1
STOCK PURCHASE AGREEMENT
Dated as of
November 28, 1995
between
THE TRAVELERS INSURANCE GROUP INC.
and
AETNA LIFE AND CASUALTY COMPANY
relating to the purchase and sale
of 100% of the Common Stock of
THE AETNA CASUALTY AND SURETY COMPANY
and
THE STANDARD FIRE INSURANCE COMPANY
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TABLE OF CONTENTS
Page
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ARTICLE 1
DEFINITIONS
1.1 Definitions..............................................2
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale........................................9
2.2 Closing..................................................9
2.3 September Balance Sheets................................12
2.4 Certain Contributions and Adjustments...................15
2.5 Portfolio Adjustment....................................16
2.6 Post-Closing Payments...................................18
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Existence and Power...........................18
3.2 Corporate Authorization.................................19
3.3 Governmental Authorization..............................20
3.4 Non-Contravention.......................................20
3.5 Capitalization..........................................21
3.6 Ownership of Shares.....................................22
3.7 Subsidiaries............................................22
3.8 Financial Statements; SEC Reports.......................24
3.9 Absence of Certain Changes..............................25
3.10 No Undisclosed Material Liabilities; Investments........29
3.11 Material Contracts......................................31
3.12 Litigation..............................................34
3.13 Compliance with Laws....................................36
3.14 Properties..............................................36
3.15 Licenses and Permits; Policies; Regulatory Matters......37
3.16 ERISA Representations...................................38
3.17 Environmental Matters...................................40
3.18 Intercompany Accounts...................................44
3.19 No Representation with Respect to Reserves..............45
3.20 Intellectual Property; Software.........................45
3.21 Labor Matters...........................................47
3.22 Loans and Advances......................................47
3.23 All Assets Necessary....................................48
3.24 Certain Policies........................................48
3.25 Disclosure..............................................49
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Existence and Power...........................49
4.2 Corporate Authorization.................................49
4.3 Governmental Authorization..............................50
4.4 Non-Contravention.......................................50
4.5 Financing...............................................51
4.6 Purchase for Investment.................................51
ARTICLE 5
COVENANTS OF SELLER
5.1 Conduct of the Companies................................52
5.2 Access to Information...................................58
5.3 Notices of Certain Events...............................59
5.4 Resignations............................................60
5.5 Covenant Not to Compete.................................60
5.6 No Solicitation.........................................61
5.7 Certain Other Transactions..............................61
5.8 Confidentiality Agreements..............................63
5.9 Other Financial Statements..............................63
5.10 1992 Audit..............................................66
5.11 Use of Computer Software................................66
5.12 Aetna Casualty Company..................................68
ARTICLE 6
COVENANTS OF BUYER
6.1 Confidentiality.........................................68
6.2 Post-Closing Access.....................................68
6.3 AmRe Agreement..........................................69
ARTICLE 7
COVENANTS OF BUYER AND SELLER
7.1 Reasonable Efforts......................................70
7.2 Certain Filings.........................................71
7.3 Public Announcements....................................71
7.4 Trademarks; Trade Names.................................72
7.5 Intercompany Accounts...................................73
7.6 Non-Solicitation of Employees...........................75
7.7 Real Estate.............................................76
7.8 Transition Agreements...................................77
7.9 Post-Closing Access.....................................77
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Page
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7.10 Supplemental Disclosure.................................78
7.11 Investment Portfolio; Real Estate Transactions..........79
