5.15(a), or any Intellectual Property,
domain name or URL (or any application or registration therefor) related to
those listed in Schedule 5.15(a), owned by, licensed to or used by Sellers or
any of their Affiliates, or any other name, mark, acronym or domain name that is
confusingly similar to such marks, corporate names or acronyms of Sellers. For
the avoidance of doubt, nothing in this Section 5.15(b) shall limit Purchaser's
rights in and to the Owned Intellectual Property identified as part of the
Transferred Assets on Schedule 1.1(h)-1 on and after the Closing.
(c) The parties hereto acknowledge that any damage caused to Sellers or any
of their Affiliates by reason of the breach by Purchaser or any of its
Affiliates of this Section 5.15 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, Sellers and
any of their Affiliates shall be entitled to seek an injunction issued by a
court of competent jurisdiction restraining and enjoining any violation by
Purchaser or any of its Affiliates of this Section 5.15.
5.16 Trust Arrangements.
------------------
At the Closing, (i) SLD and SRUS shall execute and deliver to each other
the SLD Security Trust Agreement and the SLD Reserve Trust Agreement, and (ii)
SLDI and Newco shall execute and deliver to each other the SLDI Reserve Trust
Agreement and the SLDI Security Trust Agreement, each of which shall be
effective as of the Closing
59
Date and in each case such parties shall arrange for the Trustee to execute and
deliver such agreements.
5.17 Tax Treatment of Transaction.
----------------------------
(a) For Tax purposes, Sellers and Purchaser agree as follows: (i) the
values of the SLD Non-Compete and SLDI Non-Compete are $100,000 and $50,000,
respectively, and Sellers and Purchaser shall treat each such amount as an
amount paid to the respective Seller for its Non-Compete on the Closing Date;
and (ii) in the case of each of SLD and SLDI, for purposes of Treasury
Regulation Section 1.817.4, Sellers and Purchaser shall treat an amount equal to
the sum of the cash and fair market value of the Transferred Assets (other than
the deferred acquisition cost asset referenced in the definition of Transferred
Statutory Assets) transferred by it pursuant to Sections 2.4 and 2.5, plus
$100,000 (in the case of SLD) and $50,000 (in the case of SLDI), minus the
amount of Non-Insurance Liabilities (as defined below) attributable to SLD or
SLDI (as the case may be) as the insurance premium paid to the respective
Purchaser Affiliate for its assumption of the SLD Reinsured Liabilities or SLDI
Reinsured Liabilities (as the case may be). Sellers and Purchaser shall file (or
cause to be filed) all relevant Tax Returns in a manner consistent with this
Section 5.17(a). For purposes of this Agreement, the "Non-Insurance Liabilities"
of a Seller shall equal the excess of the Assumed Liabilities attributable to
such Seller over the Reinsured Liabilities attributable to the Seller.
(b) Appropriate adjustments shall be made to the amount of the insurance
premium determined under Section 5.17(a)(ii) to reflect any adjustments to any
components of the premium made pursuant to this Agreement.
(c) Notwithstanding anything to the contrary in this Section 5.17, in the
event that, due to a change in any relevant Applicable Law or Legal Requirement
(or the issuance of a written administrative interpretation of Applicable Law or
Legal Requirement) after the date of this Agreement and on or before the Closing
Date, Applicable Law or Legal Requirement as of the Closing Date reasonably
requires any different Tax treatment than that described in this Section 5.17,
Sellers and Purchaser shall apply such Tax treatment in a manner consistent with
such Applicable Law or Legal Requirement. Any dispute arising under this Section
5.17(c) shall be resolved by the Independent Accountant within thirty (30)
calendar days of the submission of the dispute to the Independent Accountant by
Sellers or Purchaser. The decision of the Independent Accountant shall be Final
and Binding on the parties hereto, and the costs, expenses, and fees of the
Independent Accountant shall be borne equally by Sellers, on the one hand, and
Purchaser, on the other.
5.18 Enforcement of Rights.
---------------------
Sellers and Purchaser acknowledge that any damage caused to the other party
by reason of the breach by Sellers, on the one hand, or by Purchaser or any
Purchaser Subsidiary on the other of any provision of the Related Agreements
relating to rights, including without limitation, Sellers' recapture rights with
respect to the Insurance
60
Contracts or to the trust arrangements contemplated hereby and thereby, 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, each
party shall be entitled to specific performance of such provisions of the
Related Agreements or an injunction to be issued by a court of competent
jurisdiction pursuant to Section 11.5 of this Agreement restraining and
enjoining any violation of such provisions, in addition to such other equitable
or legal remedies as such court may determine. Purchaser hereby further
acknowledges that, in light of the material obligations that are owed and will
be owed by Purchaser and Purchaser Subsidiaries to Sellers under this Agreement
and the Related Agreements in the future, the remedies available to Sellers
pursuant to this Agreement and the Related Agreements are a material and
integral part of the consideration to be received by Sellers hereunder and
thereunder and that, but for the availability of such remedies and Sellers'
ability to enforce them, Sellers would not consummate the transactions
contemplated by this Agreement and the Related Agreements. Accordingly,
Purchaser and each Purchaser Subsidiary (including any statutory or other
successors and permitted assigns) hereby agree that it will not assert in any
claim, or raise as a defense to any claim, that any remedy specifically provided
for in the Related Agreements, including without limitation, rights of recapture
or offset and recoupment, is not valid, binding or enforceable, or that the
terms of the SLD Reserve Trust Agreement, the SLDI Reserve Trust Agreement, the
SLD Security Trust Agreement, or the SLDI Security Trust Agreement are not
valid, binding or enforceable.
5.19 Post-Closing Access.
-------------------
(a) Following the Closing Date, Sellers shall: (i) prior to the termination
of the Transition Services Agreement allow Purchaser or a Purchaser Subsidiary,
upon reasonable prior notice and during normal business hours and subject to the
rules applicable to visitors at Sellers' offices generally, through its
Representatives, the right, at Purchaser's expense, to examine and make copies
of any Books and Records necessary to be retained by Sellers under Applicable
Law or for purposes of providing the transition services under the Transition
Services Agreement, but only to the extent that such records of Sellers would
otherwise constitute Books and Records; (ii) allow Purchaser or a Purchaser
Subsidiary to interview the Sellers' employees in connection with Purchaser's or
such Purchaser Subsidiary's preparation or examination of regulatory and
statutory filings and financial statements and the conduct of any litigation
relating to the Business or otherwise, or the conduct of any regulatory,
contract holder, participant or other dispute resolution whether pending or
threatened; and (iii) maintain such records for Purchaser's or any Purchaser
Subsidiary's examination and copying until at least the third anniversary of the
Closing Date, after which the Sellers may destroy such records in their
discretion. Access to such employees and records shall not unreasonably
interfere with each Seller's or any successor company's business operations.
(b) Following the Closing Date, Purchaser or a Purchaser Subsidiary shall:
(i) allow Sellers, upon reasonable prior notice and during normal business
hours, through their Representatives, the right to (x) examine and make copies,
at Sellers' expense, of the Books and Records transferred to Purchaser or a
Purchaser Subsidiary at the Closing and any other books and records that would
have been included in the Books and Records
61
had they been in existence at the Closing prepared by the Purchaser or any
Affiliate of Purchaser relating to the Business and (y) interview the
Purchaser's or a Purchaser Subsidiary's employees, in the case of either clause
(i)(x) or (i)(y), in connection with Sellers' preparation or examination of
regulatory and statutory filings and financial statements, Sellers' review of
the SLD Revised Closing Statements, the SLDI Revised Closing Statements, or
Sellers' conduct of any regulatory, contract holder, participant or other
dispute resolution whether pending or threatened; and (ii) maintain such Books
and Records for Sellers' examination and copying. Purchaser or a Purchaser
Subsidiary shall maintain and make available to Sellers the Books and Records
for at least three (3) years after the Closing Date or longer if legally
required to do so. Access to such employees, Books and Records shall not
unreasonably interfere with the business operations of Purchaser or its
Affiliates.
