Exhibit 99.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 2,
2001, is among SUN LIFE ASSURANCE COMPANY OF CANADA, a Canadian insurance
corporation (the "Purchaser"), and LIBERTY FINANCIAL COMPANIES, INC., a
Massachusetts corporation ("LFC"), and LIBERTY FINANCIAL SERVICES, INC., a
Massachusetts corporation ("LFS" and, together with LFC, the "Companies").
BACKGROUND
A. LFC or LFS owns all of the issued and outstanding shares of capital
stock of each of the entities set forth on Schedule A (collectively, the
"Purchased Subsidiaries"). The Purchased Subsidiaries, together with their
direct and indirect subsidiaries engaged in the annuity and retail distribution
businesses and set forth in Schedule A (such subsidiaries, together with the
Purchased Subsidiaries, the "Subsidiaries") operate the annuity and retail
distribution segments of LFC's business (the "Business").
B. The Companies wish to sell, and the Purchaser wishes to buy, all of
the outstanding shares of capital stock of the Purchased Subsidiaries, on the
terms and conditions set forth herein (the "Sale"). The Board of Directors of
the Purchaser has duly approved the Sale. The Board of Directors and the sole
stockholder of LFS have duly approved the Sale.
C. Simultaneously with the execution of this Agreement, (i) the
Purchaser and LFC are entering into a transition services and indemnification
agreement (the "Transition Services Agreement") pursuant to which, among other
things, LFC has agreed to indemnify the Purchaser from and against any losses
suffered by the Purchaser arising from past or future operations of LFC's asset
management segment and to provide the Purchaser with certain services for a
transition period following the consummation of the Closing (as defined below),
(ii) the Purchaser, Liberty Mutual Insurance Company ("LMIC") and LFC are
entering into a license agreement with respect to the transitional use of the
"Liberty" name and logo (the "License Agreement"), (iii) LMIC and the Purchaser
are entering into an agreement with respect to the indemnification by LMIC of
the Purchaser for certain tax-related liabilities (the "LMIC Indemnification
Agreement") and (iv) Liberty Life Assurance Company of Boston ("Liberty Life")
and the Purchaser are entering into certain agreements relating to certain
reinsurance and related matters (collectively, with the additional agreement
referred to in the next following sentence, the "Liberty Life Agreement"). In
addition, LMIC and the Purchaser have agreed to enter into a certain guarantee
agreement pertaining to certain contingent liabilities not later than the
Closing (the "Liberty Life Guarantee").
D. Simultaneously with the execution of this Agreement, LMIC is
entering into a voting and support agreement pursuant to which, among other
things, LMIC has agreed to vote all shares of LFC common stock that it holds in
favor of the Sale.
E. Immediately before the Closing, all of the stock of Liberty Advisory
Services Corp. ("LASC") will be distributed to LFC in a transaction that is
intended for federal income tax purposes to qualify as a step in a plan of
complete liquidation.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the Purchaser and the
Companies hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Subject to the terms and conditions hereof, at the
Closing (as defined below), the Companies shall sell, transfer, assign and
deliver to the Purchaser, and the Purchaser shall purchase from the Companies
all outstanding shares of capital stock of each Purchased Subsidiary (the
"Purchased Securities"), free and clear of all mortgages, security interests,
claims, pledges, liens, charges and encumbrances (the "Encumbrances"), other
than restrictions under applicable securities and insurance laws and other than
those created by the Purchaser. Notwithstanding the foregoing, the Purchaser
acknowledges that the three shares of Keyport Life Insurance Company described
on Section 3.2 of the Disclosure Schedule are held by the nominee holders
described therein and shall be transferred at the Closing to the nominal holders
designated by the Purchaser as contemplated by Section 5.12.
1.2 PAYMENTS AT CLOSING. At the Closing, the Purchaser shall pay to the
Companies an aggregate purchase price for the Purchased Securities equal to
US$1,702,000,000 (the "Purchase Price") by wire transfer of immediately
available funds to an account designated in writing by the Companies to the
Purchaser not less than two Business Days prior to the Closing Date.
1.3 CLOSING. Subject to and in accordance with this Agreement, the
consummation of the Sale (the "Closing") will take place at Choate, Hall &
Stewart, Exchange Place, 53 State Street, Boston, Massachusetts, on the third
Business Day (as defined below) (the "Closing Date") after satisfaction or
waiver of the conditions set forth in Article 6, other than those conditions
that relate to actions to be taken at the Closing. As used herein, the term
"Business Day" shall mean any day other than a Saturday, Sunday or other day on
which banks in Boston, Massachusetts or Toronto, Ontario are not open for
business.
1.4 DELIVERIES AT CLOSING BY THE COMPANIES. At the Closing, and upon
satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.2, the
Companies will deliver or cause to be delivered to the Purchaser the
instruments, certificates and other documents required of it by Section 6.3.
1.5 DELIVERIES AT CLOSING BY THE PURCHASER. At the Closing, and upon
satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.3, the
Purchaser will deliver or cause to be delivered to the Companies the Purchase
Price and the instruments, certificates and other documents required of it by
Section 6.2.
1.6 SECTION 338(H)(10) ELECTION.
(a) The Purchaser will join with the Companies in making an election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder (and any corresponding elections under
state, local or foreign law) with respect to the purchase of the capital stock
of all of the Subsidiaries (collectively, the "Section 338(h)(10) Election").
All Section 338 Forms will be prepared by the Companies, subject to written
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approval by the Purchaser. The Companies shall submit any such Section 338 Forms
to the Purchaser at least ten (10) days prior to its due date for review and
approval. "Section 338 Forms" shall mean all returns, documents, statements and
other forms that are required to be submitted to any federal, state, county or
other local taxing authority in connection with a Section 338(h)(10) Election,
including without limitation, any "statement of Section 338 election" and IRS
Form 8023 (together with any schedules or attachments thereto) that are required
pursuant to applicable Treasury Regulations.
(b) The allocation of the "adjusted deemed sale price" as defined in
Treasury Regulation section 1.338-4(b) among the Subsidiaries shall be made in
accordance with Sections 338 and 1060 of the Code and any comparable provisions
of state, local or foreign law, as appropriate. The procedures for creating a
schedule setting forth such allocation shall be as follows (the "Allocation
Schedule"): (i) the Companies shall prepare and deliver the Allocation Schedule
to the Purchaser no later than ninety (90) days after the date of the Closing
(the "Delivery Date"); the Purchaser shall have thirty (30) days from the date
the Companies deliver the Allocation Schedule to the Purchaser to review the
Allocation Schedule and provide reasonable written comments on such Allocation
Schedule (the "Purchaser's Comments"); if the Purchaser does not deliver to the
Companies the Purchaser's Comments within thirty (30) days after the day that
the Companies deliver the Allocation Schedule to the Purchaser, the Purchaser
will be deemed to have accepted and agreed to the allocations made on the
Allocation Schedule; (ii) if the Companies do not deliver the Allocation
Schedule to the Purchaser prior to midnight Eastern Time on the Delivery Date,
then the Purchaser shall prepare the Allocation Schedule and will deliver the
Allocation Schedule to Companies within sixty (60) days after the Delivery Date;
the Companies shall have thirty (30) days from the date the Purchaser delivers
the Allocation Schedule to the Companies to review the Allocation Schedule and
provide reasonable comments on such Allocation Schedule (the "Companies'
Comments") to the Purchaser; if the Companies do not deliver to the Purchaser
the Companies' Comments within thirty (30) days after the day the Purchaser
delivers the Allocation Schedule to the Companies, the Companies will be deemed
to have accepted and agreed to the allocations made on the Allocation Schedule
by the Purchaser. In case of any disagreement with respect to allocation, the
parties agree to work in good faith to resolve their differences with respect to
the Allocation Schedule no later than 210 days after the date of the Closing.
The Companies and Purchaser shall report, act and file in all respects and for
all purposes consistent with the Allocation Schedule that they agree upon.
(c) The Companies shall be responsible for and shall pay all Taxes (as
defined below) of the Subsidiaries arising as a result of (i) any Section
338(h)(10) Election filed by Purchaser and the Companies or (ii) the
distribution from LASC to Keyport Life Insurance Company referred to in Section
4.1(e) of this Agreement (the "LASC Distribution"); provided that the aggregate
liabilities of the Companies under clause (i) shall not exceed the sum of (A)
the federal income tax that is imposed on "Old T", as a result of the
transaction that is deemed to occur under Treasury Regulation section
1.338(h)(10)-1(d)(3) as a result of the parties filing a Section 338(h)(10)
Election, plus (B) any state income tax due on any comparable or resulting
election under state law, or the application of the Section 338(h)(10) Election
to the calculation of state taxable income. The Companies and the Purchaser
agree that a joint election will be made under Treasury Regulation section
1.848-2(g)(8), relating to the capitalization of specified policy acquisition
expenses with respect to a reinsurance transaction without regard to the general
deduction limitations of Section 848(c)(1) of the Code.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Companies that:
2.1 ORGANIZATION AND QUALIFICATION. The Purchaser is an entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all requisite power and authority to carry on
its business as now conducted or contemplated to be conducted and is, or will
cause the actual purchaser to be, an entity that is eligible to make a Section
338(h)(10) Election. The Purchaser is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing that would not, individually or in the aggregate, reasonably be
expected to materially impair the ability of the Purchaser to perform its
obligations hereunder.
2.2 AUTHORITY. The Purchaser has the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Purchaser, and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized by
the Board of Directors of the Purchaser and no other corporate proceedings on
the part of the Purchaser (including without limitation shareholder actions) are
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Purchaser and constitutes a legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject with respect to enforceability to the effect of bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or similar laws
now or hereafter affecting the enforcement of creditors' rights generally and to
the availability of equitable remedies.
2.3 COMPLIANCE.
(a) Neither the execution and delivery of this Agreement by the Purchaser,
nor the consummation by the Purchaser of the transactions contemplated hereby
nor compliance by the Purchaser with any of the provisions hereof will (i)(x)
violate, conflict with or result in a breach of any provision of the charter
documents or by-laws of the Purchaser or (y) violate, conflict with, or result
in a breach of any provision of, or constitute a default (or an event that, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the material properties or assets of the Purchaser or
any other material direct or indirect subsidiary of the Purchaser under any
note, bond, mortgage, indenture, deed of trust, license, lease, or other
agreement, instrument or obligation to which the Purchaser is a party, or to
which any of them, or any of their respective properties or assets, may be
subject, or (ii) subject to the exceptions and compliance with the statutes and
regulations referred to in the next paragraph, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to the
Purchaser or any of its properties or assets; except, in the case of each of
clauses (i)(y) and (ii) above, for such
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violations, conflicts, breaches, defaults, terminations, accelerations or
creations of Encumbrances that would not, individually or in the aggregate,
reasonably be expected to materially impair the ability of the Purchaser to
perform its obligations hereunder.
(b) Other than in connection with or in compliance with the provisions of
the Massachusetts Business Corporation Law ("MBCL"), the Securities Act of 1933,
as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other applicable securities laws, state banking
laws, "takeover" or "blue sky" laws of various states, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the
"Hart-Scott-Rodino Act"), the insurance laws and regulations of Rhode Island and
New York and such other states that have regulatory jurisdiction over the
insurance activities of the Insurance Subsidiaries (as defined below) or the
Purchaser or its subsidiaries, and the rules and regulations of the New York
Stock Exchange, Canadian securities commissions, The Toronto Stock Exchange, the
London Stock Exchange, the Philippines Stock Exchange, the National Association
of Securities Dealers, Inc. (the "NASD") and other applicable self-regulatory
organizations, the Insurance Companies Act (Canada) and the rules and
regulations of the Office of the Superintendent of Financial Institutions
(Canada) and the Minister of Finance (Canada) (each of such laws, rules or
regulations being referred to as the "Applicable Laws"), no notice to, filing
with, or authorization, consent or approval of, any domestic or foreign public
body or authority (each a "Government Entity") or any governmental or
non-governmental self-regulatory organization or agency is necessary for the
consummation by the Purchaser of the transactions contemplated by this
Agreement, unless the failure to give such notices, make such filings, or obtain
such authorizations, consents or approvals would not, individually or in the
aggregate, reasonably be expected to materially impair the ability of the
Purchaser to perform its obligations hereunder.
2.4 CERTAIN REGULATORY FILINGS.
(a) The information supplied in writing by the Purchaser for inclusion in
the proxy statement of LFC to be mailed to LFC's Stockholders in connection with
their authorization of the Sale (the "Proxy Statement"), on the date the Proxy
Statement is filed with the Securities and Exchange Commission (the "SEC"), on
the date the Proxy Statement is first sent or given to security holders, and on
the date of the meeting of LFC's Stockholders, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Purchaser
agrees to provide in writing all information concerning the Purchaser and its
affiliates required to be included in the Proxy Statement under the Exchange Act
and the rules and regulations thereunder. The Purchaser agrees promptly to
correct such information if and to the extent that such information shall have
become false or misleading in any material respect.
(b) The information with respect to the Purchaser included in the Form A
(Statement Regarding the Acquisition of Control or Merger with a Domestic
Insurer) ("Form A"), to be filed with the Division of Insurance of the
Department of Business Regulation of the State of Rhode Island (the "Rhode
Island DBR") with respect to Keyport Life Insurance Company and Independence
Life and Annuity Company and in the separate Form A to be filed with the New
York State Insurance Department (the "New York DOI") with respect to Keyport
Benefit Life
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Insurance Company will be prepared in accordance with the applicable regulations
of Rhode Island or New York, as the case may be, and will be true, correct and
complete in all material respects.
2.5 BROKER'S FEES. Except for Banc of America Securities LLC (the fees of
which shall be paid by the Purchaser), no agent, broker, person or firm acting
on behalf of the Purchaser is or will be entitled to any financial advisory,
commission or broker's or finder's fee from any of the parties hereto in
connection with any of the transactions contemplated herein.
2.6 FINANCING. At the Closing the Purchaser will have immediately available
funds sufficient to consummate the Sale and to fulfill its obligations
hereunder. The Purchaser understands that there is no financing condition to the
obligations of the Purchaser hereunder.
2.7 LITIGATION. There is no suit, action or legal, administrative,
arbitration or order, proceeding or governmental investigation pending or, to
the knowledge of the Purchaser, threatened, to which the Purchaser is a party
which, considered individually or in the aggregate, would reasonably be expected
to materially impair the Purchaser's ability to perform its obligations under
this Agreement. For purposes of this Section 2.7 and all certificates and other
documents delivered in connection herewith, the terms "Purchaser's knowledge,"
"knowledge of the Purchaser," "Purchaser's best knowledge," "best knowledge of
the Purchaser" and similar phrases shall mean the actual knowledge (after giving
effect to things actually forgotten) of the President, Executive Vice
President--U.S. Operations, Chief Financial Officer (U.S.) or Chief Counsel
(U.S.) of the Purchaser.
2.8 TAXES. The Purchaser (including any assignee of the Purchaser pursuant
to Section 8.5(a)) is or will be at the Closing eligible to, and has or will
have, the authority to consent to the Section 338(h)(10) Election and similar
state elections with respect to this transaction. The Purchaser represents that
it has no plan or intention to liquidate or dissolve or transfer the shares of
the Subsidiaries to any entity that is not treated as a corporation for federal
income tax purposes.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES
The Companies, jointly and severally, represent and warrant to the
Purchaser that except as set forth on a disclosure schedule previously delivered
to the Purchaser (the "Disclosure Schedule") (it being understood that the
disclosure of any fact or item in a section of the Disclosure Schedule shall be
deemed to modify only the corresponding section of this Agreement and other
sections of this Agreement to the extent it is explicit from a reading of the
disclosure that the disclosure is applicable to such other sections):
3.1 ORGANIZATION AND QUALIFICATION. Each of the Companies is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its organization and has all requisite corporate power and authority to
carry on its business as it is now being conducted or contemplated to be
conducted.