7.12 Other Agreements........................................83
7.13 Certain Insurance Policies..............................85
ARTICLE 8
TAX MATTERS
8.1 Definitions.............................................86
8.2 Tax Representations.....................................88
8.3 Tax Covenants...........................................89
8.4 Termination of Existing Tax Sharing Agreements..........92
8.5 Return Filings and Payment of Tax.......................93
8.6 Cooperation on Tax Matters..............................98
8.7 Tax Benefits...........................................100
8.8 Indemnification by Seller..............................110
8.9 Indemnification by Buyer...............................113
8.10 Survival; Exclusivity..................................116
8.11 Purchase Price Adjustment..............................116
8.12 Late Payments..........................................116
8.13 No Duplicative Payments; Offsets.......................117
8.14 Rule of Construction...................................117
8.15 Notices................................................117
8.16 Allocation of Purchase Price...........................117
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees..............................................118
9.2 Pension Plan...........................................118
9.3 Individual Account Plan................................122
9.4 Certain Welfare Benefit Plans..........................123
9.5 Other Employee Benefit Plans and Benefit Arrangements..124
9.6 Plans Following the Closing............................125
9.7 Indemnification........................................131
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller.........132
10.2 Conditions to Obligation of Buyer.....................133
10.3 Conditions to Obligation of Seller....................135
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Page
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ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival..............................................136
11.2 Indemnification.......................................136
11.3 Procedures; Exclusivity...............................137
ARTICLE 12
TERMINATION
12.1 Grounds for Termination...............................138
12.2 Effect of Termination.................................139
ARTICLE 13
MISCELLANEOUS
13.1 Notices...............................................139
13.2 Amendments and Waivers................................140
13.3 Expenses..............................................141
13.4 Successors and Assigns................................141
13.5 Governing Law.........................................141
13.6 Jurisdiction..........................................142
13.7 Counterparts; No Third Party Beneficiaries............142
13.8 Entire Agreement......................................142
13.9 Construction..........................................143
EXHIBITS
Exhibit 5.11 Software License Agreement
Exhibit 7.4(a) License Agreement
Exhibit 7.4(b) Assignment Agreement
Exhibit 7.7 Real Estate Term Sheet
Exhibit 7.8 Transition Agreement Term Sheet
DISCLOSURE SCHEDULES
Schedule 2.3(b) Reserve Categories and Amounts
Schedule 3.3 Governmental Authorization
Schedule 3.4 Non-Contravention
Schedule 3.7 Subsidiaries
Schedule 3.9 Absence of Certain Changes
Schedule 3.9(xiii) Seller's Investment Policies
Schedule 3.10(a) No Undisclosed Material Liabilities
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Page
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Schedule 3.10(b) Company Investment Assets
Schedule 3.11 Material Contracts
Schedule 3.12 Litigation
Schedule 3.13 Compliance with Laws
Schedule 3.15 License and Permits; Policies; Regulatory
Matters
Schedule 3.16(a) Employee Plans
Schedule 3.16(c) Certain Non-Multiemployer Employee Plans
Schedule 3.16(d)(i) Benefit Arrangement
Schedule 3.17 Environmental Matters
Schedule 3.18 Intercompany Accounts
Schedule 3.20 Software Licenses
Schedule 3.21 Labor Matters
Schedule 3.22 Loans & Advances
Schedule 3.23 All Assets Necessary
Schedule 3.24 Certain Policies
Schedule 4.3 Governmental Authorization
Schedule 4.4 Non-Contravention
Schedule 5.1 Conduct of the Companies
Schedule 5.5 Covenant Not to Compete
Schedule 5.9 Balance Sheet Adjustments
Schedule 7.5(c) Certain Liabilities
Schedule 7.11(a) Equity Portfolio
Schedule 7.11(aa) Securities Not in Equity Portfolio
Schedule 7.11(b) Real Estate Transactions
Schedule 7.11(c) Shared Mortgages; Cross Collateralized
Mortgages; Shared Real Estate
Schedule 8.2 Tax Representations
Schedule 8.8(a) Cushion
Schedule 9.1 P&C Employees
Schedule 9.2(a) Reimbursement Formula
Schedule 9.3(c) Supplemental Plan
Schedule 9.4(a) Certain Welfare Benefit Plans
Schedule 9.5(c) Other Employee Benefit Plans and
Benefit Arrangements
Schedule 9.5(d) ACEShares and APEX Unit Awards