5.20 Termination of New Business.
---------------------------
Not later than the later to occur of (i) the first date upon which the
relevant Seller under each Assumed Reinsurance Contract is permitted by the
terms of such Assumed Reinsurance Contract to terminate the reinsurance of new
business thereunder and (ii) the 120th calendar day following the Closing Date,
the Purchaser Subsidiaries shall, in their respective capacities, as
administrator under the SLD Administrative Services Agreement and the SLDI
Administrative Services Agreement effectuate the termination of such Assumed
Reinsurance Contract as to new business in accordance with the terms thereof. In
the event that any Purchaser Subsidiary fails to terminate any Assumed
Reinsurance Contract as to new business as required by the foregoing sentence,
notwithstanding any contrary provision of this Agreement or any Related
Agreement, the relevant Seller shall be permitted to terminate such Assumed
Reinsurance Contract as to new business, and Purchaser shall reimburse Sellers
for any expenses incurred by such Seller in effectuating such termination.
5.21 Non-Compete.
-----------
(a) Non-Compete. In consideration of the benefits of this Agreement and the
Related Agreements to Sellers and in order to induce Purchaser to enter into
this Agreement, Sellers hereby covenant and agree, subject to the exceptions in
Section 5.21(c), that for a period of three (3) years after the Closing Date
(the "Non-Compete Term"), neither Sellers nor any of their Affiliates shall,
without the prior written consent of Purchaser, directly or indirectly, operate,
engage in, manage or own any equity interest in any individual life reinsurance
business (a "Competing Business") in the Restricted Area (as defined below).
(b) Restricted Area. The covenants contained in Section 5.21(a) shall be
construed as a series of separate covenants, one for each county or state of the
United States of America (including its territories and possessions) (together,
the "Restricted Area").
(c) Exceptions. Notwithstanding any other provisions of this Agreement to
the contrary, the provisions of Section 5.21(a) shall not apply to:
62
(i) any Person who becomes an Affiliate of either Seller by virtue of
a Change of Control of ING or any of its subsidiaries except that Section
5.21(a) shall continue to apply to each Seller and its subsidiaries in such
event; or
(ii) any reinsurance agreement or similar arrangement written by an
ING Affiliate other than the Sellers that is limited to reinsuring: (A) the
risk of accidental death under individual life insurance policies; (B)
single premium pre-need life insurance policies; or (C) individual life
insurance policies originating in conjunction with a reinsurance pool
sponsored by Reinsurance Management Associates, Inc.; or
(iii) the management of the Excluded Business; or
(iv) the acquisition of any block of direct insurance business by
means of assumption or indemnity reinsurance; or
(v) any reinsurance transaction with any Affiliate of either Seller or
the reinsurance of the Excluded Undelivered Contracts; or
(vi) any reinsurance of any new business with a Person that is not an
Affiliate of either Seller pursuant to reinsurance arrangements entered
into with such Person at a time when such Person was an Affiliate of such
Seller; or
(vii) any reinsurance arrangement or agreement currently in effect or
that will come into effect pursuant to this Agreement (including without
limitation the Industry Risk Retrocession Agreements); or
(viii) investments in the ordinary course of business by ING, Sellers
or their Affiliates in not more than nine and nine/tenths percent (9.9%) of
the outstanding voting stock or stock equivalents of any entity engaging in
any lines of business constituting a Competing Business;
(ix) any Business recaptured by either Seller pursuant to the
Reinsurance Agreements;
(x) any transaction or transactions, as a result of which ING or any
of its Affiliates acquires any interest in any Person engaging in a
Competing Business, if the total revenues of such Person attributable to
the Competing Business for the fiscal year immediately preceding such
acquisition are less than 20% of such Person's total revenues for the
fiscal year immediately preceding such acquisition, and the retention of
such interest; or
(xi) any transaction or transactions, as a result of which ING or any
of its Affiliates acquires any interest in any Person engaging in a
Competing Business, if the total revenues of such Person attributable to
the Competing
63
Business for the fiscal year immediately preceding such acquisition are
greater than 20% of such Person's total revenues for the fiscal year
immediately preceding such acquisition if ING or its Affiliates as
applicable dispose of such Competing Business within eighteen (18) months
after such acquisition.
5.22 Non-Solicitation.
----------------
(a) Except as otherwise contemplated by Section 5.8 of this Agreement,
Purchaser hereby covenants and agrees that neither it nor any of its Affiliates
shall, for a period of two (2) years from the Closing Date, without the prior
written consent of Sellers, directly or indirectly, solicit for employment,
hire, or enter into an agency or consulting relationship with any personnel
employed by Sellers or their Affiliates engaged in the conduct of the Business,
in each case during such employment and for a period of six (6) months after any
termination thereof.
(b) Each Seller hereby covenants and agrees that neither it nor any of its
Affiliates shall, for a period of two (2) years from the Closing Date, without
the prior written consent of Purchaser, directly or indirectly, solicit for
employment, hire or enter into an agency relationship with, any employee of
Purchaser or its Affiliates engaged in the conduct of the Business, during such
employment and for a period of six (6) months after any termination thereof;
provided, however, that in the event the Business is recaptured by Sellers
pursuant to the Reinsurance Agreements, nothing herein shall prohibit Sellers or
their Affiliates from, directly or indirectly, soliciting for employment, hiring
or entering into an agency relationship with, any employee of Purchaser or its
Affiliates engaged or previously engaged in the conduct of the Business, and
Sellers and their Affiliates shall not be required to obtain Purchaser's written
consent thereto.
(c) Purchaser hereby covenants and agrees that in the event this Agreement
is terminated at any time prior to the Closing, neither it nor any of its
Affiliates shall, for a period of two (2) years from and including the date of
such termination, without the prior written consent of Sellers, directly or
indirectly, solicit for employment, hire or enter into an agency relationship
with, any personnel of either Seller or its Affiliates engaged in the conduct of
the Business.
(d) Nothing in this Section 5.22 shall prohibit any party from hiring any
person who responds to a general solicitation of employment in any newspaper,
magazine, trade publication, electronic medium or other media or from soliciting
or hiring any person whose employment with the other party terminated six (6)
months prior to such solicitation or hiring or was involuntarily terminated by
the other party.
5.23 Enforcement.
-----------
Each of the parties specifically agrees that the covenants contained in
Sections 5.21 and 5.22 are an integral part of the inducement of the respective
parties to enter into this Agreement and that each party (or its successors or
assigns) shall be entitled to injunctive relief in addition to all other legal
and equitable rights and remedies available to it in connection with any breach
by the other party or any of its Affiliates of any
64
provision of Sections 5.21 and 5.22 and that, notwithstanding the foregoing, no
right, power or remedy conferred upon or reserved or exercised by a party in
Sections 5.21 and 5.22 is intended to be exclusive of any other right, power or
remedy, each and every one of which (now or hereafter existing at law, in
equity, by statute or otherwise) shall be cumulative and concurrent.