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3.2 SUBSIDIARIES. Section 3.2 of the Disclosure Schedule sets forth for
each Subsidiary and for any entity in which any Subsidiary has any direct or
indirect ownership (excluding ownership interests held in entities that are not
subsidiaries in connection with Subsidiary Investing (as such term is defined
below)) interest (a) its name and jurisdiction of organization and (b) the
amount of capital stock or other equity interests authorized, issued and
outstanding and the names of the record holders thereof. No securities of any of
the Subsidiaries are or may become required to be issued by reason of any
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any Subsidiary. There are no contracts,
commitments, understandings or arrangements by which any Subsidiary is bound to
purchase shares of its capital stock (or its equivalent) or securities
convertible into or exchangeable for such shares or similar interests and there
are no agreements or understandings to which any of the Companies or any
Subsidiaries is a party with respect to voting the capital stock (or its
equivalent) of any Subsidiary. All of the outstanding capital stock of each
Subsidiary has been and is duly authorized, validly issued, fully paid and
non-assessable and, other than the Purchased Securities, are held beneficially
and of record by a Subsidiary, free and clear of any Encumbrances of any kind,
other than restrictions under applicable securities and insurance laws and other
than those created by the Purchaser; provided, however, that the Purchaser
acknowledges and agrees that (i) the shares of Keyport Life Insurance Company
described on Section 3.2 of the Disclosure Schedule are held by the nominee
holders described therein and (ii) the shares of the Subsidiaries marked with an
asterisk on Schedule A are held by the nominee holders described on Section 3.2
of the Disclosure Schedule. The Purchased Securities are owned by LFC or LFS,
beneficially and of record, free and clear of any Encumbrances of any kind other
than restrictions under applicable securities and insurance laws and other than
those created by the Purchaser. Each Subsidiary is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has the requisite power and
authority to carry on its business as it is now being conducted. Each Subsidiary
is duly qualified to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except for failures to be so
qualified or in good standing that would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect (as
defined below). Copies of the charter documents, by-laws and corporate record
books of each Subsidiary have heretofore been made available to the Purchaser
and are accurate and complete as of the date hereof.
For purposes of this Agreement, "Company Material Adverse Effect" shall
mean any change, effect or circumstance that (A) is or would reasonably be
expected to be materially adverse to the assets, condition (financial or
otherwise), business, operations or results of operations of the Subsidiaries
taken as a whole or (B) would prevent the performance by the Companies of their
respective obligations under this Agreement or would reasonably be expected to
delay the performance by the Companies of their respective obligations under
this Agreement beyond the Outside Date (as defined below), other than (1)
changes, effects or circumstances that (x) result from changes in general
economic or debt or equity market conditions or (y) are the result of factors
generally affecting the annuity industry or are the result of any changes in any
regulation or statute that has or would reasonably be expected to have an
industry-wide effect, or (2) changes in generally accepted accounting principles
or changes in laws or regulations or the interpretation thereof by courts or any
Government Entity; provided that in the case of either
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clause (1) or (2), such changes, effects or circumstances would not reasonably
be expected to result in a materially more adverse effect on the assets,
condition (financial or otherwise), business, operations or results of
operations of the Subsidiaries taken as a whole, as compared to the effects
generally on other annuity businesses. Notwithstanding the foregoing, (i)
Company Material Adverse Effect shall not include any adverse change, effect or
circumstance arising out of or resulting from actions contemplated by the
parties in connection with this Agreement (including, without limitation, any
adverse change, effect or circumstance arising as a result of compliance with
Section 4.1 of this Agreement) or that is attributable to the announcement,
pending status or performance of this Agreement (including, without limitation
the fact that the subsidiaries of LFC other than the Subsidiaries are not being
sold to the Purchaser) and (ii) any adverse change in LFC's stock price shall
not be taken into account in determining whether there has been a Company
Material Adverse Effect.
3.3 AUTHORITY.
(a) Each of the Companies has all requisite corporate power and authority
to enter into this Agreement, subject to the approval of LFC's Stockholders
referred to in Section 3.18 of this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
(b) Each of the Companies' boards of directors and the sole stockholder of
LFS have duly adopted resolutions (i) authorizing the execution and delivery of
this Agreement by such Company and the consummation by such Company of the
transactions contemplated hereby and (ii) approving the Sale. LFC's Board of
Directors has, in addition, duly adopted resolutions (i) determining that the
Sale is fair to, advisable and in the best interests of LFC's Stockholders, (ii)
recommending authorization of the Sale by LFC's Stockholders, and (iii) making
the findings required by Section 4.07 of the Indenture dated as of November 1,
1998, between LFC and State Street Bank and Trust Company, as trustee.
(c) Except for the approval of LFC's Stockholders referred to in Section
3.18 of this Agreement, no further corporate proceedings on the part of any of
the Companies are necessary to authorize the execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
(d) This Agreement has been duly executed and delivered by each of the
Companies and constitutes a legal, valid and binding obligation of each of the
Companies, enforceable against each of the Companies in accordance with its
terms, subject with respect to enforceability to the effect of bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or similar laws
now or hereafter affecting the enforcement of creditors' rights generally and to
the availability of equitable remedies.
3.4 COMPLIANCE.
(a) Neither the execution and delivery of this Agreement by the Companies,
nor the consummation by the Companies of the Sale, nor compliance by the
Companies with any of the provisions hereof will (i)(x) violate, conflict with,
or result in a breach of any provision of the charter or by-laws of any of the
Companies or any of the Subsidiaries, or (y) provided that all
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notices, filings, authorizations, consents and approvals contemplated by
Sections 3.4(b) and 5.7 or otherwise set forth in Section 3.4(a) of the
Disclosure Schedule (collectively, the "Necessary Consents") have been obtained
prior to the Closing, violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event that, with notice or lapse of
time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance or payment required by, or result in a right
of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of any of the Companies or any
of the Subsidiaries, under any note, bond, mortgage, indenture, deed of trust,
license, lease, joint venture agreement or any other agreement, instrument or
obligation to which any of the Companies or any of the Subsidiaries is a party
or to which any of them or any of their respective properties or assets may be
subject or (ii) subject to the requirement to obtain the Necessary Consents,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to any of the Companies or the Subsidiaries or any of
their respective properties or assets; except, in the case of each of clauses
(i)(y) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of Encumbrances that would not,
individually or in the aggregate, reasonably be expected to result, individually
or in the aggregate, in a Company Material Adverse Effect.
(b) Other than in connection with or in compliance with the provisions of
Applicable Laws, no notice, filing with, or authorization, consent or approval
of, any Government Entity or any governmental or non-governmental
self-regulatory organization or agency is necessary for the consummation by the
Companies of the transactions contemplated by this Agreement, unless the failure
to give such notices, make such filings, or obtain such authorizations, consents
or approvals would not, individually or in the aggregate, materially impair the
ability of the Companies to perform their respective obligations hereunder and
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect. As of the date hereof, neither of the
Companies is aware of any reason why such requisite governmental approvals could
not be obtained.
3.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Each of LFC and Keyport Life Insurance Company has filed with the SEC
all required reports, schedules, forms, statements and other documents required
to be filed under the Exchange Act from January 1, 1999 through the date hereof.
All documents (including exhibits and financial statement schedules) filed by
the LFC and Keyport Life Insurance Company with the SEC pursuant to the
Securities Act or the Exchange Act from January 1, 1999 through the date hereof
are referred to herein as the "Prior SEC Filings". The Prior SEC Filings (i)
comply in all material respects with the applicable requirements of the Exchange
Act and the rules and regulations thereunder, (ii) did not at the time they were
filed contain, or have been amended to correct, any untrue statement of material
fact, (iii) did not at the time they were filed omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or have been amended to correct any such
omission, and (iv) in the event of subsequent modifications of the circumstances
or the basis on which they had been made, were, to the extent required by the
Securities Act or Exchange Act, amended in order to make them not misleading in
any material respects in the light of such new circumstances or basis.
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(b) Each of the most recent audited consolidated financial statements and
most recent unaudited interim consolidated financial statements (including, in
each case, any related notes or schedules) included in the Prior SEC Filings was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, except as may be indicated therein or in the notes or
schedules thereto, and fairly presented in all material respects the
consolidated financial position of LFC and its subsidiaries or Keyport Life
Insurance Company and its subsidiaries, as the case may be, as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and the absence of complete
notes (to the extent permitted by SEC rules).
(c) The information supplied in writing by the Companies with respect to
the Companies or the Subsidiaries for inclusion in the Form A to be filed with
the Rhode Island DBR and the Form A to be filed with the New York DOI and any
other insurance regulatory filings will be true, correct and complete in all
material respects.
(d) The Proxy Statement and any written information provided by or on
behalf of the Companies which is included in the Proxy Statement, on the date
the Proxy Statement is filed with the SEC, and on the date the Proxy Statement
is first published, sent or given to security holders and on the date of the
meeting of LFC's Stockholders will comply in all material respects with the
provisions of applicable federal securities laws and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, provided that no
representation or warranty is made pursuant to this Section 3.5(d) with respect
to any written information provided by or on behalf of the Purchaser for
inclusion in the Proxy Statement. LFC agrees promptly to correct the Proxy
Statement if and to the extent that it shall have become false or misleading in
any material respect (provided that, with respect to any false or misleading
information provided by or on behalf of the Purchaser for inclusion in the Proxy
Statement, the Purchaser shall have provided the Companies with correct
information) and the Companies shall take all steps necessary to cause the Proxy
Statement as so corrected to be filed with the SEC and mailed to LFC's
Stockholders to the extent required by the Exchange Act.
3.6 LITIGATION. Except as disclosed in Section 3.6 of the Disclosure
Schedule, as of the date of this Agreement there are no actions, suits,
proceeding or investigations pending or, to the knowledge of the Companies,
threatened against any of the Subsidiaries or their respective properties or
assets, nor are any of the Subsidiaries subject to any order, judgment, writ,
injunction or decree.
3.7 CHANGES. Except as specifically set forth in or contemplated by this
Agreement, in Section 3.7 of the Disclosure Schedule or as disclosed in the
Prior SEC Filings, since December 31, 2000, (a) each of the Subsidiaries has
conducted its business in all material respects only in the ordinary course of
business and in a manner consistent with past practice, (b) there has not been
any event, change or effect that, individually or in the aggregate, has resulted
or would reasonably be expected to result in a Company Material Adverse Effect
and (c) none of the Companies or the Subsidiaries has taken any of the actions
specified in Section 4.1(b).
10
3.8 TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section 3.8 of the
Disclosure Schedule or the Prior SEC Filings or as set forth in or contemplated
by this Agreement, since January 1, 1999, none of the Subsidiaries has entered
into any transaction (a) with any current director or officer of the Companies
or of any Subsidiary or any transaction which would be subject to proxy
statement disclosure under the Exchange Act pursuant to the requirements of Item
404 of Regulation S-K, or (b) with LMIC or its affiliates (other than the
Subsidiaries) pursuant to which the consideration in such transaction exceeded
or is reasonably likely to exceed US$500,000. Except for the transactions
subject to the Liberty Life Agreement, there are no insurance, reinsurance or
other indemnification arrangements existing between any Subsidiary and any
affiliate of any Subsidiary other than another Subsidiary.
3.9 EMPLOYEE BENEFITS AND CONTRACTS.
(a) Except as set forth in Section 3.9(a) of the Disclosure Schedule, none
of the Subsidiaries is a party to any collective bargaining agreement and there
is no certified or recognized collective bargaining agent for any employees of
any Subsidiary. As of the date hereof, no claim of representation (as such term
is defined in the National Labor Relations Act) is being made, no representation
proceeding is pending or, to the knowledge of the Companies, threatened, and no
organizing campaign is in progress or, to the knowledge of the Companies,
threatened, involving employees of any Subsidiary.
(b) Section 3.9(b) of the Disclosure Schedule lists all "employee benefit
plans" (as such term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all material bonus, stock
option, stock purchase, restricted stock, incentive, deferred compensation,
retiree medical or life insurance, supplemental retirement, severance or other
benefit plans, programs or arrangements, and all material employment,
termination, severance or other contracts or agreements to which any of the
Companies or any Subsidiary is a party, with respect to which any of the
Companies or any Subsidiary has any obligation or contingent obligation or which
are maintained, contributed to or sponsored by any of the Companies or any
Subsidiary for the benefit of any employee, officer or director or former
employee, officer or director of any Subsidiary or in which any current or
former employee of any Subsidiary is eligible to participate (collectively, the
"Company Benefit Plans"). Each of the Company Benefit Plans complies and has
been administered in form and operation in all material respects with all its
terms and requirements of ERISA, the Code, the regulations and other published
authority thereunder and all other applicable law, except to the extent the
failure to so comply would reasonably be expected to result in a Company
Material Adverse Effect. No transaction prohibited by Sections 406 or 407 of
ERISA and no "prohibited transaction" (as such term is defined in Section
4975(c) of the Code) has occurred with respect to any Company Benefit Plan that,
individually or in the aggregate, would reasonably be expected to result in a
Company Material Adverse Effect. The Companies and each Subsidiary have
performed all of their obligations under the Company Benefit Plans, including
but not limited to, the full payment of all amounts required to be made as
contributions to such plans or otherwise, except for failures to so perform that
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect.
(c) Each Company Benefit Plan intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service (the
11
"IRS") confirming such qualification and which covers all amendments to such
plan for which the remedial amendment period (within the meaning of Section
401(b) of the Code and applicable regulations) has expired and nothing has
occurred that would cause the loss of such qualification. Except as set forth in
Section 3.9(c) of the Disclosure Schedule, none of the Companies or any
Subsidiary or any of their ERISA Affiliates (as defined below) participate in or
has any obligation to contribute to a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA. Except as set forth in Section 3.9(c) of the Disclosure
Schedule, there are no material unfunded obligations under any Company Benefit
Plan providing benefits after termination of employment to any employee, officer
or director or former employee, officer or director of any of the Subsidiaries,
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code (collectively, the "Deferred Compensation
Obligations"). The Deferred Compensation Obligations have been accrued on the
books of the appropriate Subsidiaries in accordance with generally accepted
accounting principles. For purposes of this Agreement, the term "ERISA
Affiliate" means, with respect to either of the Companies or any Subsidiary, any
corporation, trade or business that, together with the Companies or any
Subsidiary, as applicable, is a member of a controlled group of corporations or
a group of trades or businesses under common control within the meaning of
Section 414 of the Code.
(d) Except as provided in Section 5.10, neither the execution of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will:
(i) except as set forth in Section 3.9(d)(i) of the Disclosure
Schedule, accelerate the time of payment or vesting, or increase the amount, of
compensation or benefits due under any Company Benefit Plan;
(ii) constitute or result in a prohibited transaction with respect to
any Company Benefit Plan under Section 4975 of the Code or Section 406 or 407 of
ERISA for which an exemption is not available; or
(iii) except as provided in the Liberty Financial Companies, Inc. and
Subsidiaries Non-Commissioned Employee Severance and Retention Plan and the
Liberty Financial Companies, Inc. and Subsidiaries Commissioned Employees
Severance and Retention Plan (together, the "Retention Plan"), constitute a
deemed severance or deemed termination under any Company Benefit Plan or under
any applicable law.