Schedule 9.6(c)(i) Severance Plans
Schedule 9.6(c)(ii) Affected Employees
Schedule 9.6(c)(iii)Certain Employment Agreements
Schedule 9.6(c)(iv) Certain Retention Bonus Payments
Schedule 9.6(d)(i) 1996 Vacation Days Calculation
Schedule 9.6(d)(ii) 1997 Vacations Days Calculation
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STOCK PURCHASE AGREEMENT
AGREEMENT dated as of November 28, 1995 between
The Travelers Insurance Group Inc., a Connecticut stock
insurance corporation ("Buyer"), and Aetna Life and Casualty
Company, a Connecticut stock insurance corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is the record and beneficial owner of
all of the issued and outstanding shares of (i) common stock,
par value $25,000.00 per share (the "ACSC Common Stock"), of The
Aetna Casualty and Surety Company, a Connecticut insurance
corporation ("ACSC"), and (ii) common stock, par value $250.00
per share (the "SFIC Common Stock"), of The Standard Fire
Insurance Company, a Connecticut insurance corporation ("SFIC"
and, together with ACSC, the "Companies") ; and
WHEREAS, Seller desires to sell all of the issued and
outstanding shares of ACSC Common Stock and SFIC Common Stock
(collectively, the "Shares") to Buyer, and Buyer desires to
purchase the Shares from Seller, upon the terms and subject to
the conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used
__________
herein, have the following meanings:
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling, controlled by,
or under common control with such Person; provided that neither
________
of the Companies nor any of their respective Subsidiaries shall
be considered an Affiliate of Seller.
"Agreement" means this agreement, including the
Disclosure Schedules and Exhibits hereto.
"A.M. Best" means A.M. Best Company.
"Ancillary Agreements" means (i) the Transition
Agreements, (ii) the License Agreement, (iii) the Assignment
Agreement, (iv) the Software License Agreement and (v) the
agreements referred to in Section 7.7.
"Balance Sheet Date" means September 30, 1995.
"Benefit Arrangement" means any employment, severance
or similar contract, arrangement or policy, or any plan or
arrangement (whether or not written) providing for severance
benefits, insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights or other forms
of incentive compensation or post-retirement insurance,
compensation or benefits that (i) is not an Employee Plan, (ii)
is entered into or maintained, as the case may be, by Seller
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or any of its ERISA Affiliates and (iii) covers any employee or
former employee of any of the Companies or any of their
Subsidiaries.
"Closing Date" means the date of the Closing.
"Employee Plan" means any "employee benefit plan," as
defined in Section 3(3) of ERISA, that (i) is subject to any
provision of ERISA, (ii) is maintained, administered or
contributed to by Seller or any of its ERISA Affiliates and
(iii) covers any employee or former employee of any of the
Companies or any of their Subsidiaries.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"ERISA Affiliate" of any entity means any other entity
which, together with such entity, would be treated as a single
employer under Section 414 of the Code.
"GAAP" means U.S. generally accepted accounting
principles.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"Individual Account Plan" means the Aetna Life and
Casualty Company Incentive Savings Plan.
"Lien" means, with respect to any property or asset,
any mortgage, lien, pledge, charge, security interest,
encumbrance or other adverse claim of any kind in respect of
such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of
a vendor or lessor under any conditional
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sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Material Adverse Effect" means, for purposes of
Section 3.9 and Article 10 only, with respect to any Person or
Persons, a material adverse effect on the financial condition,
results of operations, business, assets or liabilities of such
Person or Persons and its or their Subsidiaries, taken as whole.
"Multiemployer Plan" means each Employee Plan that is
a multiemployer plan, as defined in Section 3(37) of ERISA.
"Pension Plan" means the Retirement Plan for Employees
of the Aetna Life and Casualty Company.
"Person" means an individual, corporation,
partnership, association, trust, limited liability company or
other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"SAP" means the accounting procedures and practices
prescribed or permitted from time to time by the National
Association of Insurance Commissioners and adopted or
promulgated by the respective states of incorporation of the
Companies and employed in a consistent manner throughout the
periods involved.