5.24 Credit Support.
--------------
(a) Purchaser acknowledges that SLDI currently maintains certain credit
instruments (the "ING Facility") for the benefit of SLD in connection with the
Business retroceded by SLD to SLDI (the "Retroceded Business") pursuant to the
reinsurance agreements identified on Schedule 5.24(a) hereto (the "SLD-SLDI
Retrocession Agreements") in the amount required, at any given time, in order to
enable SLD to take full statutory reinsurance reserve credit for the SLD-SLDI
Retrocession Agreements (referred to herein as the "Excess Reserve Amount"). For
the avoidance of doubt and as a guide to the future calculation of the Excess
Reserves Amount, the parties acknowledge and agree that the Excess Reserves
Amount as of June 30, 2004 was $2,265,573,972.00.
(b) Purchaser shall use commercially reasonable efforts to implement one or
more permanent capital relief facilities or financing facilities, including
without limitation trusts or other structured finance alternatives used to
collateralize reinsurance reserve credit, specifically covering the Retroceded
Business and providing reasonably comparable security for SLD as described in
the following sentence (any such facility being referred to herein as a
"Purchaser Facility"). Upon the establishment of any Purchaser Facility and upon
Sellers' review of such Purchaser Facility and reasonable satisfaction that the
documentation relating to such Purchaser Facility provides SLD with security
with respect to the collateral used to obtain such reinsurance reserve credit
that is reasonably comparable in terms of protection against other creditors to
the security provided to SLD by the SLD Security Trust Agreement, the parties
hereto agree to simultaneously (i) cause SLDI to recapture the Retroceded
Business that is covered by such Purchaser Facility (the "Recaptured Business")
from Newco, (ii) cause SLD to recapture the Recaptured Business from SLDI, (iii)
reinsure the Recaptured Business to SRUS or Scottish Re Life or another
Purchaser Affiliate (as specified in the following sentence) under a new
agreement or agreements substantially identical to one or more of the
Reinsurance Agreements (except that it will not include recapture rights), each
of which shall be deemed, for all purposes of this Agreement, to be a
Reinsurance Agreement, and (iv) release assets held in the SLD Security Trust
Account and SLDI Security Trust Account in accordance with the terms of the
relevant trust agreement. If at the time of such recapture and retrocession,
SRUS does not have all Permits necessary to insure that SLD receives full
reinsurance reserve credit in Colorado and New York, and if at such time
Scottish Re Life has all such permits, Scottish Re Life or another Purchaser
Affiliate having all such permits shall (x) reinsure such Recaptured Business
rather than SRUS, and (y) be deemed a Purchaser Subsidiary for all purposes
under this Agreement. If neither SRUS nor Scottish Re Life nor any other
Purchaser Affiliate has all such Permits at such time, SRUS shall reinsure such
Recaptured Business and shall obtain letters of credit, establish reinsurance
reserve credit trusts or take such other actions as will insure that SLD
receives full reinsurance reserve credit for such reinsurance.
65
Purchaser and Sellers acknowledge and agree that, as between the parties, such
recapture and retrocession to SRUS or Scottish Re Life or another Purchaser
Affiliate shall be effectuated in a manner designed to insure that there will be
no net negative economic effect on either Seller or any of their Affiliates.
(c) Purchaser agrees that any time after December 31, 2005, if Purchaser is
preparing to implement a permanent capital relief facility or financing facility
used to collateralize reinsurance reserve credit with a duration longer than one
(1) year that is not a traditional bank financing or one of the facilities
currently being negotiated by Purchaser or one of its Affiliates as identified
on Schedule 5.24(c) (a "Permanent Facility"), prior to implementing such
Permanent Facility Purchaser will ascertain whether, viewed on a cumulative
basis, at least 50% of its Permanent Facilities implemented since December 31,
2005 cover the Retroceded Business. If not, Purchaser shall at SLD's request,
use commercially reasonable efforts to devote at least two-thirds of such
Permanent Facility and of each succeeding Permanent Facility implemented by
Purchaser to the Retroceded Business until the cumulative percentage of the
Permanent Facilities implemented after December 31, 2005 and used to cover the
Retroceded Business is at least fifty percent (50%). Notwithstanding the
foregoing sentence, if Purchaser or any of its Affiliates implements any
Permanent Facility prior to December 31, 2005 for any in-force business acquired
by Purchaser or any of its Affiliates on or after the Closing Date, then
Purchaser shall use commercially reasonable efforts to cause at least fifty
percent (50%) of such Permanent Facility to cover all or a portion of the
Retroceded Business.
(d) As long as the ING Facility covers any of the Retroceded Business after
the Closing Date, Purchaser shall pay to Sellers, quarterly in arrears on the
last Business Day of each calendar quarter, a facility fee (the "Facility Fee")
based on the amount of the Excess Reserves Amount that was covered by the ING
Facility as of the end of the preceding calendar quarter (the "Covered Amount")
equal to:
(A) for any calendar quarter ending in 2004 or 2005, one percent
(1.00%) (calculated on a per annum basis) multiplied by the Covered Amount;
provided that in the event any Retroceded Business is recaptured pursuant
to Sections 5.24(b) and (c) during 2005, Sellers shall pay to Purchaser a
refund equal to seventy-five percent (75%) of the portion of the Facility
Fee payments previously paid by Purchaser with respect to such Recaptured
Business;
(B) for any calendar quarter ending in 2006, one percent (1.00%)
(calculated on a per annum basis) multiplied by the Covered Amount;
provided that in the event any Retroceded Business is recaptured pursuant
to Sections 5.24(b) and (c) during 2006, Sellers shall pay to Purchaser a
refund equal to fifty percent (50%) of the portion of the previous four
Facility Fee payments made by the Purchaser with respect to such Recaptured
Business;
(C) for any calendar quarter ending in 2007, one and one-quarter
percent (1.25%) (calculated on a per annum basis) multiplied by the Covered
Amount; provided that in the event any Retroceded Business is recaptured
66
pursuant to Sections 5.24(b) and (c) during 2007, Sellers shall pay to
Purchaser a refund equal to twenty-five percent (25%) of the portion of the
previous four Facility Fee payments made by the Purchaser with respect to
such Recaptured Business;
(D) for any calendar quarter ending in 2008, one and one-half percent
(1.50%) (calculated on a per annum basis) multiplied by the Covered Amount;
and
(E) for any calendar quarter ending after December 31, 2008, one and
three-quarters percent (1.75%) (calculated on a per annum basis) multiplied
by the Covered Amount.
(e) Purchaser hereby agrees that, so long as the ING Facility covers any of
the Retroceded Business, Sellers and their Affiliates shall have the sole
discretion to make adjustments with respect to the portions of the Excess
Reserves Amount that are secured by the letters of credit within the ING
Facility, any trust or any alternative facility established by Sellers.
5.25 SLD-SLDI Retrocession Agreements.
--------------------------------
Prior to Closing, Sellers shall amend each SLD-SLDI Retrocession Agreement
identified on Schedule 5.24(a) to provide that effective as of the Effective
Time (i) assets held by SLD on funds withheld basis and modified coinsurance
basis pursuant to such SLD-SLDI Retrocession Agreements shall be segregated from
other assets of SLD to the extent reasonably necessary to permit separate
accounting for such assets, (ii) such segregated assets shall not be transferred
to the Purchaser Subsidiaries but shall be managed by Purchaser or an Affiliate
of Purchaser in accordance with an asset management agreement substantially on
the terms generally described in the last sentence of this Section 5.25 (the
"Asset Management Agreement"), and (iii) the investment income to be credited to
SLDI under the SLD-SLDI Retrocession Agreements shall be the actual total net
investment results on such segregated assets, including the amortization of the
interest maintenance reserve with respect to such assets attributable to
transactions effected prior to the Closing. Except as may be required by
Applicable Law, the segregation contemplated by this Section 5.25 shall not
require that such investment assets be legally segregated in a trust, escrow
account or otherwise. Not later than ten (10) calendar days prior to the Closing
Date, the Purchaser shall provide a notice to the Sellers identifying any
Investment Assets that it elects to have retained by SLD and included in the
segregated portfolio contemplated by this Section 5.25. Promptly following the
date of this Agreement, the parties hereto shall negotiate in good faith an
investment management agreement pursuant to which Purchaser or an Affiliate of
Purchaser will manage the segregated assets described in this Section 5.25 in
accordance with all Applicable Law and the investment guidelines attached as
Exhibit U hereto, taking into account the coordination of legal investment
limitations applicable on an entity-wide basis.