(e) Except for the payments required to be made under, and the acceleration
of vesting of stock options and restricted common stock provided in, the
Retention Plan with respect to those persons listed on Section 3.9(e) of the
Disclosure Schedule, none of the Companies or any Subsidiary is obligated to
make any "excess parachute payment", as defined in Section 280G(b)(1) of the
Code, nor will any excess parachute payment be deemed to have occurred as a
result of or arising out of any of the transactions contemplated by this
Agreement.
(f) There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against the Company Benefit Plans or their
assets, or arising out of such plans, and, to the Companies' knowledge, no facts
exist which could give rise to any such
12
actions, suits or claims, that would, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.
(g) Each Company Benefit Plan which is an employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) has been duly authorized by the
appropriate board of directors of the Companies or the participating Subsidiary,
as the case may be. Each such plan is qualified in form and operation under
Section 401(a) of the Code and each trust under each such plan is exempt from
tax under Section 501(a) of the Code and, to the Companies' knowledge, is not
subject to any excise tax under the Code, except to the extent any failure to be
so qualified or so exempt would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect. To the
Companies' knowledge, no event has occurred that will or could give rise to
disqualification or loss of tax-exempt status of any such plan or any trust
established in connection with any Company Benefit Plan under such sections. To
the Companies' knowledge, no event has occurred that will or could subject any
such plans or trusts to tax under Section 501(a) of the Code.
(h) With respect to each Company Benefit Plan maintained for employees of
the Subsidiaries or any of their ERISA Affiliates, there has occurred no failure
to meet the minimum funding standard of Section 412 of the Code (whether or not
waived in accordance with Section 412(d) of the Code) or failure to make by its
due date a required installment under Section 412(m) of the Code, except for
such failures that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
(i) With respect to each Company Benefit Plan in which any Subsidiary or
any ERISA Affiliate participates and which is subject to Title IV of ERISA,
except for matters which would not, individually or in the aggregate, reasonably
be expected to result in a Company Material Adverse Effect:
(i) neither any Subsidiary nor any ERISA Affiliate has withdrawn from
such plan during a plan year in which it was a "substantial employer" (as such
term is defined in Section 4001(a)(2) of ERISA) where such withdrawal could
result in liability of such substantial employer pursuant to Section 4062(e) or
4063 of ERISA;
(ii) except as set forth on Section 3.9(i)(ii) of the Disclosure
Schedule, neither any Subsidiary nor any ERISA Affiliate has filed a notice of
intent to terminate any such plan or adopted to treat any such plan as
terminated;
(iii) the Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate such plan;
(iv) no other event or condition has occurred which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any such plan;
(v) no accumulated funding deficiency, whether or not waived, exists
with respect to any such plan, and no condition has occurred or exists which by
the passage of time would be expected to result in an accumulated funding
deficiency as of the last day of the current plan year of any such plan;
13
(vi) no reportable event, as described in Section 4043 of ERISA, has
occurred with respect to any such plan;
(vii) no excise taxes are payable under the Code; and
(viii) no amendment with respect to which security is required under
Section 307 of ERISA has been made or is reasonably expected to be made.
(j) There has been no act or omission by the Companies, any Subsidiary or
any ERISA Affiliate that has given rise to or may give rise to fines, penalties,
taxes or related charges under ERISA Sections 502(c), 502(i), 502(l) or 4071, or
Chapters 43, 47, 68 or 100 of the Code, except to the extent that they would
not, individually or in the aggregate, reasonably be expected to result in a
Company Material Adverse Effect.
(k) A true and correct copy of each of the Company Benefit Plans and all
contracts relating thereto, including, without limitation, all trust agreements,
insurance contracts, administration contracts, investment management agreements,
subscription and participation agreements, and recordkeeping agreements, each as
in effect on the date hereof, has been made available to the Purchaser. In the
case of a Company Benefit Plan which is not in written form, an accurate
description in written form of such Company Benefit Plan as in effect on the
date hereof has been made available to the Purchaser. A true and correct copy of
the most recent annual report, actuarial report, accountant's opinion of the
plan's financial statements, summary plan description and Internal Revenue
Service determination letter with respect to each Company Benefit Plan has been
made available to the Purchaser.
3.10 LIENS. The assets (whether personal or mixed and whether tangible or
intangible) of the Subsidiaries reflected in the balance sheet of LFC for the
fiscal year ended December 31, 2000 included in the LFC's Annual Report on Form
10-K (the "Balance Sheet") or acquired in the ordinary course of business since
December 31, 2000 (except those assets sold or disposed of in the ordinary
course of business), are free and clear of all Encumbrances, other than (A) as
reflected in the Balance Sheet (including the notes thereto) or as set forth in
Section 3.10 of the Disclosure Schedule and (B) Encumbrances on assets that
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect.
3.11 TAXES.
(a) Except for matters that would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect, the
Companies and each Subsidiary have timely filed all material tax returns,
statements, reports and forms required to be filed with any tax authority having
jurisdiction over the Companies or any Subsidiary (collectively, "Tax Returns")
and have paid when due all Taxes owed by the Companies and any Subsidiary
(whether or not shown on any such Tax Returns) to any such tax authority. There
are no liens on any of the assets of the Companies or any Subsidiary that arose
in connection with any failure (or alleged failure) to pay any Tax except for
liens that would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect. The term "Tax" shall mean (i)
any federal, state, local or foreign or other taxes, fees, duties, assessments,
withholdings, royalties or governmental charges of any kind whatsoever
(including interest,
14
penalties, additions to tax or additional amounts with respect to such items);
(ii) any liability for payment of amounts described in clause (i) as a result of
transferee liability, of being a member of an affiliated, consolidated, combined
or unitary group for any period, or otherwise through operation of law; and
(iii) any liability for payment of amounts described in clause (i) or (ii) as a
result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person for Taxes.
(b) Except as provided in Section 3.11(b) of the Disclosure Schedule, no
dispute or claim concerning any Tax liability of the Companies or any Subsidiary
has been claimed or raised by any authority in writing nor to the Companies'
knowledge, otherwise, except for matters that would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect.
(c) Except as provided in Section 3.11(c) of the Disclosure Schedule, as of
the date hereof, none of the Companies or any Subsidiary has waived any statute
of limitations in respect of material Taxes or agreed to any extension of time
with respect to a material Tax assessment or deficiency.
(d) Except as set forth in Section 3.11(d) of the Disclosure Schedule, no
Subsidiary has any liability for the Taxes of any person (other than the
Companies and the Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise, except for liabilities that would not, individually
or in the aggregate, reasonably be expected to result in a Company Material
Adverse Effect.
(e) (i) The Companies have made available to the Purchaser a copy of any
Tax-sharing, allocation or indemnity agreement or arrangement involving the
Companies or any of the Subsidiaries and a description of any such unwritten or
informal agreement or arrangement; (ii) all Taxes required to be withheld,
collected or deposited by the Companies or any Subsidiary have been timely
withheld, collected or deposited and, to the extent required, have been paid to
the relevant Tax authority; and (iii) the Companies and each Subsidiary are in
compliance with respect to all backup withholding and information reporting
requirements in the Code and the regulations thereunder, including, but not
limited to all necessary due diligence mailings and the proper and timely filing
of Forms W-3, except in the case of clauses (ii) and (iii) for such instances of
non-compliance that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
(f) The amounts accrued on the books and financial statements of each
Subsidiary for Taxes, whether or not due and payable, imposed on or with respect
to the operations or assets of such Subsidiary for all periods (or portions
thereof) ending on or before the date hereof are sufficient for payment of all
Taxes payable for such periods, except to the extent any failure would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Each Subsidiary shall continue to determine and reserve
for Taxes for purposes of the accrual of such amounts on the books and financial
statements of such Subsidiary in a manner that is consistent with the procedure
in effect at the time the provision for Taxes by such Subsidiary for purposes of
the most recent financial statements was determined,
15
and no amount will be paid, accrued or reserved for Taxes by such Subsidiary as
a result of the transaction contemplated hereby or the Section 338(h)(10)
Election.
(g) As of the date hereof, there are no record retention agreements in
effect between any Subsidiary and any tax authority.
(h) All tax reserves for life insurance and annuity contracts have been
properly calculated and reflected on the Tax Returns filed by the Insurance
Subsidiaries (as defined below), except to the extent any failure to do so would
not, individually or in the aggregate, reasonably be expected to result in a
Company Material Adverse Effect.
(i) Except as set forth in Section 3.11(i) of the Disclosure Schedule, (i)
no Insurance Subsidiary is required to include any adjustment pursuant to
Section 807(f) of the Code for any period ending after the Closing Date nor has
any taxing authority proposed such adjustment, (ii) as of the date hereof, no
Subsidiary is required, or has agreed, to make any adjustment under Section 481
of the Code (or any similar provision of state, local or foreign law) as a
result of any change of accounting method, and no application is pending with
any governmental authority requesting permission for any change in accounting
methods relating to or affecting the Companies or any Subsidiary, (iii) none of
the assets of the Subsidiaries is "tax exempt use property" within the meaning
of Section 168(h) of the Code, (iv) none of the Companies or any Subsidiary has
filed a consent under Section 341(f) of the Code (or corresponding provision of
state, local or foreign law) concerning collapsible corporations, and (v) the
Section 338(h)(10) Election will not trigger deferred intercompany gains in any
of the Subsidiaries.
(j) Except as set forth in Section 3.11(j) of the Disclosure Schedule, no
Subsidiary has (i) received any tax ruling relating to or affecting it from any
governmental authority, or (ii) executed or entered into a closing agreement
relating to or affecting any of the Subsidiaries pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar provision of any state,
local or foreign law.
(k) The Companies are eligible to and have the authority to consent to the
Section 338(h)(10) Election and similar state elections with respect to this
transaction.
3.12 COMPLIANCE WITH LAWS; PERMITS. None of the Subsidiaries (a) is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances or regulations (including any rules or regulations of any
governmental or non-governmental self-regulatory organization or agency), (b)
since January 1, 1999, has received any notice from any governmental or
non-governmental self-regulatory organization or agency or any Government Entity
or any other person that such Subsidiary is in violation of, or has violated,
any applicable provisions of any laws, statutes, ordinances or regulations or
(c) has any officers, directors or employees who, since January 1, 1999, have
been the subject of any disciplinary proceedings or enforcement order arising
under any applicable provisions of any laws, statutes, ordinances or regulations
(including any rules or regulations of any non-governmental self-regulatory
organization or agency) that would be required to be, but has not been,
disclosed on Form ADV or BD, and no such disciplinary proceeding or proceedings
for the issuance of any enforcement order is pending or threatened, except in
the case of each of clauses (a), (b) and (c) for violations or alleged
violations that would not, individually or in the aggregate, reasonably be
expected to result in a
16
Company Material Adverse Effect. Each of the Subsidiaries has all federal, state
and local approvals, registrations, consents, certificates, filings, notices,
rights, permits, licenses and franchises from Governmental Entities necessary
for the lawful ownership and use of its properties and assets or required to
conduct its business as now being conducted, except for such approvals,
registrations, consents, certificates, filings, notices, rights, permits,
licenses and franchises the absence of that would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. Each Subsidiary whose activities require registration as an insurance
company or an insurance agency is duly licensed or authorized as an insurance
company or insurance agency, as the case may be, (i) in its jurisdiction of
incorporation and (ii) except for failures to be so licensed or authorized that
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect, in each other jurisdiction where the nature
of its business (including the type of business written, sold, produced or
managed) requires it to be so licensed or authorized. The Insurance Subsidiaries
are, collectively, licensed or authorized to write or conduct business in each
of the 50 United States in which they issue policies, and the business actually
written or conducted by each Insurance Subsidiary is in conformity with such
licenses or authorizations, except for failures that would not, individually or
in the aggregate, reasonably be expected to result in a Company Material Adverse
Effect. Keyport Financial Services Corp. ("KFSC") is duly registered or licensed
as a broker-dealer under the Exchange Act and all other applicable securities
and "blue sky" laws and is a member in good standing of the NASD, except for
failures to be so registered, licensed or authorized or be in good standing that
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect. KFSC is registered or licensed to conduct
business as a broker-dealer in each of the 50 United States in which it offers
its services and the business actually conducted by it is in conformity with
such licenses or authorizations, except for failures that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Each Subsidiary has made all filings required to be
made by it under applicable regulatory requirements since December 31, 1999, and
all such filings have complied with the applicable regulatory requirements,
except for such failures that would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect. To the
Companies' knowledge, no Subsidiary or any associated person is subject to a
statutory disqualification that could be the basis for a suspension, revocation
or limitation of the license of, or ability to obtain a license for such
Subsidiary, except for such failures that would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. To the Companies' knowledge, subject to the requirement to make filings
with and provide notice of the Sale to Governmental Entities, including state
insurance commissions, and to the receipt of the Necessary Consents, the
consummation of the transactions contemplated by this Agreement will not
terminate any of the material licenses held by any Subsidiary. Subject to
receipt of the Necessary Consents, the consummation of the transactions
contemplated by this Agreement will not result in any revocation, cancellation,
limitation or suspension of any such approval, permit, registration, consent,
certificate, filing, notice, right, license and franchise, except for such
revocations, cancellations, limitations and suspensions that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Financial Centre Insurance Agency, Inc. does not hold
or possess, and has not received or applied for, any approval, permit,
registration, consent, certificate, filing, notice, right, license or franchise
currently used in or related to the Business.
17
3.13 INTELLECTUAL PROPERTY. Except as set forth in Section 3.13 of the
Disclosure Schedule, each Subsidiary owns or has all necessary rights to use
each trademark (whether or not registered), trademark application, trade name,
service mark, copyright and other trade secret or proprietary intellectual
property (collectively, "Intellectual Property") used in and material to the
business of such Subsidiary, and none of the previous or current development,
marketing or distribution of products or services of or by any Subsidiary
infringes the right of any other person, except for the failure to own or have
such necessary rights to use such Intellectual Property, or any such
infringements, that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. Except as set forth in
Section 3.13 of the Disclosure Schedule or as would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect, (a) no claim by any third party contesting the validity, enforceability,
use or ownership of any of the Intellectual Property has been made, is currently
outstanding or, to the Companies' knowledge, has been threatened against the
Companies or any Subsidiaries, and, to the Companies' knowledge, there are no
grounds for the same, (b) none of the Companies or any of the Subsidiaries has
received any notices of any infringement or misappropriation by any of them with
respect to, or conflict with, any third party with respect to the Intellectual
Property, and (c) none of the Companies or any of the Subsidiaries has
infringed, misappropriated or otherwise conflicted with any intellectual
property rights of any third parties.
3.14 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of any
of the Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that would, individually or in
the aggregate, reasonably be expected to result in a Company Material Adverse
Effect, except as disclosed in the Prior SEC Filings or liabilities and
obligations incurred under this Agreement.
3.15 OPINION OF FINANCIAL ADVISOR; BROKERS.
(a) The Board of Directors of LFC has received the opinion of Credit Suisse
First Boston Corporation (the "Financial Advisor"), dated the date of this
Agreement, to the effect that, as of such date, the consideration to be received
by the Companies pursuant to this Agreement is fair, from a financial point of
view, to LFC. LFC has been authorized by the Financial Advisor, subject to prior
review by the Financial Advisor, to permit the inclusion of such written
fairness opinion in the Proxy Statement.