"Subsidiary" means, with respect to any Person, any
entity of which securities or other ownership interests having
ordinary voting power to elect 50% or more of the board of
directors or other persons performing similar functions are at
the time directly or indirectly owned by such Person.
"Title IV Plan" means an Employee Plan, other than any
Multiemployer Plan, subject to Title IV of ERISA.
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"Transition Agreements" means the transition
agreements to be entered into in accordance with Section 7.8.
(b) Each of the following terms is defined in the
Section set forth opposite such term:
Term Section
____ _______
ACC 7.12
Acquisition Proposal 5.6
AC&S of Illinois 5.7
Adequate Rating 6.3
Advance Accrual Period 9.2
Aetna Casualty Company 5.12
Aetna Re U.K. Stop Loss 5.7
Affected Employees 9.6
AHP 7.12
XXXX 5.7
AL&C Business 7.12
AL&C Buyer 7.12
AmRe Agreement 6.3
Annual Statements 3.8
Assignment Agreement 7.4
Attributable Amount 8.5
Bond Portfolio 7.11
Buyer Loss 8.8
Buyer Plan 9.3
Claims Provision 3.19
Closing 2.2
Closing Date GAAP Balance Sheet 5.9
Code 8.1
Combined State Tax 8.1
Company Facilities 3.17
Company Investment Assets 3.10
Company Securities 3.5
Confidentiality Agreement 6.1
Continued Employment 9.6
Conveyance Taxes 8.3
Cross Collateralized Mortgages 7.11
Cushion 8.8
Damages 11.2
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Term Section
____ _______
Deemed Closing Date 5.9
Direct Rollover 9.3
Disposal Notice 8.6
Environmental Reports 3.17
Environmental Laws 3.17
Equity Adjustment 2.2
Equity Portfolio 7.11
ERI 7.11
ERI Stock 7.11
Estimated NOL Value 2.2
Estimated Portfolio Adjustment 2.2
Event 8.7
Excluded Taxes 8.8
Federal Tax 8.1
Federal Tax Detriment 8.7
Final Determination 8.1
Final NOL Value 2.2
Final Portfolio Adjustment 2.5
Fund Balance 6.3
GAAP Equity Adjustment 2.2
Hazardous Substances 3.17
Immediate Parent 6.3
Indemnified Party 11.3
Indemnifying Party 11.3
Intellectual Property 3.20
Independent Accountants 2.3
License Agreement 7.4
Maximum Annual Contribution 9.2
MBIA 7.11
MBIA Stock 7.11
Mortgaged Properties 3.17
New Plan 9.2
NOL Value 2.2
NOLs 8.1
Notifying Party 8.6
Notified Party 8.6
Obligor 6.3
P&C Employees 9.1
Permits 3.15
Permitted Capital Contribution 2.2
Points 9.2
Policyholders' Surplus 2.2
Portfolio Adjustment 2.2
Post-Closing Special Items 8.7
Post-Closing Tax Period 8.1
Post-September 30 Special Items 8.7
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Term Section
____ _______
Post-September 30 Tax Period 8.1
Pre-September 30 Tax Period 8.1
Prior Welfare Plan 9.4
Purchase Price 2.2
Reattributed NOLs 8.7
Regulators 3.8
REO 3.17
Replacement Welfare Plans 9.4
Retiree Benefit Program 9.6
Returns 8.2
SAP Equity Adjustment 2.2
SEC 3.8
SEC Reports 3.8
Seller Group 8.1
Seller Loss 8.9
Separate State Income Tax 8.1
Separate State Tax 8.1
September Adjusted Balance Sheets 5.9
September Adjusted GAAP Balance Sheet 5.9
September Adjusted SAP Balance Sheet 5.9
September Audited Balance Sheets 5.9
September Audited GAAP Balance Sheet 5.9
September Audited SAP Balance Sheet 5.9
September Unaudited GAAP Balance Sheet 2.3
September 30 NOL's 2.2
Severance Plans 9.6
Shared Mortgages 7.11
Shared Real Estate 7.11
Significant Agreements 3.11
Software 3.20
Software License Agreement 5.11
Special Item Federal Tax Detriment 8.7
Special Items 8.7
Stockholder's Equity 2.2
Stop Loss Business 7.12
Stop Loss Quota 7.12
Straddle Period 8.1
Subsidiary Securities 3.7
Supplemental Plan 9.3
Tax 8.1
Tax Benefit 8.1
Tax Claim 8.8
Tax Indemnified Party 8.3
Tax Indemnifying Party 8.3
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Term Section
____ _______
Tax Sharing Agreement 8.1
Taxing Authority 8.1
Termination Account 6.3
Transferred Employees 9.1
Transition Committee 5.1
Travelers Plan 9.2
Unaudited September Balance Sheet 3.8
Welfare Transfer Date 9.4
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ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to
_________________
the conditions of this Agreement, Seller agrees to sell to Buyer
and Buyer agrees to purchase from Seller, the Shares at the
Closing.