5.26 Newco; Keepwell Agreements.
--------------------------
67
(a) Promptly following the date hereof, Purchaser shall use its reasonable
best efforts to form Newco under the laws of Bermuda and cause Newco to be
licensed as a Bermuda insurance company with full power and authority to enter
into this Agreement and any Related Agreement to which it is to be a party.
Prior to Closing, Purchaser shall cause Scottish Annuity & Life to enter into a
capital maintenance or so-called "keepwell" agreement with Newco (the "Newco
Keepwell") substantially in the form set forth in Exhibit Y. Prior to or at the
Closing, Purchaser shall cause Newco to execute a counterpart of this Agreement.
From and after the Closing, Newco shall not engage in any business other than
the operation of any Business it has reinsured pursuant to this Agreement and
any Related Agreement.
(b) If despite Purchaser's reasonable best efforts, Newco is not duly
formed or licensed as a Bermuda insurance company at such time as all other
conditions to Closing set forth in Articles VI and VII have been satisfied,
Sellers may, but shall not be required to, elect to delay the Closing until such
time, if any, as Newco becomes so licensed, in which case Purchaser shall not be
entitled to terminate this Agreement pursuant to Section 8.1(c). Alternatively,
Sellers may, in their sole discretion, require Purchaser to designate another
subsidiary of Purchaser duly licensed as an insurance company (the "Substitute
Newco") to assume the obligations of Newco hereunder and under any Related
Agreement and the other agreements contemplated hereby, subject to the following
conditions: (i) Sellers shall have the right to perform such due diligence on
the proposed Substitute Newco as Sellers deem appropriate in their sole
discretion; and (ii) Purchaser shall cause Scottish Annuity & Life and
Substitute Newco to enter into an agreement identical to the Newco Keepwell, but
naming Substitute Newco as a party thereto. Purchaser shall cause Substitute
Newco to divest itself of all business other than that acquired from Sellers
hereunder not later than the third month after Closing.
(c) In the event Scottish Re Life or another Purchaser Affiliate is
substituted for SRUS pursuant to Section 5.24(b), Purchaser shall also cause
Scottish Annuity & Life to enter into a keepwell agreement with Scottish Re Life
identical to the Net Worth Maintenance Agreement between Scottish Annuity & Life
and SRUS, but naming Scottish Re Life or such other Purchaser Affiliate as a
party thereto.
5.27 Industry Risks Retrocession Arrangement.
---------------------------------------
Effective as of the Effective Time, if a Purchaser Subsidiary that enters
into a Reinsurance Agreement covering any of the individuals for whom the risk
reinsured to such Purchaser Subsidiary under the applicable Reinsurance
Agreement (net of any retrocession by Sellers to any third party reinsurers)
with respect to the life of such individual that, taken together with the risk
assumed by such Purchaser Subsidiary with respect to such individual under other
reinsurance agreements and net of any retrocessions by such Purchaser Subsidiary
to any third party reinsurers, exceeds such Purchaser Subsidiary's retention
limit (i.e., $2 million per life) with respect to any single individual life
(the "Excess Retention Risk"), such Purchaser Subsidiary will retrocede to SLD
the Excess Retention Risk that is known to the parties hereto as of the Closing
Date pursuant to the Industry Risks Retrocession Agreement. Not later than June
30, 2005, Purchaser and Sellers shall mutually identify in good faith any
68
additional Excess Retention Risk based on complete data shown on the Sage
System, and such additional Excess Retention Risk shall be deemed to be included
in the applicable Industry Risks Retrocession Agreement effective as of the
Effective Time until such time as third party retrocessional coverage for such
Excess Retention Risk is in effect pursuant to the following sentence. On and
after the Closing Date, Purchaser and Purchaser Subsidiaries shall use
commercially reasonable efforts to obtain retrocessional coverage on the Excess
Retention Risk to be effective as of the Effective Time, from third party
reinsurers at rates and terms that are, within the reasonable discretion of the
Purchaser Subsidiaries, commercially reasonable.
5.28 Recapture of Certain Business.
-----------------------------
Schedule 5.28 sets forth a list of Insurance Contracts retroceded by SLD to
SLDI under the SLD-SLDI Retrocession Agreements that may be recaptured by SLD in
accordance with this Section 5.28. Not later than thirty (30) calendar days
after the date of this Agreement, Purchaser and Sellers shall in good faith
mutually select those reinsurance contracts to be recaptured from among those
identified on Schedule 5.28. As of the Effective Time, SLD shall recapture such
Insurance Contracts and release SLDI from all obligations and liabilities with
respect thereto. Purchaser and Sellers acknowledge and agree that, as between
the parties, such recapture shall be effectuated in a manner designed to insure
that there will be no net negative economic effect on either Seller or any of
their Affiliates.
5.29 Term Sheets.
-----------
Promptly following the execution of this Agreement, the parties shall
cooperate in good faith to reduce into a definitive agreement each of the term
sheets set forth in the Exhibits hereto such that (i) each of such agreements
required to be filed with any insurance regulator may be filed not later than
November 15, 2004 and (ii) all of such agreements will be ready for execution
not later than December 15, 2004.
5.30 Experience Refunds.
------------------
In the event that all or any portion of any experience refund earned in
calendar year 2004 pursuant to any Retroceded Reinsurance Contract is received
by either Seller prior to Closing, such Seller shall pay the amount so received
to SRUS or Newco, as applicable, at the Closing.
5.31 Certain Unexecuted Reinsurance Contracts.
----------------------------------------
Prior to the Closing, Sellers shall cooperate with Purchaser in providing
all information reasonably requested by Purchaser regarding Unexecuted Assumed
Reinsurance Contracts and Unexecuted Retroceded Reinsurance Contracts that are
not Delivered Unexecuted Assumed Reinsurance Contracts or Delivered Unexecuted
Assumed Reinsurance Contracts, as the case may be (collectively, the
"Undelivered Contracts"). Not later than thirty (30) calendar days following the
Closing Date, Purchaser shall identify in a notice to Sellers any Undelivered
Contracts it elects not to
69
reinsure under the Reinsurance Agreements (the "Excluded Undelivered
Contracts"), the Excluded Undelivered Contracts will not be deemed to be
"Insurance Contracts" for the purposes of this Agreement or the Reinsurance
Agreements. However, Purchaser or a Purchaser Affiliate will administer the
Excluded Undelivered Contracts pursuant to the terms of the SLD Administrative
Services Agreement and the SLDI Administrative Services Agreement, as the case
may be. Appropriate adjustments reflecting the exclusion of the Excluded
Undelivered Contracts, will be made in the Revised Closing Statements and the
Final Closing Statements.
5.32 Investment Portfolio.
--------------------
On or prior to November 3, 2004, Sellers shall have delivered to Purchaser
a list of the Investment Assets in the Initial Portfolio together with a
calculation of the market value for each such Investment Asset in accordance
with the methodologies set forth in Schedule 1.1(b).