(b) Except for the Financial Advisor (the fees of which will be paid by
LFC), no agent, broker, person or firm acting on behalf of the Companies is or
will be entitled to any advisory commission or broker's or finder's fee from any
of the parties hereto in connection with any of the transactions contemplated
herein.
3.16 INSURANCE MATTERS.
(a) Each of the Subsidiaries set forth in Section 3.16(a) of the Disclosure
Schedule (the "Insurance Subsidiaries") has filed all required annual and
quarterly statements with the applicable regulatory authorities for the years
ended December 31, 1998, 1999 and 2000 (the "SAP Statements"), the failure to
file that would, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect, and all such SAP Statements were
18
prepared in accordance with practices prescribed by the state of domicile of
such Subsidiary, except to the extent the failure to be so prepared would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
(b) The business and operations of the Insurance Subsidiaries have been
conducted in compliance with all applicable laws regulating the business of
insurance and all applicable orders and directives of insurance regulatory
authorities and the business and operations of Independent Financial Marketing
Group, Inc. have been conducted in compliance with all applicable laws,
regulations and orders, including those applicable to the sale of bank
non-deposit investment products, except in either case where the failure to so
conduct such business and operations would not, individually or in the
aggregate, reasonably be expected, to result in a Company Material Adverse
Effect. In addition, to the knowledge of the Companies, none of the Insurance
Subsidiaries (i) is in violation of or since January 1, 1999 has violated, any
applicable laws regulating the business of insurance or (ii) has received any
notice from any Government Entity or any other person that any Insurance
Subsidiary is in violation of, or has violated, any applicable provisions of any
applicable laws regulating the business of insurance, except for violations or
alleged violations described in clauses (i) and/or (ii) above that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
(c) Except as otherwise would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect, all
insurance products marketed, serviced, administered, sold or issued by or on
behalf of an Insurance Subsidiary have been marketed, serviced, administered,
sold and issued in compliance with applicable consumer protection laws. Except
as otherwise would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect, all policies, binders, slips,
certificates, annuity contracts and participation agreements and other
agreements of insurance, and all amendments, applications, brochures,
illustrations and certificates pertaining thereto, and any and all marketing
materials, in effect as of the date hereof that are issued or have been issued
by the Insurance Subsidiaries are, to the extent required under applicable law,
on forms approved by applicable regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection. Such forms comply with applicable insurance laws, except as otherwise
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect. All premium rates of the Insurance
Subsidiaries that are required to be filed with or approved by any Government
Entity have been so filed or approved and the premiums charged conform thereto,
and such premiums comply with all applicable anti-discrimination laws, federal
or state, and all applicable insurance laws, except for any failure to be so
filed or approved or to so comply would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.
(d) The reserves reflected in the SAP Statements of each Insurance
Subsidiary for the year ended December 31, 2000, for future insurance policy
benefits, losses, claims and similar purposes are in compliance with the
requirements for reserves established by the insurance departments of the state
of domicile of such Insurance Subsidiary and were determined in accordance with
generally accepted actuarial standards and principles consistently applied,
except to the extent the failure to so comply or be determined would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
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(e) All annuity contracts and life insurance policies issued by each
Insurance Subsidiary to an annuity holder domiciled in the United States meet
all definitional or other requirements for qualification under the Code section
applicable (or intended to be applicable) to such annuity contracts or life
insurance policies, except to the extent the failure to meet such requirements
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect.
(f) Each separate account maintained by an Insurance Subsidiary
(collectively, the "Company Separate Accounts") is duly and validly established
and maintained under the laws of its state of formation, is operated in
compliance with all applicable laws and is either excluded from the definition
of an investment company pursuant to Section 3(c)(11) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), or is duly registered as
an investment company under the Investment Company Act, except to the extent the
failure to be so established and maintained, to so operate, or to be so excluded
or registered would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. The insurance contracts
under which the Company Separate Accounts assets are held are duly and validly
issued and are binding obligations of the applicable Insurance Subsidiary and
were sold in compliance with all applicable laws, except to the extent the
failure to be so issued or binding or so sold would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. The applicable Insurance Subsidiary is treated for federal Tax purposes
as the owner of the assets underlying the respective life insurance policies and
annuity contracts issued, entered into or sold by it, except to the extent the
failure would not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect.
3.17 MATERIAL CONTRACTS. Section 3.17 of the Disclosure Schedule sets forth
a complete and correct list as of the date hereof of all of the following
contracts, agreements (written or oral), indentures, leases, mortgages, licenses
and instruments (collectively, "Contracts") to which any Subsidiary is a party
or under which any Subsidiary may be liable (other than (i) any contracts which
are insurance products marketed, serviced, administered, sold or issued in the
ordinary course of business consistent with past practices by any Subsidiary,
(ii) any contracts entered into in the ordinary course of business consistent
with past practices by Independent Financial Marketing Group, Inc. with respect
to its retail distribution business, (iii) any contracts entered into in the
ordinary course of business consistent with past practices in connection with
the management of investments and (iv) any other contracts entered into in the
ordinary course of business consistent with past practices in connection with
the distribution of products):
(a) any Contract with any director or officer of any Subsidiary other than
(a) noncompetition and confidentiality agreements with such persons, (b)
Contracts terminable by the Companies upon no more than 60 days' notice without
penalty or payment of any kind (other than amounts accrued through the effective
date of termination) and (c) the Company Benefit Plans and any contracts entered
into in connection therewith;
(b) any Contract that is a "material contract" (as such term is defined in
Item 601(b)(10) of Regulation S-K promulgated by the SEC under the Exchange Act)
of any Subsidiary to be performed in whole or in part after the date of this
Agreement;
20
(c) any Contract that, after the Closing, will restrict the conduct of any
line of business by the Subsidiaries or upon consummation of the Sale will
restrict the ability of the Subsidiaries to engage in any line of business in
which they may lawfully engage (it being understood that the exceptions set
forth in clauses (i), (ii), (iii) and (iv) of the introductory paragraph of this
Section 3.17 shall not apply to this Section 3.17(c));
(d) any Contract with a labor union (including any collective bargaining
agreement);
(e) except for the Retention Plan and the vesting of benefits under
qualified and non-qualified retirement and savings plans listed on Section 3.17
of the Disclosure Schedule, any Contract pursuant to which any of the benefits
of which will or could be increased, or the vesting of the benefits of which
will or could be accelerated, by the consummation of the Sale, or the value of
any of the benefits of which will or could be calculated on the basis of the
Sale;
(f) any Contract (other than the Company Benefit Plans) not otherwise
disclosed pursuant to this Section 3.17 calling for payments aggregating more
than US$500,000, whether payable by or to any Subsidiary;
(g) any partnership, joint venture or other similar contract;
(h) any Contract (other than the Company Benefit Plans) not otherwise
disclosed pursuant to this Section 3.17 calling for payments aggregating
US$500,000 or more with or for the benefit of any affiliate of any of the
Companies (other than the Subsidiaries) other than as disclosed in Section 3.8
of the Disclosure Schedule;
(i) any tax sharing or similar Contract;
(j) any reinsurance, coinsurance or similar Contract;
(k) any funding agreement, indenture, credit agreement, loan agreement,
note, mortgage, guarantee security agreement or other Contract for financing or
funding pursuant to which any Subsidiary is the obligor; and
(l) any Contract pursuant to which any of the Companies acquired any
Subsidiary, any Subsidiary acquired another Subsidiary or any Subsidiary
acquired or agreed to acquire any of the capital stock or other equity interest
of another entity, or all or materially all of the assets of another entity,
except for Contracts of such nature under which neither any Company nor any
Subsidiary has any obligations that are to be performed after the date of this
Agreement.
All of the foregoing are collectively referred to in this Agreement as the
"Material Contracts". To the extent that a Material Contract is evidenced by
documents, copies thereof (including any amendments or waivers with respect
thereto) have been made available to the Purchaser. To the extent that a
Material Contract is not evidenced by documents, the Companies have made
available to the Purchaser a written description of all of the material terms
and conditions of such Material Contract. Each Material Contract is in full
force and effect and is enforceable against the applicable Subsidiary in
accordance with its terms, except where the failure to be in full force and
effect or to be enforceable would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect. There
does
21
not exist under any Material Contract any default or condition or event
that, after notice or lapse of time or both, would constitute a default on the
part of any Subsidiary or, to the knowledge of the Companies, on the part of any
other parties to such Material Contracts, except for such defaults, conditions
or events that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. Except as set forth in
Section 3.4(a) of the Disclosure Schedule, the execution, delivery and
performance by the Companies of this Agreement and the consummation of the
transactions contemplated hereby do not and will not conflict with, or result in
the breach or termination of, any provision of, or constitute a default (with or
without the giving of notice or the lapse of time or both) under, or give rise
to any right of termination, cancellation or loss of any benefit to which any
Subsidiary is entitled under any provision of a Material Contract.
3.18 VOTE REQUIRED. The affirmative vote of the holders of a majority of
votes of the capital stock of LFC (the "Shares") voting as a single class with
the Company's Series A Redeemable Preferred Stock (the "Series A Preferred")
voting on an as-converted basis, is the only vote of the holders of any class or
series of capital stock of the Companies necessary to approve the Sale under the
MBCL and the Companies' charters, by-laws and other organizational documents.
3.19 COMPANIES' KNOWLEDGE. For purposes of this Agreement and all
certificates and other documents delivered in connection herewith, the term
"Companies' knowledge", "knowledge of the Companies", "Companies' best
knowledge", "best knowledge of the Companies" or similar phrases shall mean the
actual knowledge (after giving effect to things actually forgotten) of the Chief
Executive Officer, Chief Financial Officer and General Counsel of each of the
Companies, Keyport Life Insurance Company and Independent Financial Marketing
Group, Inc.
3.20 TAKEOVER STATUTES. Except as have been waived by the board of
directors of LFC, no "fair price," "moratorium," "control share acquisition" or
other similar anti-takeover statute or regulation is applicable to the
transactions contemplated by this Agreement.
3.21 CERTAIN INTERCOMPANY TRANSFERS. All transactions reflected as
"Reclassifications from Corporate" on the pro forma balance sheet attached as
Section 3.21 of the Disclosure Schedule have been completed or, prior to the
Closing, will be completed by the Companies. The pro forma financial information
attached as Section 3.21 of the Disclosure Schedule under the caption "Annuity
(Adjusted)" fairly presents in all material respects the consolidated financial
position of the Business as of the date thereof.
3.22 COMPETITION ACT (CANADA). For purposes of the Competition Act
(Canada), LFC, together with its subsidiaries, did not have assets in Canada at
December 31, 2000, or revenue from sales in or from Canada for the twelve-month
period ended December 31, 2000, in excess of Can.$35,000,000.
3.23 ASSETS TRANSFERRED. Except for matters addressed in the Transition
Services Agreement, the Subsidiaries include the entire life insurance, annuity
and intermediary retail distribution business conducted by the Companies and
their respective subsidiaries, including all of their respective rights and
assets in such business, including, without limitation, all of the
22
agreements between the Companies or their respective subsidiaries and
distributors with respect to the sale of annuity products.
ARTICLE 4
CONDUCT OF BUSINESS
4.1 CONDUCT PRIOR TO CLOSING. Except as otherwise specifically contemplated
by this Agreement, as disclosed in Section 4.1 of the Disclosure Schedule, as
required in connection with the Sale, or as required by law, the Companies
covenant and agree that, unless the Purchaser shall otherwise consent (which
consent, in the case of subsections (ix), (x) and (xii) in Section 4.1(b) below
and, only as it relates to subsections (ix), (x) and (xii), subsection (xvi) in
Section 4.1(b) below, shall not be unreasonably withheld, delayed or
conditioned) in writing, during the period from the date of this Agreement until
the earlier of the termination of this Agreement or the Closing:
(a) The business of the Subsidiaries shall in all material respects be
conducted only in the ordinary course of business consistent with past
practices, and the Companies shall use commercially reasonable efforts, to
maintain and preserve substantially intact in all material respects the business
organization, employees and advantageous business relationships of the
Subsidiaries.
(b) In addition, but without limiting the generality of the foregoing, none
of the Companies or any Subsidiaries shall directly or indirectly do any of the
following:
(i) issue or sell, or authorize or agree to the issuance or sale of,
any shares of, or any options or rights of any kind to acquire any shares of, or
any securities convertible into or exchangeable or exercisable for any shares
of, capital stock of any class of any Subsidiary;
(ii) acquire, transfer, sell, lease, pledge or encumber any assets
material to any Subsidiaries, except in connection with investment activities in
the ordinary course of business consistent with past practices ("Subsidiary
Investing");
(iii) amend the charter or by-laws or similar organizational documents
of any of the Subsidiaries;
(iv) split, combine or reclassify any shares of the capital stock of
the Subsidiaries or declare, set aside for payment or pay any dividend or
distribution, payable in cash, stock, property or otherwise, with respect to any
of the capital stock of any of the Subsidiaries, other than, with respect to
dividends or distributions cash dividends and distributions, by a Subsidiary to
another Subsidiary (it being understood that no dividend or distribution has
been paid or made or will be paid or made by any Subsidiary since September 30,
2000);
(v) except pursuant to Section 5.5, enter into an agreement with
respect to any merger, consolidation, liquidation or business combination
involving any Subsidiary, or any acquisition or disposition of all or
substantially all of the assets or securities of any of the Subsidiaries;
23
(vi) except pursuant to Section 5.5 or in connection with Subsidiary
Investing, enter into an agreement with respect to the disposition of a material
amount of assets of any Subsidiary, or any release or relinquishment of any
material contract rights of any Subsidiary;
(vii) with respect to any Subsidiary, (A) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof or (B) make any material
investment either by purchase of stock or securities, contributions to capital
(other than to wholly-owned Subsidiaries), property transfer or purchase of any
property or assets of any other individual or entity, except in connection with
Subsidiary Investing;
(viii) with respect to any Subsidiary, other than in the ordinary
course of business consistent with past practices, incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for, the obligations of any
other individual or entity, or, except in connection with Subsidiary Investing,
make any loans or advances;
(ix) (A) other than in the ordinary course of business consistent with
past practice, permit any Subsidiary to enter into any new Contract that would
satisfy the definition of Material Contract if in effect on the date hereof or
(B) terminate, amend, modify or waive compliance of any provision of any
Material Contract in any respect materially adverse to any of the Subsidiaries;
(x) except as set forth in Section 4.1 of the Disclosure Schedule, make
or change any material Tax election, release, assign settle or compromise any
material Tax liability, or waive any statute of limitations for any Tax claim or
assessment unless such action would not reasonably be expected to increase the
Tax liability of the Subsidiaries or the tax sharing obligation of any
Subsidiary under this Agreement;
(xi) except as may be required as result of a change in law, regulation
or in generally accepted accounting principles, change any accounting principles
or practices used by any Subsidiary;
(xii) release, assign, settle or compromise any material claim or
litigation relating to any Subsidiary;
(xiii) other than as may be required as a result of a change in law,
regulation or in generally accepted accounting principles, change any of the
Subsidiary's reserving methods (it being understood that the foregoing shall not
apply to changes in the amount of reserves);
(xiv) with respect to any Subsidiary, pay, discharge or satisfy any
claims, liabilities or obligations, other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practices;
(xv) with respect to any Subsidiary, enter into any structured
settlement agreement or arrangement, funding agreement or arrangement or
reinsurance agreement or arrangement; provided that the Purchaser hereby
consents that the Companies and Subsidiaries may, consistent with past
practices, continue to enter into structured settlement agreements or
24
arrangements, including any agreement to be the assignee of structured
settlement payment obligations, so long as such structured settlement agreements
or arrangements are subject to the Liberty Life Guarantee; or
(xvi) agree or commit to do any of the foregoing.