2.2 Closing. The closing (the "Closing") of the
_______
purchase and sale of the Shares hereunder shall take place at
the offices of Xxxxx Xxxx & Xxxxxxxx, 000 Xxxxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx as soon as possible, but in no event later than
two business days, after satisfaction of the conditions set
forth in Article 10, or at such other time or place as Buyer and
Seller may agree.
(a) At the Closing, Buyer shall deliver to Seller,
in immediately available funds by wire transfer to an
account of Seller designated in writing by Seller, by
notice to Buyer not later than two business days prior to
the Closing Date, the Purchase Price. The "Purchase
Price" shall be: (i) $4,000,000,000, (ii) plus an amount
equal to $602,740 per day for each day from and including
October 1, 1995 to but not including the Closing Date,
(iii) plus the aggregate amount of Permitted Capital
Contributions, if any, made by Seller, increased by an
amount equal to 0.015068493% of each such Permitted
Capital Contribution for each day from and including the
date such Permitted Capital Contribution is made to but
not including the Closing Date, (iv) minus the Equity
Adjustment, if any, if the Equity Adjustment has been
determined prior to the Closing Date, increased by an
amount equal to 0.015068493% of such Equity Adjustment for
each day from and including
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October 1, 1995 to but not including the Closing Date, (v)
minus an amount equal to the Estimated NOL Value, and (vi)
if the Estimated Portfolio Adjustment is an aggregate net
gain, plus an amount equal to such gain, or if the
Estimated Portfolio Adjustment is an aggregate net loss,
minus an amount (expressed as a positive number) equal to
such loss. If the Equity Adjustment has not been
determined prior to the Closing Date, the Equity
Adjustment, if any, shall be paid in accordance with
Section 2.3(e).
(b) At the Closing, Seller shall deliver to Buyer
certificates for the Shares, duly endorsed or accompanied
by stock powers duly endorsed in blank with all
appropriate transfer tax stamps affixed.
(c) For the purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Estimated NOL Value" means Seller's good
faith
estimate of the NOL Value furnished to Buyer (it being
understood that Seller shall deliver such estimate not
less than five business days prior to the Closing Date
together with a statement setting forth the relevant
calculations in reasonable detail).
(ii) "Estimated Portfolio Adjustment" means the
Portfolio Adjustment, as estimated in good faith by Seller
and delivered to Buyer not later than five business days
prior to the Closing Date.
(iii) "Equity Adjustment" means the greater of
the
GAAP Equity Adjustment and the SAP Equity Adjustment.
(iv) "Final NOL Value" means the NOL Value
calculated as promptly as practicable after the filing of
the Seller Group tax return which includes the Tax period
beginning after December 31, 1995 and ending on the
Closing Date.
(v) "Final Portfolio Adjustment" means the
Portfolio Adjustment (i) as shown on Seller's calculation
delivered pursuant to Section 2.5(a), if no notice of
disagreement with respect thereto has been delivered
pursuant to
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Section 2.5(b) and the full period during which such
notice may be delivered has elapsed; or (ii) if such a
notice of disagreement has been delivered, as agreed by
Buyer and Seller pursuant to Section 2.5(c), or in the
absence of such agreement, as shown in the Independent
Accountants' calculation delivered pursuant to Section
2.5(c).