ARTICLE VI
Conditions Precedent To The Obligation
--------------------------------------
Of Purchaser To Close
---------------------
Purchaser's obligation to consummate the transactions contemplated by this
Agreement and the Related Agreements 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 Purchaser.
6.1 Representations, Warranties and Covenants.
-----------------------------------------
The representations and warranties of each Seller contained in this
Agreement shall be true and correct on the date of this Agreement 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, and except where the failure to
be true and correct (without regard to any materiality qualifiers therein) would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Each 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 it on or prior to the Closing Date. On the Closing
Date, each Seller shall have delivered to Purchaser a certificate dated as of
the Closing Date, and signed by a senior officer of such Seller, to the effect
contemplated by this Section 6.1.
6.2 Related Agreements.
------------------
The Related Agreements shall have been duly executed and delivered by each
Seller and the Trustee, as applicable, on or prior to the Closing Date and such
agreements
70
shall be in full force and effect with respect to each Seller, as applicable, on
the Closing Date.
6.3 Secretary's Certificates.
-------------------------
Each Seller shall have delivered to Purchaser a certificate of the
secretary or assistant secretary thereof, dated as of the Closing Date, as to
the resolutions of the Board of Directors (or other similar governing body) of
such party authorizing the execution, delivery and performance of this Agreement
and the Related Agreements to which it is a party, as to the status and
signature of each of its officers who executed and delivered this Agreement and
such Related Agreements and any other document delivered by it in connection
with the transactions contemplated by this Agreement and the Related Agreements,
and as to its due incorporation, existence and good standing.
6.4 Approvals and Consents.
----------------------
The approvals and consents of any Governmental Authority listed on Schedule
3.3 and Schedule 4.7 shall have been received or deemed received in each case
without any material conditions, restrictions or limitations. All applicable
waiting periods under any federal or state statute or regulation shall have
expired or been terminated.
6.5 Injunction and Litigation.
-------------------------
There shall be in effect no injunction, writ, preliminary restraining order
or other order issued by any court of competent jurisdiction directing that the
transactions contemplated by this Agreement or the Related Agreements not be
consummated as herein or therein provided.
6.6 Material Adverse Effect.
-----------------------
There shall not have been or occurred any change, event or circumstance
that, individually or in the aggregate with all other changes, events or
circumstances, has had or would reasonably be expected to have a Material
Adverse Effect.
6.7 Sundry Assets.
-------------
Newco shall have received a consent from the Bermuda Monetary Authority for
the treatment of the deferred acquisition cost of SLDI described in Schedule
2.4(b) as a sundry asset.
6.8 New Business Under Assumed Reinsurance Contracts.
------------------------------------------------
Purchaser shall have received a certification from Sellers that as of
November 15, 2004, they have sent notices to each counter-party to each Assumed
Reinsurance Contract terminating such Assumed Reinsurance Contract for new
business.
71
ARTICLE VII
Conditions Precedent To The Obligation
--------------------------------------
Of Sellers To Close
-------------------
Sellers' obligation to consummate the transactions contemplated by this
Agreement and the Related Agreements 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 Sellers.
7.1 Representations, Warranties and Covenants.
-----------------------------------------
The representations and warranties of Purchaser and each Purchaser
Subsidiary contained in this Agreement shall be true and correct on the date of
this Agreement 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,
and except where the failure to be true and correct (without regard to any
materiality qualifiers therein) would not reasonably be expected to impair,
individually or in the aggregate, the ability of Purchaser or any Purchaser
Subsidiary to perform its obligations under this Agreement and the Related
Agreements. Purchaser and each Purchaser Subsidiary 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 Purchaser or such Purchaser
Subsidiary on or prior to the Closing Date. On the Closing Date, Purchaser shall
have delivered to Sellers a certificate dated as of the Closing Date, and signed
by a senior officer of Purchaser, to the effect contemplated by this Section
7.1.
7.2 Related Agreements.
------------------
The Related Agreements shall have been duly executed and delivered by
Purchaser or a Purchaser Subsidiary and the Trustee, as applicable, on or prior
to the Closing Date and such agreements shall be in full force and effect with
respect to Purchaser or such Purchaser Subsidiary.
7.3 Secretary's Certificates.
-------------------------
Purchaser and each Purchaser Subsidiary shall have delivered to Sellers a
certificate of the secretary or assistant secretary of Purchaser and such
Purchaser Subsidiary, dated as of the Closing Date, as to the resolutions of the
Board of Directors (or other similar governing body) of Purchaser or such
Purchaser Subsidiary authorizing the execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party, as to the status
and signature of each of its officers who executed and delivered this Agreement
and the Related Agreements and any other document delivered by it in connection
with the transactions contemplated by this Agreement and the Related Agreements
and as to its due incorporation, existence and good standing.
72
7.4 Approvals and Consents.
----------------------
The approvals and consents of any Governmental Authority listed in Schedule
3.3 and Schedule 4.7 shall have been received or deemed received in each case
without any material conditions, restrictions or limitations. All applicable
waiting periods under any federal or state statute or regulation shall have
expired or been terminated.
7.5 Injunction and Litigation.
-------------------------
There shall be in effect no injunction, writ, preliminary restraining order
or any order of any nature directing that the transactions contemplated by this
Agreement and the Related Agreements not be consummated as herein or therein
provided.
7.6 Purchaser Financial Condition.
-----------------------------
There shall not have been any material adverse change in the financial
condition of Purchaser, Scottish Annuity & Life or any Purchaser Subsidiary, and
Purchaser, Scottish Annuity & Life and each Purchaser Subsidiary shall be
solvent and paying its obligations in the ordinary course of business.
7.7 Purchaser Financing.
--------------------
Purchaser shall have completed a financing pursuant to which the
consolidated statutory surplus of its insurance subsidiaries will be increased
by at least $150 million, raised in the form of common stock, ordinary shares,
warrants or convertible securities sold by Purchaser or an Affiliate of
Purchaser, without giving effect to the transactions contemplated by this
Agreement.
7.8 Newco.
-----
Newco shall have been duly formed and licensed as a Bermuda insurance
company, and the keepwell agreements contemplated by Section 5.26 shall be in
full force and effect.
ARTICLE VIII
Termination
-----------
8.1 Termination of Agreement.
-------------------------
This Agreement may be terminated at any time prior to the Closing:
(a) By Sellers in writing, without liability (except as provided in Section
8.2), if Purchaser or any Purchaser Subsidiary shall (i) fail to perform in any
material respect its agreements contained herein required to be performed by it
prior to the date of such termination, or (ii) breach any of its representations
or warranties contained herein so as to cause a condition to closing to be
incapable of satisfaction, which failure or breach is
73
not cured within thirty (30) calendar days after Sellers have notified Purchaser
in writing of their intent to terminate this Agreement pursuant to this
subsection (a) of Section 8.1.
(b) By Purchaser in writing, without liability (except as provided in
Section 8.2), if Sellers shall (i) fail to perform in any material respect their
agreements contained herein required to be performed by them prior to the date
of such termination, or (ii) breach any of their representations or warranties
contained herein so as to cause a condition to closing to be incapable of
satisfaction, which failure or breach is not cured within thirty (30) calendar
days after Purchaser has notified Sellers in writing of its intent to terminate
this Agreement pursuant to this subsection (b) of Section 8.1.
(c) By Purchaser (except as provided in Section 5.26(b)) or Sellers if the
Closing has not occurred on or before March 31, 2005 (the "End Date").
(d) At any time on or prior to the Closing Date, by mutual written consent
of Sellers and Purchaser.
(e) By either Sellers or Purchaser in the event of the issuance of a final,
nonappealable order restraining or prohibiting the transactions contemplated by
this Agreement and the Related Agreements.