(c) None of the Companies or any Subsidiary shall adopt or amend in any
material respect (except as may be required by law or permitted by or
contemplated under this Agreement) any bonus, profit sharing, compensation,
stock option, stock purchase, pension, retirement, deferred compensation, or
other employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or employee or former director,
officer or employee of any Subsidiary (other than commercially reasonable
arrangements entered into with any new hires) or increase the compensation or
fringe benefits of any employee or former director, officer or employee of any
Subsidiary or pay any benefit not required by any existing plan, arrangement or
agreement, except compensation increases for employees and non-executive
officers in the ordinary course of business consistent with past practices.
(d) None of the Companies nor any Subsidiary shall take any action with
respect to the grant of any severance or termination pay or with respect to any
increase of benefits payable under its retention, severance or termination pay
policies in effect on the date hereof with respect to employees of any of the
Subsidiaries. The Companies shall not amend or modify the Retention Plan after
the date hereof to the extent any such amendment or modification relates to
employees of the Subsidiaries or increases the costs to the Purchaser or any of
the Subsidiaries under the Retention Plan. LFC has delivered to the Purchaser a
true and complete copy of the Retention Plan.
(e) Notwithstanding anything to the contrary contained in this Section 4.1,
the Companies shall be permitted to cause, and shall cause, LASC to make a
dividend or distribution to Keyport Life Insurance Company immediately prior to
the Closing and effective at the same time as the amendments to the
Administrative Services Agreement referred to in Section 1.2(d) of the
Transition Services Agreement of (i) the issued and outstanding capital shares
of KFSC and (ii) an amount in cash equal to the net worth of LASC as of such
date.
(f) The Insurance Subsidiaries shall manage their Subsidiary Investing in a
manner that is consistent with past practices in all material respects and,
within the reasonable business judgment of their senior management, consistent
with the business plans provided to the Purchaser, subject to the restrictions
set forth in clauses (i) and (ii) below. On a periodic basis as reasonably
requested by the Purchaser and reasonably available to the Subsidiaries, but in
no event less frequently than 18 Business Days after the end of each calendar
month, the Companies shall deliver to the Purchaser such information regarding
the duration and the asset/liability composition, duration matching of the
Insurance Subsidiaries' general account investments as of such month end.
Notwithstanding the foregoing:
(i) The Insurance Subsidiaries shall not make additional commitments to
make private equity investments (such as, but not limited to, venture funds,
hedge funds and direct private equity investments) or other investments
categorized by the Insurance Subsidiaries
25
as "alternative investments" ("Restricted Investments"); provided, however, that
this Section 4.1(f)(i) shall not prohibit the Insurance Subsidiaries from making
additional investments in Restricted Investments to the extent required by law
or existing contractual obligations.
(ii) The Insurance Subsidiaries shall (x) invest new cash deposits from
customers in investment grade securities and (y) reinvest proceeds (including
payments of principal and interest) received from existing investments in below
investment grade securities and investments ("Below Investment Grade
Investments") in investment grade securities; provided, however, that (1) this
Section 4.1(f)(ii) shall not prohibit the Insurance Subsidiaries from selling
existing Below Investment Grade Investments and reinvesting the proceeds of such
sales in other Below Investment Grade Investments and (2) this Section
4.1(f)(ii) shall not prohibit the Insurance Subsidiaries from making investments
in Below Investment Grade Investments if, after giving effect to such
investments, the portion of their combined general investment accounts invested
in Below Investment Grade Investments would not exceed 7.5% of the total
combined general investment accounts (including securities lending collateral).
4.2 NOTIFICATION OF CERTAIN MATTERS. The Companies shall give prompt
written notice to the Purchaser, upon obtaining knowledge of the occurrence, or
failure to occur, of any event which occurrence or failure to occur causes (x)
any representation or warranty made by the Companies and contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Closing, or (y) any material failure of the Companies or
of any officer, director, employee or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement; provided, however, that no such notification shall be
deemed to cure any breach or otherwise affect the representations or warranties
of the Companies or the conditions to the obligations of the parties hereunder.
The Purchaser shall give prompt notice to the Companies, upon obtaining
knowledge of the occurrence, or failure to occur, of any event which occurrence
or failure to occur causes (x) any representation or warranty made by the
Purchaser contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Closing, or (y) any material
failure of the Purchaser, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall be deemed to cure any breach or otherwise affect the
representations or warranties of the Purchaser or the conditions to the
obligations of the parties hereunder.
4.3 ACCESS TO INFORMATION. Except as prohibited by confidentiality
agreements to which any of the Companies or a Subsidiary is a party or as
restricted under applicable law or to the extent the Companies reasonably
believe the same would result in the disclosure of any trade secrets of third
parties, the Companies shall, and shall cause the Subsidiaries, and the
Companies' and the Subsidiaries' respective officers, directors, employees and
agents to, afford to the Purchaser and to the officers, employees and agents of
the Purchaser reasonable access upon reasonable notice and at mutually agreeable
times, to the Companies' and any Subsidiary's officers, employees, agents,
properties, books, records and contracts, and shall furnish the Purchaser such
financial, operating and other data and information as the Purchaser, through
its officers, employees or agents, may reasonably request. All such information
shall be governed by the Confidentiality Agreement (as defined below).
26
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF PROXY STATEMENT. LFC shall prepare, in cooperation with
the Purchaser, the Proxy Statement and use its commercially reasonable efforts
to obtain and furnish the information required to be included by it in the Proxy
Statement, and respond promptly to any comments made by the SEC with respect to
the Proxy Statement and any preliminary version thereof and cause the Proxy
Statement to be mailed to the holders of LFC's capital stock ("LFC's
Stockholders") at the earliest practicable time following the execution of this
Agreement. The Purchaser and its counsel shall be given reasonable opportunity
to review and discuss with the Companies' counsel the Proxy Statement prior to
its filing with the SEC, and shall be provided with any comments that LFC and
its counsel may receive from the SEC or its staff with respect to the Proxy
Statement promptly after receipt of such comments. If prior to the Closing any
event shall occur which is required to be set forth in an amendment or a
supplement to the Proxy Statement, LFC will promptly prepare and mail to LFC's
Stockholders such an amendment or supplement, provided, however, that, with
respect to any event or information relating to the Purchaser giving rise to
such requirement, the Purchaser shall have notified the Companies thereof in a
timely fashion.
5.2 BOARD RECOMMENDATION. Except to the extent otherwise permitted pursuant
to Section 5.5 below, LFC through its Board of Directors shall recommend the
authorization of the Sale in the Proxy Statement and use its commercially
reasonable efforts to obtain the necessary authorization of the Sale by LFC's
Stockholders at a stockholders' meeting (including any adjournments thereof, the
"Company Stockholders' Meeting") as promptly as practicable following the
execution of this Agreement.
5.3 FEES AND EXPENSES.
(a) Except as otherwise provided in Section 7.5, each party shall bear all
of the fees and expenses incurred by it in connection with the negotiation and
performance of this Agreement (it being understood that LFC shall bear all of
the fees and expenses of the Companies and the Subsidiaries), and neither party
may recover any such fees and expenses from the other party upon any termination
of this Agreement, provided, however, that so long as the Closing shall occur,
the Purchaser shall pay one-half of the reasonable costs of printing and mailing
the Proxy Statement to LFC's Stockholders.
(b) The provisions contained in this Section 5.3 shall survive any
termination of this Agreement.
5.4 ADDITIONAL AGREEMENTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto agrees to use commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement, and
to cooperate with each of the other parties hereto in connection with the
foregoing, including using commercially reasonable efforts: (A) to obtain all
authorizations, consents and approvals required by the Applicable Laws; and (B)
to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the
27
parties to consummate the transactions contemplated hereby. Each party agrees to
use commercially reasonable efforts to fulfill all conditions to this Agreement.
For purposes of the foregoing and the provisions of Sections 5.7 and 5.10, the
obligation of the Companies and the Purchaser to use "commercially reasonable
efforts" or "reasonable efforts" to obtain waivers, consents and approvals shall
not include, (a) with respect to loan agreements, leases and other contracts,
agreeing to a material modification of the terms of such documents, except as
expressly contemplated hereby, or making any material guaranty or material
monetary payment in consideration of such waiver, consent or approval or (b)
with respect to waivers, consents and approvals by or from, or resolving any
objections of any Government Entity, accepting or agreeing to accept (as a
condition to obtaining such waiver, approval or consent or resolving any
objection of such Government Entity) that the Purchaser or the Companies, or any
of their respective affiliates, make or enter into any divestitures, licenses,
hold separate or trust agreements, make any guaranty, monetary payment or other
financial adjustment or agree to any restriction or limitation on the conduct of
their respective businesses (including, without limitation, on their ability to
declare or pay dividends or make other distributions) that would, individually
or in the aggregate, reasonably be expected to materially and adversely affect
the Business or Sun Life Assurance Company of Canada (U.S.), the United States
Branch of the Purchaser or any other material portion of Sun Life Financial
Services of Canada, Inc. (a "Purchaser Material Adverse Effect").
5.5 NO SOLICITATION.
(a) During the period from the date of this Agreement and until the earlier
of the Closing or the termination of this Agreement, none of the Companies or
any of the Subsidiaries or any of their respective affiliates, subsidiaries,
officers, directors, employees, representatives and agents (including, without
limitation the Financial Advisor) shall, directly or indirectly, (i) solicit or
initiate any proposals or offers from any corporation, partnership, person or
other entity or group other than the Purchaser or an affiliate of the Purchaser
(a "Third Party") concerning any acquisition, consolidation, tender or exchange
offer, merger, business combination, sale of securities or substantial assets
(including by way of reinsurance) of any of the Subsidiaries or any other
transaction that would result in the sale of all or any substantial portion of
the Subsidiaries or the Business or that would otherwise adversely affect the
ability of the Companies and the Purchaser to consummate the Sale (any such
transaction being referred to herein as an "Acquisition Proposal"); or (ii) have
any discussions or negotiations with or provide any non-public or confidential
information to any Third Party relating to any inquiry, proposal or offer
concerning an Acquisition Proposal; provided, however, that the term Acquisition
Proposal shall not include, and this Agreement shall not limit the Companies or
any of their subsidiaries with respect to, any proposal for a transaction with
respect to the Companies or any of their subsidiaries or any portion of the
Companies or their subsidiaries not including any of the Subsidiaries,
regardless of the form of such transaction, so long as such proposal or
transaction would not adversely affect the ability of the Companies and the
Purchaser to consummate the Sale. Notwithstanding the foregoing, the Companies,
the Subsidiaries, and their respective affiliates, subsidiaries, officers,
directors, employees, representatives and agents (i) may furnish or cause to be
furnished information concerning the Companies' and their subsidiaries'
businesses, properties or assets to a Third Party (subject to such Third Party
executing a confidentiality agreement on terms no less favorable in the
aggregate to LFC than those in the Confidentiality Agreement between the
Purchaser and LFC dated December 12, 2000 (the
28
"Confidentiality Agreement")), and may enter into, participate in, conduct or
engage in discussions or negotiations with such Third Party, if and only to the
extent that in connection with this clause (i) the Board of Directors of LFC
shall have determined in good faith, after consultation with its external
financial advisors and external legal counsel, that such actions are necessary
in order for the directors to comply with their fiduciary duties under
applicable law, (ii) may take any position with respect to an Acquisition
Proposal in accordance with Rules 14d-9 and 14e-2 under the Exchange Act (or any
similar communication to stockholders in connection with the making or amendment
of a tender offer or exchange offer) and may make disclosure to LFC's
Stockholders if, in the good faith judgment of the Board of Directors of LFC,
after consultation with its external financial advisors and external legal
counsel, failure to so disclose would be inconsistent with its obligations under
applicable law; and (iii) may, only in the case of a Qualified Acquisition
Proposal and only in compliance with the provisions of Section 5.5(c), enter
into one or more agreements to consummate a Qualified Acquisition Proposal. As
used herein, "Qualified Acquisition Proposal" means a bona fide written
Acquisition Proposal or Acquisition Proposals to either (x) acquire all or
substantially all of the capital stock or assets of the Subsidiaries on terms
and subject to conditions that LFC's Board of Directors believes in good faith,
taking into account all of the terms and conditions of such Acquisition Proposal
or Acquisition Proposals, would, if consummated, be superior to the Sale and in
the best interests of LFC's Stockholders or (y) acquire all or substantially all
of the capital stock or assets of LFC on terms and subject to conditions that
LFC's Board of Directors believes in good faith, taking into account all of the
terms and conditions of such Acquisition Proposal or Acquisition Proposals,
would, if consummated, be in the best interests of LFC's Stockholders; provided,
however, that if any of the Companies or Subsidiaries, or any of their
respective affiliates, subsidiaries, officers, directors, employees,
representatives or agents have breached any provision of this Section 5.5 in any
respect in connection with the receipt of such bona fide written Acquisition
Proposal that has actually prejudiced the Purchaser, such Acquisition Proposal
shall not be deemed to be a Qualified Acquisition Proposal.
(b) The Companies will promptly (and in no event later than 36 hours after
receipt) notify the Purchaser in writing of, and will disclose to the Purchaser
all material details (including, without limitation, the identity of the Third
Party making such Acquisition Proposal) of, any Acquisition Proposal, whether
oral or written, that any of the Companies or Subsidiaries or any of their
respective affiliates, subsidiaries, officers, directors, employees,
representatives or agents (including, without limitation, the Financial Advisor)
receives. If any of the Companies or Subsidiaries or any of their respective
affiliates, subsidiaries, officers, directors, employees, representatives or
agents furnishes any nonpublic information or confidential information to any
Third Party pursuant to Section 5.5(a), the Companies shall provide the
Purchaser on a concurrent basis with copies of or access to such information.
(c) Except as expressly permitted by this Section 5.5(c), neither LFC's
Board of Directors nor any committee thereof shall or shall resolve to (i) not
recommend or withdraw its approval or recommendation of the Sale, (ii) modify or
qualify such approval or recommendation in a manner adverse to the Purchaser,
(iii) approve or recommend any proposed Acquisition Proposal or (iv) cause LFC
to enter into any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement relating to
an Acquisition Proposal. Notwithstanding the foregoing, if prior to the Company
Stockholders' Meeting, the Board of Directors of LFC determines in good faith,
after it has received a
29
Qualified Acquisition Proposal and after consultation with external legal
counsel, that it must take such action to comply with its fiduciary duties to
LFC's Stockholders under applicable law, then LFC's Board of Directors may
(subject to this sentence) take any of the actions contemplated by clauses (i),
(ii), (iii) and (iv) of the immediately preceding sentence (a "Subsequent
Action") and terminate this Agreement pursuant to Section 7.1(c), but only if
(x) the Companies deliver to the Purchaser a written notice advising the
Purchaser that LFC's Board of Directors has received a Qualified Acquisition
Proposal and specifying the material terms and conditions of such Qualified
Acquisition Proposal, identifying the person making such Qualified Acquisition
Proposal and stating that, not earlier than the end of the third Business Day
following receipt by the Purchaser of such notice, LFC's Board of Directors
intends to take a Subsequent Action; (y) during such three Business Day period,
the Companies shall have considered, and shall have caused their respective
affiliates, subsidiaries, officers, directors, employees, representatives and
agents to have considered, in good faith any adjustments in the terms and
conditions of this Agreement that the Purchaser may propose; and (z) the
Purchaser does not, within such three Business Day period, offer to make such
adjustments in the terms and conditions of this Agreement or other proposals
regarding LFC such that LFC's Board of Directors determines in its good faith
judgment (after consultation with the Financial Advisor or another independent
financial advisor of nationally recognized reputation) that this Agreement,
together with such adjustments offered by the Purchaser, is at least as
favorable to LFC's Stockholders as such Qualified Acquisition Proposal.