8.2 Procedure on Termination.
-------------------------
In the event of termination of this Agreement pursuant to Section 8.1
hereof, notice of termination shall be given pursuant to the notice provisions
herein, and the transactions contemplated by this Agreement shall be terminated
without further action by any party except that the provisions of Sections 5.2,
11.1, 11.2, 11.3, 11.5, 11.6, 11.8 and 11.9 shall remain in full force and
effect. If the transactions contemplated by this Agreement are terminated as
provided herein:
(a) such termination shall not in any way limit or restrict the rights and
remedies of any party hereto against any other party which has breached any of
the representations, warranties, covenants, agreements or other provisions of
this Agreement prior to termination hereof; and
(b) any confidentiality obligations of the parties (arising under this
Agreement or under any other confidentiality agreement entered into by Seller
and Purchaser, including, but not limited to, the Confidentiality Agreement)
shall survive the termination of this Agreement.
ARTICLE IX
Tax Matters
-----------
9.1 Tax Matters.
-----------
(a) Sellers (or any Affiliate thereof) agree to indemnify and hold harmless
Purchaser (and any Affiliate thereof) against the following Taxes and against
any Loss
74
incurred in contesting or otherwise in connection with any such Taxes: (i) any
Excluded Tax Liability; or (ii) any Taxes relating to any breach by Sellers (or
any Affiliate thereof) of a warranty or representation or any covenant of this
Agreement. Purchaser (or any Affiliate thereof) agrees to indemnify and hold
harmless Sellers (or any Affiliate thereof) against the following Taxes and
against any Loss incurred in contesting or otherwise in connection with any such
Taxes: (i) any Taxes relating to the Business or the Transferred Assets other
than any Excluded Tax Liability; or (ii) any Taxes relating to any breach by
Purchaser (or any Affiliate thereof) of a warranty or representation or any
covenant of this Agreement.
(b) Sellers (or any Affiliate thereof) and Purchaser (or any Affiliate
thereof) will provide each other with such assistance and information relating
to the Business or the Transferred Assets as may reasonably be requested in
connection with the preparation and filing of any Tax rulings or request for
rulings with respect to Taxes, Tax Returns (or amendments thereto), audit or
other examination by any Tax Authority relating to liability for Taxes,
determining a liability for Taxes, or making representations to or furnishing
information to parties subsequently desiring to purchase all or a part of the
Business or the Transferred Assets, and will each retain and provide to the
other party all records and other information which may be relevant to any such
Tax Return, audit or examination, proceeding or determination, provided that
such cooperation shall not include providing copies of relevant Tax Returns or
portions thereof, accompanying schedules, or related work papers. In addition,
Sellers (on the one hand) and Purchaser (on the other) agree to timely notify
the other party of any proposed Tax Claims that reasonably could directly and
materially affect the Taxes of the other party (and any Affiliate thereof) for
any Tax period (or portion thereof) beginning after the Closing Date.
(c) Sellers shall pay fifty percent (50%) and Purchaser shall pay fifty
percent (50%) of all Transfer Taxes arising out of or in connection with the
transactions effected pursuant to this Agreement, and shall indemnify, defend,
and hold harmless Purchaser or Sellers (as the case may be) with respect to such
Transfer Taxes. Sellers (or any Affiliate thereof) shall use their commercially
reasonable efforts to obtain Tax clearance certificates from the appropriate Tax
Authorities prior to the Closing Date or as soon as practicable thereafter, and
Purchaser shall cooperate with Sellers in obtaining such certificates. Sellers
(or any Affiliate thereof) shall within ninety (90) calendar days after the
Closing Date, file any Transfer Tax Returns required as a result of the transfer
to Purchaser (or any Affiliate thereof) of the Business or the Transferred
Assets. Purchaser shall remit fifty percent (50%) of the Taxes shown on such Tax
Returns (or the amount of any additional Transfer Taxes attributable to any
adjustment with respect to any such Tax Returns by any Tax Authority) to Sellers
within ten (10) calendar days of its receipt of a copy of such Tax Returns (or
evidence of the payment by Sellers of such additional Transfer Taxes).
(d) Notwithstanding any provision in this Agreement to the contrary, the
obligations of Sellers (and any Affiliate thereof) to indemnify and hold
harmless Purchaser (and any Affiliate thereof) pursuant to this Agreement with
respect to Taxes or any Losses related thereto, shall terminate at the close of
business on the 30th calendar
75
day following the expiration of any applicable statute of limitations (giving
effect to any waiver, mitigation or extension thereof).
(e) The parties agree to treat all payments made either to or for the
benefit of the other under this Section 9.1 and Article X as adjustments to the
consideration provided in Sections 2.4 and 2.5 of this Agreement and that such
treatment shall govern for purposes hereof, except to the extent that the Laws
of a particular jurisdiction provide otherwise, in which case such payments
shall be made in an amount sufficient to indemnify the relevant party on an
after-Tax basis, 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.
(f) The rights and obligations of each Party with respect to providing
notice regarding any Tax matters shall be governed by Section 10.3 and control
over any claim for Taxes made by a Tax Authority shall be determined as provided
under Section 10.3.
(g) All powers of attorney granted by Sellers (or any Affiliate thereof)
with respect to the Business or the Transferred Assets that could affect the
Business or the Transferred Assets after the Closing Date shall terminate
immediately prior to the Closing and shall have no force or effect as of the
Closing Date. Any Tax Sharing Agreement that relates to the Transferred Assets
and that could affect the Business or the Transferred Assets after the Closing
Date shall be terminated immediately prior to the Closing and such agreements
will have no force or effect as of such time and no amounts will be due or
payable by Purchaser (or any Affiliate thereof) or Sellers (or any Affiliate
thereof) with respect to any such agreements.
ARTICLE X
Indemnification
---------------
10.1 Sellers' Indemnification.
------------------------
Subject to the limitations set forth in Section 10.4, from and after the
Closing Date, each Seller, severally and not jointly, shall indemnify, defend
and hold Purchaser, each of its Affiliates and each of their respective
directors, officers and employees (the "Purchaser Indemnified Parties") harmless
from and against any Loss arising or resulting from:
(a) any breach of any representation or warranty made by such Seller
contained in this Agreement or from any misrepresentation in any certificate
furnished or to be furnished to Purchaser hereunder by such Seller;
(b) any breach of any covenant of such Seller contained in this Agreement;
(c) the Retained Liabilities of such Seller; and
76
(d) any successful enforcement of the obligations contained in this Section
10.1 against such Seller.
For the purposes of this Section 10.1, the Purchaser Indemnified Parties
shall not have the right to obtain indemnification, or to make a claim for
breach of any other provision of this Agreement or to any other remedy at law or
in equity with respect to any matter that was the subject of a dispute submitted
to, and specifically resolved by, the Independent Accountant pursuant to Section
2.5 or that was resolved by written agreement of the parties hereto pursuant to
the terms of Section 2.5.
10.2 Purchaser's Indemnification.
--------------------------
Subject to the limitations set forth in Section 10.4, from and after the
Closing, each Purchaser Subsidiary, severally and not jointly, and Purchaser
jointly and severally with each Purchaser Subsidiary shall indemnify, defend and
hold Sellers, each of their Affiliates and their respective directors, officers
and employees harmless from and against any Loss resulting from:
(a) any breach of any representation or warranty contained in this
Agreement on the part of Purchaser or any Purchaser Subsidiary or from any
misrepresentation in any certificate furnished or to be furnished to Sellers
hereunder;
(b) any breach of any covenant of Purchaser or any Purchaser Subsidiary
contained in this Agreement;
(c) the Assumed Liabilities (to the extent that the relevant Loss resulting
from the Assumed Liabilities does not relate to a breach of any representation
or warranty by Sellers contained in this Agreement or in any certificate
furnished by Sellers hereunder;) and
(d) any successful enforcement of the obligations contained in this Section
10.2.
For the purposes of this Section 10.2, Sellers shall not have the right to
obtain indemnification, or to make a claim for breach of any other provision of
this Agreement or to any other remedy at law or in equity with respect to any
matter that was the subject of a dispute submitted to, and specifically resolved
by, the Independent Accountant pursuant to Section 2.5 or that was resolved by
written agreement of the parties hereto pursuant to the terms of Section 2.5.
10.3 Indemnification Procedures.
--------------------------
(a) Promptly after receipt from any third party by a party hereto (the
"Indemnified Party") of a notice of any demand, claim or circumstance that,
immediately or with the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (a "Claim") that may result in a Loss for which indemnification
may be sought hereunder, the Indemnified Party shall give notice thereof (the
"Claims Notice") to the party obligated to provide
77
indemnification pursuant to Section 10.1 or 10.2 (the "Indemnifying Party");
provided, however, that a failure to give such notice shall not prejudice the
Indemnified Party's right to indemnification hereunder except to the extent that
the Indemnifying Party is actually prejudiced thereby. The Claims Notice shall
describe the Claim in reasonable detail, and shall indicate the amount
(estimated, if necessary) of the Loss that has been or may be suffered by the
Indemnified Party.
(b) The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel reasonably satisfactory to the Indemnified Party,
any Claim. If the Indemnifying Party elects to compromise or defend such Claim,
it shall, within a reasonable time following its 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 Claim for so long as the Indemnifying Party continues
to conduct the defense against or compromise of such Claim in good faith. The
Indemnified Party shall have the right to employ separate counsel in defense of
such Claim and participate in such defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Indemnified Party; provided that
such fees and expenses shall be at the expense of the Indemnifying Party in the
event that (i) the Indemnifying Party has not employed counsel to represent the
Indemnified Party within a reasonable period of time or (ii) the use of counsel
of the Indemnifying Party's choice would reasonably be expected to give rise to
a conflict of interest. If the Indemnifying Party elects not to compromise or
defend the Claim, fails to notify the Indemnified Party of its election as
herein provided or contests its obligation to provide indemnification under this
Agreement, the Indemnified Party may pay, compromise or defend such Claim.
Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnified Party may settle or compromise any Claim without the consent of the
other party; provided, that such consent to settlement or compromise shall not
be unreasonably withheld, conditioned or delayed; further provided, the
Indemnifying Party may, without the Indemnified Party's prior written consent,
compromise or settle any Claim or consent to entry of any judgment with respect
to any Claim which requires solely money damages paid by the Indemnifying Party
(without any right of reimbursement or other recourse to the Indemnified Party),
and which includes as an unconditional term thereof the release by the claimant
or the plaintiff of the Indemnified Party from all liability in respect of such
Claim. If the Indemnifying Party chooses to defend any Claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
10.4 Indemnification Limits.
----------------------
(a) Required payments by an Indemnifying Party pursuant to this Article X
shall be limited to the amount of any Loss remaining after deducting therefrom
(i) any insurance proceeds received by the Indemnified Party on account of the
Loss, (ii) any realized Tax benefit to the Indemnified Party, and (iii) any
indemnity, contribution, or other similar payment received by any Indemnified
Party from any third party, in each case with respect to such Loss. The
Indemnified Party shall use commercially reasonable efforts to collect all such
indemnity, contribution or other similar payments.
78
(b) Except for the representations and warranties contained in Sections
3.1, 3.2, 3.4(b), 3.4(c), 3.4(d), 3.5(b), 3.5(c), 3.7(a), 4.1, and 4.2, all
representations and warranties made by Sellers and Purchaser in Articles III and
IV of this Agreement or in any document, certificate, schedule or instrument
delivered or executed in connection herewith shall survive the Closing for the
period of eighteen (18) calendar months after the Closing Date, whereupon they
shall expire, and all claims for inaccuracy or breach of said representations
and warranties will be deemed waived unless notice of the inaccuracy or breach
thereof shall have been given to the breaching party prior to the expiration of
said eighteen (18)-month period, in which event such representation or warranty
shall survive to the extent of the claim referred to in the notice until such
claim has been resolved. The representations and warranties in Sections 3.1,
3.2, 3.7(a), 4.1, and 4.2 shall continue in perpetuity. To the extent that the
representations and warranties contained in Sections 3.4(b), 3.4(d) and 3.5(b)
relate to the amount of Reserves, they shall expire at Closing; otherwise, the
representations and warranties contained in Sections 3.4(b), 3.4(d) and 3.5(b)
shall survive the Closing for the period of eighteen (18) calendar months after
the Closing Date, whereupon they shall expire, and all claims for inaccuracy or
breach of said representations and warranties will be deemed waived unless
notice of the inaccuracy or breach thereof shall have been given to the
breaching party prior to the expiration of said eighteen (18)-month period, in
which event such representation or warranty shall survive to the extent of the
claim referred to in the notice until such claim has been resolved. The
representations and warranties in Sections 3.4(c) and 3.5(c) shall not survive
the Closing. All covenants and agreements made by the parties to this Agreement
which contemplate performance following the Closing Date, including without
limitation, the covenants and agreements contained in Section 5.8, shall survive
the Closing Date. All other covenants and agreements shall not survive the
Closing Date and shall terminate as of the Closing to the extent that such
covenants were performed in accordance with their terms. All claims arising
under Sections 10.1(c) and 10.2(c) shall survive indefinitely.
(c) Sellers shall have no obligation to indemnify Purchaser under Section
10.1(a) for breach of any representation or warranty made by Sellers under
Article III until Losses arising from such breaches which would otherwise be
indemnifiable hereunder incurred by Purchaser exceed $7,000,000, and thereafter
Sellers shall be responsible only for the excess of such aggregate amount over
$7,000,000; provided, however, that in no event shall the aggregate of all
indemnifiable claims paid by Sellers to Purchaser under Section 10.1(a) exceed
$150,000,000. The limitations on amount set forth in this Section 10.4(c) shall
not apply to limit recovery by Purchaser for indemnification under Section
10.1(b), 10.1(c) or 10.1(d).
(d) Purchaser shall have no obligation to indemnify Seller under Section
10.2(b) for breach of any representation or warranty made by Purchaser under
Article IV until Losses arising from such breaches which would otherwise be
indemnifiable hereunder incurred by Purchaser exceed $7,000,000, and thereafter
Sellers shall be responsible only for the excess of such aggregate amount over
$7,000,000; provided, however, that in no event shall the aggregate of all
indemnifiable claims paid by Purchaser to Sellers under Section 10.2(a) exceed
$150,000,000. The limitations on
79
amount set forth in this Section 10.4(d) shall not apply to limit recovery by
Sellers for indemnification under Section 10.2(b), 10.2(c) or 10.2(d).
10.5 Exclusive Remedy.
----------------
The parties hereto expressly acknowledge that (i) except with respect to
intentional fraud and except as provided in Article IX, the provisions of this
Article X shall be the sole and exclusive remedy for Losses caused as a result
of breaches of the representations, warranties and agreements contained in this
Agreement, except that the parties shall not be limited to the remedies provided
in this Article X with respect to any agreements to be performed after the
Closing Date and except that the remedies of injunction and specific performance
shall remain available to the parties hereto, and (ii) no Indemnifying Party
shall be liable or responsible to any other party hereto or its Affiliates for
punitive, incidental, consequential or multiplied damages, in accordance with
Section 11.9.