(d) The Companies shall immediately cease and cause to be terminated any
activities, discussions, or negotiations, existing on the date hereof, with any
Third Party with respect to any Acquisition Proposal or that may reasonably be
expected to lead to an Acquisition Proposal.
5.6 GOVERNMENTAL FILINGS. The Companies shall promptly provide the
Purchaser (or its counsel) with copies of all filings made by any of the
Companies with the SEC or the NASD (or any other self-regulatory organization)
or any other state or federal Government Entity in connection with this
Agreement and the Sale. The Purchaser shall promptly provide the Companies (or
its counsel) with copies of all filings made by them with the SEC or any other
state, provincial or federal (United States or Canadian) Government Entity in
connection with this Agreement and the transactions contemplated hereby. Subject
to applicable laws relating to the exchange of information, the Companies and
the Purchaser shall have the right to review in advance, and to the extent
practicable each will consult the other with respect to all information relating
to the Subsidiaries, or the Purchaser, as the case may be, and any of their
respective subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or Government Entity in connection
with the Sale and the other transactions contemplated by this Agreement.
5.7 INSURANCE LAW APPROVALS. The Purchaser, and the Companies recognize
that the transactions contemplated by this Agreement shall constitute an
acquisition of control by the Purchaser with respect to each Insurance
Subsidiary. Such acquisition of control therefore requires the filing of a Form
A with the appropriate regulatory authority of (i) the domiciliary state of each
such Insurance Subsidiary (the Rhode Island DBR or the New York DOI, as the case
may be) and (ii) each other state, if any, in which such Insurance Subsidiary is
commercially domiciled. In addition, such acquisition of control will require
the filing of a pre-acquisition notice or other filing with the applicable
insurance regulatory authorities of certain
30
other states. The Purchaser shall make all required filings of Form A and
pre-acquisition notices or other filings as soon as practicable, such filings to
be prepared in accordance with Applicable Laws and to contain all necessary
information required therein, which shall be true, correct and complete. The
Purchaser and the Companies agree to use commercially reasonable efforts and
cooperate in obtaining as promptly as practicable such authorizations and
approvals of insurance regulators as may be required under Applicable Laws in
order to consummate the transactions contemplated by this Agreement. The
Companies agree to use commercially reasonable efforts to provide such
information for inclusion in such filings as may be required.
5.8 INDEMNIFICATION. The Purchaser agrees that all rights to
indemnification, advancement of expenses, exculpation, limitation of liability
and any and all similar rights now existing in favor of the employees, agents,
directors or officers of the Subsidiaries (the "Indemnified Parties") as
provided in the charter or by-laws of the Companies or in the respective
charters or by-laws or other agreements of the Subsidiaries in effect on the
date hereof (copies of which have been made available to the Purchaser), shall
survive the Sale and shall continue in full force and effect for a period of six
years from the Closing; provided, however, that if any claim or claims are
asserted or made within such six-year period, all rights to indemnification in
respect to any such claim or claims shall continue until the disposition of any
and all such claims.
5.9 FAIR PRICE STRUCTURE. If any "fair price" or "control share
acquisition" or "anti-takeover" statute, or other similar statute or regulation
or any state "blue sky" statute shall become applicable to the transactions
contemplated hereby, the Companies and the Companies' boards of directors shall
grant, subject to the terms of this Agreement, such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
and thereby may be consummated as promptly as practicable on the terms
contemplated hereby and thereby, and otherwise act to minimize the effects of
such statute or regulation on the transactions contemplated hereby or thereby.
5.10 CONTINUING EMPLOYEES.
(a) Effective as of the Closing, each Subsidiary shall cease to be a
participating employer in the Company Benefit Plans (other than Company Benefit
Plans which are sponsored by the Subsidiaries solely for the benefit of
employees of the Subsidiaries (the "Subsidiary Benefit Plans")) and, on or after
the Closing Date, the Subsidiaries shall have no obligations or liabilities to,
under or with respect to any Company Benefit Plan, other than the Subsidiary
Benefit Plans.
(b) For periods after the Closing, the Purchaser will provide (or cause to
be provided) to each employee of any of the Subsidiaries who continues his or
her employment with the Subsidiaries or the Purchaser after the Closing (the
"Business Employees") employee benefit plans, agreements, programs, policies and
arrangements (the "Purchaser's Plans") that are substantially comparable in the
aggregate to the employee benefits maintained from time to time by the Purchaser
for its similarly situated employees. Notwithstanding the preceding sentence,
(i) the Purchaser shall not be required to provide coverage under a defined
benefit pension plan to any Business Employee who was not a member of a class of
employees who, immediately prior to the Closing Date, was eligible for coverage
under a Company Benefit Plan which was a
31
defined benefit pension plan, (ii) the Purchaser shall not be required to
provide any benefit to any Business Employee to the extent the provision of such
benefit would result in the duplication of benefits and (iii) the Purchaser
shall be permitted to provide to Business Employees benefits under employee
welfare benefit plans which are substantially comparable to those provided to
such Business Employees under Company Benefit Plans which are employee welfare
benefit plans immediately prior to the Closing Date. For the purposes of any of
the Purchaser's Plans for which eligibility and vesting of benefits depend on
length of service and for all other benefits for which benefit levels depend on
length of service (but not benefit accrual or eligibility purposes under any
defined benefit pension plan), the Purchaser shall give (or cause to be given)
to each continuing Business Employee full credit for past service with the
Companies and the Subsidiaries and for any additional periods for which the
Companies or a Subsidiary has previously granted the Business Employee with
service credit for comparable benefit purposes under a corresponding Company
Benefit Plan ("Prior Service"). In addition, and without limiting the generality
of the foregoing: (i) each Business Employee shall be given credit for Prior
Service for purposes of eligibility to participate, satisfaction of any waiting
periods, evidence of insurability requirements, or the application of any
pre-existing condition limitations and shall be given credit for amounts paid
under a corresponding Company Benefit Plan during the same period for purposes
of applying deductibles, co-payments and out-of-pocket maximums as though such
amounts had been paid in accordance with the terms and conditions of the
Purchaser's Plans. Nothing in this Section 5.10 shall prevent Purchaser or the
Subsidiaries from terminating the employment of any of the Business Employees at
any time after the Closing, so long as the Subsidiaries comply with the
applicable terms of the Retention Plan.
(c) Effective as of the Closing Date, the Purchaser shall establish or
designate a defined contribution plan maintained by the Purchaser or its
affiliates in which, subject to the terms and conditions of such plan (taking
into account the provisions of this Section 5.10), Business Employees shall be
eligible to participate (the "Purchaser's Defined Contribution Plan"). The
Companies maintain the Liberty Financial Companies, Inc. Savings and Investment
Plan (the "Companies' Defined Contribution Plan") and have submitted a favorable
determination letter request with the IRS with respect thereto, which
determination letter request is pending as of the date hereof. The Companies
agree to take all actions necessary to amend the Companies' Defined Contribution
Plan as applied to any Business Employee to eliminate all annuity forms of
distribution effective as of a date no later than the Closing Date. The
amendment described in the preceding sentence shall be made in accordance with
Treasury regulations issued pursuant to section 411(d)(6) of the Code, and the
Companies shall provide, not later than the Closing Date, all Business Employees
with a summary (the "Amendment Summary") that reflects such amendment and that
satisfies the requirements of ERISA and applicable Department of Labor
regulations relating to summaries of material modifications. Subject to the
provisions of this Section 5.10(c), the Companies and the Purchaser shall take
(or cause to be taken) all actions necessary to cause the assets and liabilities
of the Companies' Defined Contribution Plan attributable to the accrued benefits
of Business Employees to be transferred from the trustee of the Companies'
Defined Contribution Plan to the trustee of the Purchaser's Defined Contribution
Plan; provided, however, that no transfer of assets or liabilities shall occur
with respect to any Business Employee whose annuity starting date occurs prior
to the effective date of the transfer. The assets to be transferred pursuant to
the preceding sentence shall consist of cash and promissory notes evidencing
outstanding loans to Business Employees. The transfer of assets and liabilities
from the Companies' Defined Contribution Plan to the
32
Purchaser's Defined Contribution Plan shall conform in all respects with
Sections 411(d)(6) and 414(l) of the Code. No transfer of assets and liabilities
from the Companies' Defined Contribution Plan to the Purchaser's Defined
Contribution Plan shall occur until the latest of (i) the Closing Date, (ii) the
date on which the IRS issues a favorable determination letter with respect to
the Companies' Defined Contribution Plan and the Companies have taken all
actions required by the IRS as a condition of such favorable determination
letter, or (iii) 90 days after the Companies have adopted the amendment to the
Companies' Defined Contribution Plan which eliminates all annuity forms of
distribution and have provided Business Employees with the Amendment Summary.
(d) Notwithstanding the foregoing provisions of this Section 5.10, the
Purchaser and the Companies shall, prior to the Closing Date, cooperate and
negotiate in good faith to achieve the objectives of this Section 5.10 and to
facilitate a transition of coverage for Business Employees to the Purchaser's
Plans. The primary objectives of the parties in cooperating and negotiating any
such further agreements shall be to provide for uninterrupted coverage of
employees under appropriate employee benefit plans from and after the Closing
Date. In furtherance of that objective, the Purchaser and the Companies agree
that, for the Extended Coverage Period (as defined below), the Business
Employees shall be entitled to continue coverage under the Company Benefit Plans
which are group health or dental plans, and the Purchaser agrees to reimburse
the Companies for covered claims incurred under such plans during the Extended
Coverage Period and reasonable administrative costs incurred by the Companies as
a result of the coverage of the Business Employees under such plans during the
Extended Coverage Period. For purposes of this Agreement, the "Extended Coverage
Period" shall be the period commencing on the Closing Date and ending on the
date that the Business Employees become eligible for coverage under the
Purchaser's group medical and dental plans (which date shall be no later than
the first day of the coverage period following the first normal open enrollment
period with respect to the Purchaser's group medical and dental plans which
begins on or after the Closing Date). Except for obligations and agreements
specifically set forth in this Section 5.10, no agreement with respect to
employee benefit plans shall be effective unless and until it has been set forth
in a written agreement duly executed on behalf of the Companies and the
Purchaser.
(e) Notwithstanding the foregoing provisions of this Section 5.10, as of
the Closing each of the Purchaser and the Subsidiaries shall assume and shall
perform or cause their affiliates to perform, all of the obligations with
respect to the employees and former employees of the Subsidiaries (other than
persons that LFC has transferred to LFC or to direct or indirect subsidiaries of
LFC other than the Subsidiaries) under each of (i) the Retention Plan and (ii)
the Deferred Compensation Obligations; provided, however, that the Companies
shall pay and perform all obligations to such persons under Sections 4 and 5 of
the Retention Plan (pertaining to stock options and restricted stock), and the
Companies acknowledge and agree that none of the Purchaser or any of the
Subsidiaries are assuming any obligations with respect to such provisions;
provided, further, that the Purchaser and the Subsidiaries (and not the
Companies) shall be responsible for the entire amount of any Gross-Up Payments
(as such term is defined in the Retention Plan). The Companies and the Purchaser
shall allocate the "base amount" of parachute payments made or to be made to (or
for the benefit of) any "disqualified individual" (in each case, as defined in
Section 280G of the Code) in accordance with prop. Treasury Regulation 1.280G-1
(Q&A 38). Except for the obligations with respect to the Retention Plan
33
and the Deferred Compensation Obligations set forth in the immediately preceding
sentence, nothing in this Section 5.10(e) shall in any way restrict the ability
of the Purchaser or any Subsidiary to terminate any employee benefit plan,
policy, program or arrangement after the Closing Date in accordance with the
terms thereof.
5.11 TAXES.
(a) TAX RETURNS. The Companies shall not file or cause or permit to be
filed any amended Tax Returns on behalf of or with respect to the Subsidiaries
for any taxable period without the consent of the Purchaser (which consent shall
not be unreasonably withheld or delayed); provided that this Section 5.11(a)
shall not apply unless a position taken on such amended Tax Return can be
reasonably expected to increase the Taxes of a Subsidiary or the tax sharing
obligations of any Subsidiary under this Agreement.
(b) COOPERATION. After the Closing Date, the Companies and the Purchaser
shall (and shall cause their affiliates to) make available to each other, as
reasonably requested, and to any governmental authority, such information
(including records and documents) and assistance relating to the Subsidiaries
for all taxable periods ending before or including the Closing Date as is
reasonably necessary for the preparation of any Tax Return or claim for refund,
for any audit, or for the prosecution or defense of any Tax Proceeding, which
shall include making employees available on a mutually convenient basis to
provide any additional information and explanations of any material provided
hereunder. The Companies and the Purchaser shall also (and shall cause their
affiliates to) preserve all such information, records and documents until the
expiration of any applicable statute of limitations, including extensions
thereof. Notwithstanding any other provisions hereof, each party shall bear its
own expense in complying with the foregoing provisions. None of the Companies
nor Purchaser shall take or advocate any position with respect to Taxes that
could reasonably be expected to adversely affect the other party. The Companies
shall promptly notify the Purchaser and the Subsidiaries of any proposed
adjustment of any item on any Tax Return of the Subsidiaries for any period, if
such proposed adjustment may affect the tax liability of the Purchaser or any of
the Subsidiaries or the tax sharing obligations of any Subsidiary under this
Agreement. The Companies shall advise the Purchaser of the status of any
conferences, meetings and proceedings with tax authorities or appearances before
any court pertaining to such adjustment or adjustments, and shall advise the
Purchaser of the outcome of any such proceedings. Nothing in this Agreement
shall entitle the Purchaser to interfere with the rights of the Companies or
LMIC to make any judgments or take any actions they deem appropriate in
connection with the disposition of any such proposed adjustments.
(c) TAX SHARING. All intercompany tax accounts between the Companies, and
any Subsidiary (other than the Insurance Subsidiaries and KFSC), shall be
settled in cash at or prior to the Closing in the manner provided in this
Section 5.11(c). At least five business days prior to the Closing Date, the
Companies shall prepare and deliver to the Purchaser a statement setting out in
reasonable detail the calculation of all such intercompany tax account balances
based on the latest available financial information as of such date, including
projected amounts through the Closing Date, and to the extent reasonably
requested by the Purchaser, provide the Purchaser with supporting documentation
to verify the underlying intercompany charges. Not later than 60 days after the
date or dates on which the Subsidiaries file their Tax Returns for the taxable
year ending on the Closing Date, or for the fiscal year in which the Closing
falls, as the case may be,
34
the Companies and the Purchaser shall settle all amounts due to or from the
Subsidiaries (other than the Insurance Subsidiaries and KFSC) under the tax
sharing agreement described in Section 3.17(i) of the Disclosure Schedule,
taking into account payments made previously pursuant to this Section 5.11(c).
Such settlement shall be based on the Tax Returns of the Companies and such
Subsidiaries as filed. The Companies shall timely pay or cause to be paid all
Taxes of the Subsidiaries (other than the Insurance Subsidiaries and KFSC) for
the period ending on the Closing Date.
(d) PREPARATION OF TAX RETURNS AND SETTLEMENT OF TAXES.
(i) NON-LIFE GROUP.
(A) The provisions of this Section 5.11(d)(i) do not
apply to the Insurance Subsidiaries.
(B) For purposes of this Section 5.11(d)(i), personal
property and other ad valorem Taxes not based on net income
shall be computed by determining the amount of such Taxes
based on a full taxable period and multiplying the amount so
determined by a fraction, the numerator of which is the
number of days in from the beginning of such taxable period
and ending on the Closing Date, and the denominator of which
is 365.
(ii) LIFE GROUP.
(A) The provisions of this Section 5.11(d)(ii) do not
apply to the Subsidiaries other than the Insurance
Subsidiaries. The Insurance Subsidiaries file a consolidated
federal income tax return with each other but not with the
Companies. Other than Taxes arising from a Section 338(h)(10)
Election (which shall for this purpose include any comparable
or similar election for state tax purposes) for the Insurance
Subsidiaries, the Companies shall have no liability for the
Taxes of the Insurance Subsidiaries.
(B) The Companies shall reimburse the Insurance
Subsidiaries for any federal, state or local Taxes arising
from the Section 338(h)(10) Election (which shall for this
purpose include any comparable or similar election for state
tax purposes) with respect to the Insurance Subsidiaries or
the LASC Distribution, determined as set forth in Section
1.6(c) hereof. Not later than forty-five (45) days after the
Closing, the Purchaser shall provide to the Companies a
written statement of the amount due hereunder (the
"Purchaser's Statement") accompanied by work papers in
adequate detail to enable the Companies to verify that the
amount claimed is correct. The Companies shall then have
fifteen (15) days in which to notify the Purchaser of any
objections to the Purchaser's Statement. The parties shall
endeavor in good faith to resolve their differences. In any
event, the Companies shall, not more than five (5) days prior
to the last
35
date on which such Taxes may be paid without interest or
penalty, pay to the Insurance Subsidiaries their respective
Taxes (as determined by the Companies) arising from the
Section 338(h)(10) Election. If the Purchaser and the
Companies have not agreed upon the amount due to the Insurance
Subsidiaries within ninety (90) days after the Closing, the
matter shall be submitted for arbitration to a nationally
recognized accounting firm that has not provided substantial
services to either of them within the past three years; the
costs of such arbitration shall be divided evenly between LFC
and the Purchaser; such accounting firm shall render its
decision as to the amounts due to the Insurance Subsidiaries
from the Companies or from the Insurance Subsidiaries to the
Companies within forty-five (45) days after such matter is
submitted for arbitration; and the decision of such accounting
firm shall be final and binding on all parties and not subject
to judicial review of any kind. The Companies, jointly and
severally, agree to indemnify and hold harmless the Insurance
Subsidiaries for any interest or penalties that may be due to
any taxing authority on account of the late payment of any
Taxes arising from the Section 338(h)(10) Election, if such
late payment is due to the failure of the Companies to pay to
the Insurance Subsidiaries the full amount of Taxes as
determined under this Section 5.11(d)(ii)(B) before the last
date on which such Taxes may be paid without interest or
penalties.
(C) At the time of the filing of the Tax Returns for
the Insurance Subsidiaries which include the items arising
from the Section 338(h)(10) Election, the Purchaser shall pay
to the Companies, or the Companies shall pay to the Purchaser,
the amount by which the payment made pursuant to Section
5.11(d)(ii)(B) exceeds, or is less than, the Taxes shown on
the Tax Returns arising from the Section 338(h)(10) Election.
The Purchaser shall promptly provide to the Companies and the
Companies shall promptly provide to the Purchaser any
information that they shall reasonably request for the purpose
of verifying the amount due to or from the Companies under
this Section 5.11(d)(ii).
(iii) Other than as specifically set forth in this Agreement, the
Companies shall have no liability for any Taxes of the
Subsidiaries for any period ending after the Closing Date.
(iv) TAX RETURNS.
(A) The Purchaser shall cause those Subsidiaries
subject to Section 5.11(d)(i) to consent to join, for all
taxable periods ending on or before the Closing Date in which
such Subsidiaries are eligible to do so, in any consolidated,
combined or unitary federal, state, local or foreign income
and franchise Tax Returns which the Companies or LMIC shall
request it to join. The Companies shall cause to be prepared
and filed all such consolidated, combined or unitary Tax
Returns. The Purchaser agrees to take no position inconsistent
with the Subsidiaries being members of the group filing such
Tax Returns.
36
(B) The Purchaser shall cause to be prepared and
filed all required Tax Returns of the Subsidiaries (other than
those filed by the Companies under Section 5.11(d)(iv)(A)) for
any period which ends on or before the Closing Date, to the
extent not previously filed. The Purchaser shall submit all
such Tax Returns to the Companies no later than 30 days prior
to the due date (including extensions) for the Companies'
approval, which shall not be unreasonably withheld or delayed,
and which shall not be required unless the Companies notify
the Purchaser within ten days after the Companies receive such
Tax Returns of their objections to such Tax Returns.
(C) All Tax Returns of the Subsidiaries not covered
by paragraphs (A) or (B) of this Section 5.11(d)(iv) shall be
prepared and filed by the Purchaser or at its direction. In
the event that any position on any Tax Return filed after the
Closing Date could reasonably be expected to affect the Tax
liability of the Companies, the Purchaser shall notify the
Companies and shall take such position on such Tax Returns
only with the approval of the Companies, which shall not be
unreasonably withheld or delayed.
(e) The Companies, jointly and severally, shall pay and indemnify fully the
Purchaser and each Subsidiary from and against any Taxes that the Companies are
obligated to pay (i) under Section 1.6(c) hereof, or (ii) in the case of any
Subsidiary subject to Section 5.11(d)(i), attributable to any corporation other
than any of the Subsidiaries for any taxable period ending on or before the
Closing Date, including, without limitation, any liability for Taxes under
Treasury Regulation section 1.1502-6 or any similar provision under any state,
local, or foreign law attributable to any of the Companies or any affiliate of
any of the Companies (other than the Subsidiaries).
(f) The amounts paid by the Companies to the Insurance Subsidiaries
pursuant to Section 1.6(c), as they may be adjusted and determined pursuant to
Section 5.11(d)(ii), shall constitute full and complete discharge of the
obligations of the Companies under such provisions, and shall not be subject to
further adjustment under any circumstances. The Purchaser and the Insurance
Subsidiaries waive all recourse and claim against the Companies in the event
that the IRS or any state, local or foreign taxing authority should assess
additional Taxes against any of the Insurance Subsidiaries on account of the
Section 338(h)(10) Election; the Companies waive all recourse and claim against
the Purchaser and the Insurance Subsidiaries for any refund in the event that
the Taxes imposed as a result of the Section 338(h)(10) Election are ultimately
determined to be less than the amounts determined and paid under Section 1.6(c)
and Section 5.11(d)(ii).
(g) The Purchaser agrees that all of its rights to recover Taxes due from
the Companies are set forth herein and that neither it nor any of the Insurance
Subsidiaries shall have any other or further recourse against the Companies or
any of their affiliates on account of unpaid Taxes of any kind (whether or not
arising from the Section 338(h)(10) Election). Without limiting the generality
of the immediately preceding sentence, the Companies and their affiliates shall
have no liability for any Taxes that may be asserted by any tax authority for
any taxable year, whether ending before, on or after the Closing Date against
any Subsidiary, except as specifically set forth in this Agreement.
37
5.12 NOMINAL STOCKHOLDERS. On the Closing Date, the Companies shall cause
each nominal holder of any of the outstanding capital stock of any Subsidiary to
transfer to one or more nominal holders designated in writing to the Companies
by the Purchaser all shares of capital stock of such Subsidiary held nominally
by such holder; provided, however, that the director qualifying shares of
Keyport Life Insurance Company shall remain outstanding and subject to the
Agreements of Trust with respect thereto or shall be transferred to another
trust qualified to be a shareholder under applicable law.
5.13 OTHER CONFIDENTIALITY AGREEMENTS. The Companies shall promptly inform
the Purchaser of any breach of any confidentiality agreement (and the basic
facts of such breach) entered into by LFC or any of its affiliates or
representatives on behalf of LFC in connection with the sale of the Business
(each such agreement, a "Company Confidentiality Agreement"). The Companies
shall use commercially reasonable efforts, at the Companies' expense, to take
reasonable actions necessary to enforce the provisions of any such Company
Confidentiality Agreement.
5.14 INTERCOMPANY MATTERS. All intercompany accounts, agreements or other
arrangements (other than (i) the Transition Services Agreement and (ii)
agreements or other arrangements to continue after the Closing pursuant to (A)
Section 1.6, 5.8, 5.10, 5.11 or 5.15 of this Agreement, (B) the License
Agreement, (C) the LMIC Indemnification Agreement, (D) the Liberty Life
Agreement and (E) the sale of Liberty Life products by Independent Financial
Marketing Group, Inc.) between any of the Companies or any affiliate or
subsidiary of any of the Companies (other than the Subsidiaries), on the one
hand, and any Subsidiary, on the other hand, as of the Closing shall be settled
in accordance with their terms and consistent with past practices in the manner
provided in this Section 5.14 (all such accounts, agreements and arrangements,
the "Interconnects"). At least five Business Days prior to the Closing, the
Companies shall prepare and deliver to the Purchaser a statement setting out in
reasonable detail the calculation of all intercompany account balances in
respect of the Interconnects to be settled hereunder based upon the latest
available financial information as of such date and, to the extent reasonably
requested by the Purchaser, provide the Purchaser with supporting documentation
to verify the underlying intercompany charges and transactions. Such statement
will include actual amounts reflected in the most recently closed monthly books
and records and estimates for the period through the Closing Date based on the
latest financial information available as of such date. All such intercompany
account balances shall be paid in full in cash prior to the Closing. Except as
contemplated by (i) the Transition Services Agreement or (ii) agreements or
other arrangements to continue after the Closing pursuant to (A) Section 1.6,
5.8, 5.10, 5.11 or 5.15 of this Agreement, (B) the License Agreement, (C) the
LMIC Indemnification Agreement, (D) the Liberty Life Agreement or (E) the sale
of Liberty Life products by Independent Financial Marketing Group, Inc., all
Interconnects will be terminated effective as of the Closing.
5.15 TRANSFER OF RECORDS. On or promptly following the Closing Date, except
to the extent that such books of account, records and files are in possession of
the Subsidiaries, the Companies shall use commercially reasonable efforts to
deliver or cause to be delivered to the Purchaser originals or copies of, or
extracts of information containing, all of the Business's books of account,
records and files that are in the possession of any of the Companies or any
affiliate of any of the Companies, including, without limitation, all employee
files (for Business Employees only), monthly financial statements, trial
balances, general ledgers, accounting
38
records, forms, marketing materials, sales training manuals, sales promotional
data, customer lists, business plans, correspondence and litigation files, in
each case used in or related to the Business.
5.16 FINANCING. The Companies understand that the Purchaser intends to
finance the Purchase Price in part through a public offering or private
placement in Canada and elsewhere (the "Financing") by the Purchaser or one or
more affiliates of the Purchaser (together, the "Issuers"). The Companies will
cooperate with and provide all reasonable assistance to, and will cause their
respective affiliates and auditors to cooperate with and provide all reasonable
assistance to, the Issuers and their auditors and other professional advisors in
order to enable the Issuers to satisfy the requirements of applicable securities
laws in connection with any Financing, including participating in due diligence
sessions. The Purchaser shall bear (i) all reasonable fees of the Companies'
auditors for such assistance to the extent such assistance involves work not
otherwise required of or requested by the Companies under applicable SEC rules,
including in connection with the issuance of the Proxy Statement or the other
transactions contemplated hereby, and (ii) any reasonable out-of-pocket expenses
of the Companies or their affiliates in connection therewith. The Companies
acknowledge and agree that such cooperation will require the Companies, among
other things, to prepare and provide to the Issuers for inclusion in any
prospectus or other disclosure document prepared in connection with the
Financing (i) audited financial statements (consolidated or combined where
appropriate and prepared in accordance with U.S. generally accepted accounting
principles ("U.S. GAAP")) of the Subsidiaries and the Business for the year
ended December 31, 2000 and any quarterly interim statements for periods ending
after December 31, 2000, including separate notes reconciling the differences
between U.S. GAAP and the principles stated in the Handbook of the Canadian
Institute of Chartered Accountants and (ii) other information concerning the
Subsidiaries and the Business. The Purchaser understands and acknowledges that
its obligations under this Agreement, including, without limitation, its
obligation to consummate the Sale, are not conditioned on the financing referred
to in this Section 5.16 or any other financing.
5.17 PRIVACY POLICY AND PRIVACY MAILING. The Companies shall comply in all
material respects with all privacy requirements as prescribed by the
Gramm-Leach-Bliley Act, 5 U.S.C. ss.6801 et seq., and the rules and regulations
thereunder.
5.18 LFD INTELLECTUAL PROPERTY. Prior to the Closing Date, the Companies
shall cause Liberty Funds Distributor, Inc. ("LFDI") to assign, transfer and
convey to the Purchaser or an affiliate of the Purchaser designated by the
Purchaser, without payment of additional consideration, all of LFDI's right,
title and interest in and to all copyrights owned by LFDI that are related to or
used in the Business.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE SALE. The
respective obligations of each party to effect the Sale shall be subject to the
fulfillment or waiver at or prior to the Closing of each of the following
conditions:
39
(a) The Sale shall have been authorized by the affirmative vote of the
holders of a majority of the outstanding shares of the capital stock of LFC as
of the applicable record date voting as a single class;
(b) Any waiting period (and any extension thereof) applicable to the
consummation of the Sale under the Hart-Scott-Rodino Act shall have expired or
been terminated and the Companies or the Purchaser shall have received all of
the other consents and approvals required under Applicable Law, the failure of
which to obtain would prevent the consummation of the Sale or reasonably be
expected, individually or in the aggregate, to result in a Company Material
Adverse Effect or a Purchaser Material Adverse Effect, and such consents or
approvals shall be in full force and effect and all statutory waiting periods in
respect thereof shall have expired without the imposition of any conditions
which the parties would be excused from accepting under Section 5.4;
(c) No order, decree or ruling issued by a court of competent jurisdiction
or by a Government Entity nor any statute, rule, regulation or executive order
promulgated or enacted by any Government Entity shall be in effect that would
prohibit the Sale or make illegal the acquisition or ownership of the Purchased
Securities by the Purchaser or otherwise prevent the consummation of the Sale;
provided, that the party seeking to assert this condition shall have complied
with its obligations under Section 5.4; and
(d) The Transition Services Agreement shall be in full force and effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANIES TO EFFECT THE
SALE. The obligation of the Companies to effect the Sale is further subject to
fulfillment (or waiver by the Companies) of the following conditions:
(a) The representations and warranties of the Purchaser contained herein
shall be true and correct in all respects as of the date of this Agreement and
as of the Closing Date with the same effect as though made as of the Closing
except (x) for changes specifically permitted by the terms of this Agreement,
(y) that the accuracy of representations and warranties that by their terms
speak as of the date of this Agreement or some other date will be determined as
of such date and (z) where the failure of the representations and warranties to
be true and correct (without giving effect to any qualifications as to
"material" or similar qualifications) would not, individually or in the
aggregate, reasonably be expected to impair materially the ability of the
Purchaser to perform its obligations hereunder;
(b) The Purchaser shall have performed in all material respects all
obligations and complied in all material respects with all covenants required by
this Agreement to be performed or complied with by it prior to the Closing;
(c) The Purchaser shall have delivered to the Companies a certificate,
dated the Closing Date and signed by a duly authorized officer, to the effect
that each of the conditions specified in clauses (a) and (b) of this Section 6.2
is satisfied; and
(d) The Purchaser shall have paid the Purchase Price, as contemplated by
Section 1.2.