10.6 Tax Losses.
----------
Any Losses with respect to Taxes shall be subject to indemnification solely
pursuant to the provisions of Article IX, and the provisions of this Article X
(other than Section 10.3) shall not apply to such Losses.
ARTICLE XI
Miscellaneous Provisions
------------------------
11.1 Notices.
-------
Any notice, request or other communication to be given by any party
hereunder shall be in writing and shall be delivered personally, sent by
registered or certified mail, postage prepaid, by overnight courier with written
confirmation of delivery. Any such notice shall be deemed given when so
delivered personally, or if mailed, on the date shown on the receipt therefor,
or if sent by overnight courier, on the date shown on the written confirmation
of delivery. Such notices shall be given to the following address:
To Sellers: Security Life of Denver Insurance Company
Security Life of Denver International Limited
Attention: Mark Tullis
c/o ING North America Insurance Corporation
5780 Powers Ferry Road NW
Atlanta, GA 30327
With a concurrent
copy to: B. Scott Burton
Corporate General Counsel
80
ING North America Insurance Corporation
5780 Powers Ferry Road NW
Atlanta, GA 30327
and
David A. Massey, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Ave., NW
Washington, DC 20004-2415
To Purchaser: Scottish Re Group Limited
Scottish Annuity & Life Insurance Company (Cayman) Ltd.
Newco
Crown House, Third Floor
4 Par-la-ville Road
Hamilton HM 08 Bermuda
Scottish Re (U.S.) Inc.
Scottish Re Life Corporation
13840 Ballantyne Corporate Place, Suite 500
Charlotte, NC 28277
Attention: Paul Goldean, Esq.
With a copy to: Hugh T. McCormick, Esq.
Stephen G. Rooney, Esq.
LeBoeuf, Lamb, Greene & MacRae, LLP
125 West 55th Street
New York, NY 10019
11.2 Sole Agreement.
--------------
This Agreement may not be amended or modified in any respect whatsoever
except by instrument in writing signed by the parties hereto. This Agreement,
the Related Agreements and the Confidentiality Agreement, and other documents
delivered pursuant hereto, constitute the entire agreement among the parties
hereto and their respective Affiliates with respect to the subject matter hereof
and supersede all prior negotiations, discussions, writings and agreements
between them with respect thereto.
11.3 Successors and Assigns.
----------------------
The rights and obligations of the parties under this Agreement shall not be
subject to assignment and any attempted assignment shall be invalid ab initio.
The terms of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by and against the successors of the parties hereto.
81
11.4 Captions.
--------
The captions of this Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
11.5 Governing Law and Jurisdiction.
------------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts entered into therein,
without reference to principles of choice of law or conflicts of laws. Each
party hereto irrevocably and unconditionally submits to the exclusive
jurisdiction of any State or Federal Court sitting in New York, over any suit,
action or proceeding arising out of or relating to this Agreement. Each party
hereto agrees that service of any process, summons, notice or document by U.S.
registered mail addressed to such party shall be effective service of process
for any action, suit or proceeding brought against such party in such court.
Each party hereto irrevocably and unconditionally waives any objection to the
laying of venue of any such suit, action or proceeding brought in any such court
and any claim that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum. Each party hereto agrees that final
judgment in any such action, suit or proceeding brought in any such court shall
be conclusive and binding upon such party and may be enforced in any other
courts to whose jurisdiction such party may be subject, by suit upon such
judgment.
11.6 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. For the
avoidance of doubt, nothing in this Agreement shall be construed to give any
Business Employee or former employee of Sellers or their Affiliates or any
beneficiary thereof of any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
11.7 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. Each counterpart may
be delivered by facsimile transmission, which transmission shall be deemed
delivery of an originally executed document.
11.8 Severability.
------------
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms
82
or provisions of this Agreement in any other jurisdiction, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. If any provision of this
Agreement is so broad as to be unenforceable, that provision shall be
interpreted to be only so broad as is enforceable.
11.9 Waiver of Jury Trial; Multiplied and Punitive Damages.
-----------------------------------------------------
Each of the parties hereto irrevocably waives, with respect to any first
party action filed by the other party (but not as to any action by one party
against the other seeking indemnification for a third party claim against the
party initiating the action, to the extent that such damages may be recoverable
as part of the indemnification by the indemnified party) (i) any and all right
to trial by jury, and (ii) any right to punitive, incidental, consequential or
multiplied damages, either pursuant to common law or statute, in any legal
proceedings arising out of or related to this Agreement or the transactions
contemplated hereby.
11.10 Purchaser Guaranty.
------------------
In consideration of the substantial benefits accruing to each Purchaser
Subsidiary under this Agreement, Purchaser hereby unconditionally guarantees the
prompt performance when due of all obligations of each Purchaser Subsidiary in
Article X. Sellers shall not be required to make any demand upon, or deliver any
notice to, any Purchaser Subsidiary in order for Sellers to enforce their rights
against Purchaser under this Section 11.10. Purchaser's obligation under this
Section 11.10 shall continue in full force and effect subject to any amendment
or waiver of any provision of this Agreement.
11.11 ING Guaranty and Covenant.
-------------------------
(a) In consideration of the substantial benefits accruing to each Seller
under this Agreement, ING hereby unconditionally guarantees the prompt
performance when due of all obligations of each Seller in Article X. The
Purchaser Subsidiaries shall not be required to make any demand upon, or deliver
any notice to, either Seller in order for the Purchaser Subsidiaries to enforce
their rights against ING under this Section 11.11. ING's obligation under this
Section 11.11 shall continue in full force and effect subject to any amendment
or waiver of any provision of this Agreement.
(b) Until such time as all of the Retroceded Business has been recaptured
by SLD and ceded to SRUS as contemplated by Section 5.24, ING shall cause SLDI
to take such actions as may be necessary to insure that SLD receives full
reinsurance reserve credit for such Business.
83
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day
and year first set forth above.
SELLERS: SECURITY LIFE OF DENVER INSURANCE
COMPANY
By: /s/ Mark A. Tullis
-------------------------------
Name: Mark A. Tullis
Title: President
SECURITY LIFE OF DENVER
INTERNATIONAL LIMITED
By: /s/ David S. Pendergrass
-------------------------------
Name: David S. Pendergrass
Title: Vice President
PURCHASER: SCOTTISH RE GROUP LIMITED
By: /s/ Scott Willkomm
-------------------------------
Name: Scott Willkomm
Title: President
ING America Insurance Holdings, Inc. hereby executes this Agreement solely for
purposes of Section 11.11.
ING AMERICA INSURANCE HOLDINGS, INC.
By: /s/ B. Scott Burton
- -------------------------------
Name: B. Scott Burton
Title: Corporate General Counsel & Assistant Secretary
84
PURCHASER SUBSIDIARIES:
SCOTTISH RE (U.S.), INC.
By: /s/ Oscar R. Scofield
-------------------------------
Name: Oscar R. Scofield
Title: Chairman & CEO President
DATE: ___________ [NEWCO]
By:______________________________
Name:
Title:
Scottish Annuity & Life hereby executes this Agreement solely for purposes of
Section 5.26.
SCOTTISH ANNUITY & LIFE INSURANCE COMPANY (CAYMAN) LTD.
By: /s/ Scott Willkomm
- -------------------------
Name: Scott Willkomm
Title: President
Scottish Re Life Corporation hereby executes this Agreement solely for purposes
of Section 5.24.
SCOTTISH RE LIFE CORPORATION
By: /s/ Oscar R. Scofield
--------------------------
Name: Oscar R. Scofield
Title: President & CEO
85