40
6.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE PURCHASER TO EFFECT THE
SALE. The obligation of the Purchaser to effect the Sale is further subject to
the fulfillment (or waiver by the Purchaser) of the following conditions:
(a) The representations and warranties of the Companies contained herein
shall be true and correct in all respects as of the date of this Agreement and
as of the Closing Date with the same effect as though made as of the Closing
Date, except (x) for changes specifically permitted by the terms of this
Agreement, (y) that the accuracy of representations and warranties that by their
terms speak as of the date of this Agreement or some other date will be
determined as of such date and (z) where the failure of such representations and
warranties to be true and correct (without giving effect to any qualifications
as to Company Material Adverse Effect, "material" or similar qualifications)
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect;
(b) The Companies shall have performed in all material respects all
obligations and complied in all material respects with all covenants required by
this Agreement to be performed or complied with by them prior to the Closing;
(c) Each of the Companies shall have delivered to the Purchaser a
certificate, dated the Closing Date and signed by its Chief Executive Officer to
the effect that each of the conditions specified in clauses (a) and (b) of this
Section 6.3 with respect to such Company is satisfied;
(d) The Companies shall have obtained all consents, waivers, or approvals,
necessary to provide that the consummation of the Sale does not constitute a
default under, or effect of give rise to a right of termination of the Material
Contracts identified in Section 6.3(d) of the Disclosure Schedule;
(e) There shall not have been a Company Material Adverse Effect since the
date of this Agreement;
(f) The Companies shall have delivered to the Purchaser certificates
representing the Purchased Securities duly endorsed in blank or with duly
executed stock powers in blank, in proper form for transfer;
(g) The Companies shall deliver to the Purchaser a certificate of
Non-Foreign Status duly executed by an officer of the Company in a form
reasonably acceptable to Purchaser for purposes of satisfying Purchaser's
obligations under Treas. Reg. ss.1.1445-29(c)(3); and
(h) Each of the License Agreement, the LMIC Indemnification Agreement and
the Liberty Life Agreement shall be in full force and effect.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated and the Sale may be
abandoned at any time prior to the Closing, whether prior to or (except as
provided in Section 7.1(c)) after approval of the Sale by LFC's Stockholders, as
follows:
41
(a) by mutual written consent of the Purchaser and the Companies;
(b) by either the Purchaser or the Companies if (i) the Closing shall not
have occurred on or before March 31, 2002 (the "Outside Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)(i)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date or (ii) if there shall be any order
which is final and nonappealable preventing the consummation of the Sale;
(c) prior to (but not subsequent to) the approval by LFC's Stockholders at
the Company Stockholders' Meeting, by the Purchaser or the Companies if (i) the
Board of Directors of LFC withdraws, modifies, changes or fails to reaffirm
(within a reasonable period of time after a request by the Purchaser) its
recommendation of the Sale in a manner adverse to the Purchaser, (ii) the Board
of Directors of LFC shall have recommended to LFC's Stockholders another
Acquisition Proposal, or (iii) a tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of LFC is commenced, and the Board of
Directors of LFC fails within the time provided in Rule 14e-2 under the Exchange
Act to recommend against acceptance of such tender offer or exchange offer by
LFC's Stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by LFC's Stockholders);
provided, however, that the Companies may not terminate this Agreement pursuant
to this Section 7.1(c) unless the Companies shall have complied in all respects
with Section 5.5 (except for such failures to so comply as shall not have
actually prejudiced the Purchaser) and shall have paid to the Purchaser the
Termination Fee; provided further, that any public statement by LFC that (A) it
has received an Acquisition Proposal or otherwise taken any action permitted by
Section 5.5(a) or (B) otherwise describes the operation of the provisions of
this Agreement relating to an Acquisition Proposal, termination, the Board of
Directors' recommendation of the Sale, or the transactions contemplated hereby,
shall not, in and of themselves, be deemed to be a proposal to withdraw, modify
or change the Board of Directors' recommendation for purposes of this Section
7.1(c);
(d) by either the Purchaser or the Companies if the Sale shall fail to
receive the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of LFC as of the applicable record date voting as a
single class for approval when voted on by LFC's Stockholders at the Company
Stockholders' Meeting (or any permitted adjournment thereof);
(e) by the Purchaser upon a breach of any representation or warranty or
material covenant or agreement on the part of the Companies set forth in this
Agreement, or if any representation or warranty of the Companies shall have
become untrue, in either case such that the conditions set forth in Section
6.3(a) or Section 6.3(b) would not be satisfied ("Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
Companies within a thirty day period, the Purchaser may not terminate this
Agreement under this Section 7.1(e) during such thirty-day period for so long as
the Companies continue to exercise commercially reasonable efforts as may be
appropriate to cure such Terminating Company Breach; or
(f) by the Companies upon a breach of any representation or warranty or
material covenant or agreement on the part of the Purchaser set forth in this
Agreement, or if any
42
representation or warranty of the Purchaser shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied ("Terminating Purchaser Breach"); provided, however,
that, if such Terminating Purchaser Breach is curable by the Purchaser within a
thirty day period, the Companies may not terminate this Agreement under this
Section 7.1(f) during such thirty-day period for so long as the Purchaser
continues to exercise commercially reasonable efforts as may be appropriate to
cure such Terminating Purchaser Breach.
7.2 EFFECT OF TERMINATION. On termination of this Agreement as provided in
Section 7.1, all obligations and agreements of the parties set forth in Articles
1 through 6, except Section 5.3, shall forthwith terminate and be of no further
force or effect; provided that if the Purchaser receives the Termination Fee
contemplated by Section 7.5, neither the Purchaser nor any of its affiliates
shall assert, prosecute or pursue in any manner, directly or indirectly, any
claim or cause of action against any of the Companies or any of its officers,
directors or affiliates; provided further that the foregoing shall not relieve
any party of liability for damages actually incurred as a result of any willful
breach of any of such provisions in Articles 1 through 6 prior to such
termination. Neither the Purchaser nor the Companies may elect to terminate this
Agreement pursuant to more than one clause of Section 7.1.
7.3 AMENDMENT. This Agreement may not be amended except by action of each
of the parties hereto set forth in an instrument in writing signed on behalf of
each of the parties hereto; provided, however, that after approval of the Sale
by LFC's Stockholders, without the further approval of LFC's Stockholders no
amendment may be made that would: (i) reduce the Purchase Price or change the
form thereof; or (ii) change any other terms and conditions of this Agreement if
any of the changes, alone or in the aggregate, would materially adversely affect
LFC's Stockholders (other than the Purchaser and its affiliates).
7.4 WAIVER. At any time prior to the Closing, whether before or after the
Company Stockholders' Meeting, subject to the proviso contained in Section 7.3,
any party may waive compliance by any other party with any agreements of such
other party. Any agreement on the part of a party hereto to any such waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party by a duly authorized officer. The failure of any party to assert any
of its rights under this Agreement shall not constitute a waiver of such rights.
7.5 EXPENSES; TERMINATION FEE.
(a) If this Agreement is terminated by the Purchaser pursuant to Section
7.1(e) or by the Companies pursuant to Section 7.1(f), then the party
terminating this Agreement shall be entitled to reimbursement by the other party
of all reasonable out-of-pocket costs and expenses (including, without
limitation, fees and disbursements of counsel, financial advisors, actuaries and
accountants) incurred by it in connection with this Agreement and the
transactions contemplated hereby. Notwithstanding the foregoing, if either (i)
the Companies have received an Acquisition Proposal at the time this Agreement
is terminated by the Purchaser pursuant to Section 7.1(e) or receive an
Acquisition Proposal within three months after the date of such termination
under Section 7.1(e) and within 12 months after the date of termination the
Companies consummate a sale of the Purchased Subsidiaries or all or
substantially all of the assets of the Subsidiaries as a whole for an amount
greater than the Purchase Price (a
43
"Subsequent Deal"), or (ii) this Agreement is terminated by the Purchaser
pursuant to Section 7.1(e) as a result of a breach by the Companies of Section
5.5, then the Companies shall pay the Purchaser within ten Business Days after
(a) the consummation of the Subsequent Sale, in the case of the circumstances
described in clause (i), or (b) the termination date, in the case of the
circumstances described in clause (ii), the Termination Fee (as defined below)
in immediately available funds, less any expenses of the Purchaser previously
reimbursed by the Companies.
(b) If this Agreement is terminated by the Companies pursuant to Section
7.1(c), then the Companies shall pay to the Purchaser as a condition precedent
to such termination a fee of US$85,100,000 (the "Termination Fee") in
immediately available funds. If this Agreement is terminated by the Purchaser
pursuant to Section 7.1(c), then the Companies shall pay to the Purchaser within
five Business Days after the date of such termination the Termination Fee.
(c) The parties acknowledge that the agreements contained in this Section
7.5 are an integral part of the transactions contemplated by this Agreement and
that, without these agreements, the parties would not enter into this Agreement.
Accordingly, if any party fails to pay any payments due to the other party
pursuant to this Section 7.5 and, in order to obtain such payment, the party
that has not received such payment commences a suit that results in a judgment
against the other party, such other party shall pay to such party that had not
received such payment (in addition to the amount of such judgment) all
reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel, financial advisors, actuaries and
accountants) incurred by the party that had not received such payment in
connection with such suit, together with interest on the amount of such judgment
at the prime rate of Citibank N.A. in effect on the date that such payment was
required to be made (in lieu of and not in addition to any other interest
payable under applicable law).
(d) This Section 7.5 shall survive any termination of this Agreement.
ARTICLE 8
GENERAL PROVISIONS
8.1 PUBLICITY. For so long as this Agreement is in effect, except as such
party may be required by applicable law or applicable national stock exchange,
SEC or NASD or other regulatory requirements, none of the Companies or the
Purchaser shall, nor shall any of them permit any of their respective
subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to the Sale without the consent of the other
party, which consent shall not be unreasonably withheld or delayed. Whenever any
of the Companies or the Purchaser proposes to make a required press release or
public announcement, it shall use its reasonable efforts to allow the other
reasonable time to comment on such release or announcement in advance, but the
final form and content of any such required release or announcement shall be at
the discretion of the disclosing party.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been properly given if (i) delivered
personally, (ii) sent by certified or registered mail, return receipt requested,
(iii) sent by overnight courier for delivery on the next Business Day, or (iv)
sent by confirmed telecopy, provided that a hard copy of all such telecopied
materials is thereafter sent within 24 hours in the manner described in clauses
(i), (ii)
44
or (iii), to the parties at the following addresses or at such other addresses
as shall be specified by the parties by like notice:
(a) If to the Purchaser
Sun Life Assurance Company of Canada
One Sun Life Executive Park
Wellesley Hills, MA 02481-5699
Attention: Daniel Wood, Vice President - Strategic Ventures
Telecopy No.: (781) 237-0707
and
Sun Life Assurance Company of Canada
One Sun Life Executive Park
Wellesley Hills, MA 02481-5699
Attention: Peter Demuth, Vice President and Chief
Counsel U.S. Operations
Telecopy No.: (781) 446-3250
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603-3441
Attention: Edward S. Best, Marc F. Sperber and D. Michael Murray
Telecopy No.: (312) 701-7711
(b) If to the Companies:
Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210-2214
Attention: Lindsay Cook, Executive Vice President
Telecopy No.: (617) 720-5376
and
Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210-2214
Attention: Kevin M. Carome, Senior Vice President
and General Counsel
Telecopy No.: (617) 742-7338
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: William P. Gelnaw, Jr., Esq.
Telecopy No.: (617) 248-4000
45
Notices provided in accordance with this Section 8.2 shall be deemed delivered
(i) on the date of personal delivery, (ii) on the date such notice is actually
received or delivery thereof is refused at the specified address, or (iii) on
the date of confirmation of receipt of the telecopy transmission, as the case
may be.
8.3 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of the Purchaser or the Companies, the word "subsidiary" or
"subsidiaries" means any corporation more than 50% of whose outstanding voting
securities, or any partnership, joint venture or other entity more than 50% of
whose total equity interests are, directly or indirectly, owned by the Purchaser
or the Companies, as the case may be; and the word "affiliates" shall have the
meaning assigned to such term under Rule 405 of the Securities Act. For purposes
of this Agreement, the Companies shall not be deemed to be an affiliate or
subsidiary of the Purchaser. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Inclusion of information in the Disclosure
Schedule shall not be taken as an admission or acknowledgment of the materiality
of such information.
8.4 REPRESENTATIONS AND WARRANTIES; ETC. The representations and
warranties of the Companies and the Purchaser contained herein shall expire
with, and be terminated and extinguished upon, consummation of the Sale. This
Section 8.4 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the consummation of the Sale.
8.5 MISCELLANEOUS.
(a) This Agreement together with the Confidentiality Agreement constitutes
the entire agreement and supersedes all other prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement is not intended to confer upon any other
person any rights or remedies hereunder, create any agreement of employment with
any person or otherwise (except for Sections 5.8 and 5.10) create any
third-party beneficiary hereto. The rights of the parties under this Agreement
shall not be assigned prior to the consummation of the Sale, or a termination
pursuant to Article 7, provided, however, that the Purchaser may assign its
rights and obligations in whole or in part to any of its affiliates, but no such
assignment shall relieve the Purchaser of its obligations hereunder. This
Agreement shall be governed in all respects, including validity, interpretation
and effect, by the internal laws of Massachusetts, without giving effect to the
principles of conflict of laws. This Agreement may be executed in one or more
counterparts (including by facsimile transmission) which together shall
constitute a single agreement. Any reference herein to any agreement shall be
deemed to mean such agreement as it may be amended from time to time. All
references to dollars in this Agreement and any agreements or other documents
contemplated hereby shall be deemed to refer to United States dollars, unless
specifically stated
46
otherwise, and all amounts to be paid by any party under this Agreement or any
agreement or other document contemplated hereby shall be made in United States
dollars.
(b) Each party hereby irrevocably and unconditionally consents and submits
to the jurisdiction of the courts of Massachusetts and the United States of
America located in Massachusetts for any actions, suits or proceedings arising
out of or relating to this Agreement and the transactions contemplated hereby
(and each party agrees not to commence any action, suit or proceeding relating
thereto except in such courts), and further agrees that service of any process,
summons, notice or document by United States registered mail to the respective
addresses set forth in Section 8.2 shall be effective service of process for any
action, suit or proceeding brought against each party in any such court. Each
party hereby irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby, in the courts of Massachusetts or the United
States of America located in Massachusetts, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
8.6 VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect so
long as the economic substance of the transactions contemplated hereby is not
affected in any manner adverse to any party.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]
47
IN WITNESS WHEREOF, the Purchaser and the Companies have caused this
Agreement to be duly executed as of the date first above written by their
respective officers thereunto duly authorized.
SUN LIFE ASSURANCE COMPANY LIBERTY FINANCIAL COMPANIES, INC.
OF CANADA
By: /s/ C. James Preieur By: /s/ Gary L. Countryman
------------------------- ---------------------------------
C. James Preieur Gary L. Countryman
President and Chief President and Chief Operating Officer
Operating Officer
and
By: /s/ James A. McNulty III
--------------------------------
James A. McNulty III
Executive Vice President
LIBERTY FINANCIAL SERVICES, INC.
By: /s/ Gary L. Countryman
--------------------------------
Gary L. Countryman
President and Chief
Executive Officer