(vi) "GAAP Equity Adjustment" means the amount,
if any, by which $3,800,000,000 exceeds Stockholder's
Equity (i) as shown on Seller's calculation delivered
pursuant to Section 2.3(a), if no notice of disagreement
with respect thereto has been delivered pursuant to
Section 2.3(b) and the full period during which such
notice may be delivered has elapsed; or (ii) if such a
notice of disagreement has been delivered, as agreed by
Buyer and Seller pursuant to Section 2.3(c), or in the
absence of such agreement, as shown in the Independent
Accountants' calculation delivered pursuant to Section
2.3(c).
(vii) "NOL Value" means the value of the NOLs as
of September 30, 1995 as reflected on the September
Audited GAAP Balance Sheet without regard to the actual
NOLs (the "September 30 NOLs"), reduced by (i) any amounts
paid to any of the Companies or any Subsidiaries in
respect of such NOLs pursuant to Section 8.7(j) hereof,
and (ii) 35% of any taxable income of the Companies and
their Subsidiaries for the Post-September 30 Tax Period,
determined in accordance with Section 8.5 and without
regard to (A) the September 30 NOLs, (B) Post-September 30
Special Items or (C) any additions to reserves claimed
with respect to the Post-September 30 Tax Period which
satisfy the requirement for reserves relating to a
Permitted Capital Contribution.
(viii) "Permitted Capital Contribution" means a
cash contribution made by Seller to the capital of any of
the Companies or their Subsidiaries, (other than as
expressly contemplated by this Agreement) with the prior
written consent of Buyer.
(ix) "Portfolio Adjustment" means the aggregate net
after tax gain or aggregate net after tax loss (in either case
whether or not realized with taxes calculated on a GAAP basis)
on all securities held in the Equity Portfolio during the
period from and including October 1, 1995, through the close of
business on the business day prior to the Closing Date. Such
gains or losses shall be calculated based on the difference
between (i) the market value as of the Balance Sheet Date of
the securities in the September Audited GAAP Balance Sheet or
the cost of acquisition for securities acquired after the
Balance Sheet Date and (ii) the proceeds, net of commissions
and other direct expenses of disposition, realized in the sale
or other disposition, or, in the case of securities not sold or
disposed of, the market value of such securities as of the
close of business on the business day prior to the Closing Date
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(reduced in the case of shares of common stock of MBIA
Inc. by 4.5% of the market value thereof). The Portfolio
Adjustment shall be calculated using the same methodology
and pricing services for purposes of determining the
market value of securities in the Equity Portfolio at the
relevant dates.
(x) "SAP Equity Adjustment" means the amount, if
any, by which $2,700,000,000 exceeds Policyholders'
Surplus (i) as shown on Seller's calculation delivered
pursuant to Section 2.3(a), if no notice of disagreement
with respect thereto has been delivered pursuant to
Section 2.3(b) and the full period during which such
notice may be delivered has elapsed; or (ii) if such a
notice of disagreement has been delivered, as agreed by
Buyer and Seller pursuant to Section 2.3(c), or in the
absence of such agreement, as shown in the Independent
Accountants' calculation delivered pursuant to Section
2.3(c).
(xi) "Stockholder's Equity" means the total
shareholder's equity of the Companies and their
Subsidiaries as shown on the September Adjusted GAAP
Balance Sheet plus an amount equal to $300,000,000.
(xii) "Policyholders' Surplus" means the total
policyholders' surplus of the Companies and their
Subsidiaries as shown on the September Adjusted SAP
Balance Sheet plus an amount equal to $300,000,000.
2.3 September Balance Sheets. (a) As promptly as
________________________
practicable, but no later than 60 days after the date hereof,
Seller will cause to be prepared and delivered to Buyer the
September Adjusted GAAP Balance Sheet and the September Adjusted
SAP Balance Sheet and the related reports of KPMG Peat Marwick
LLP thereon, and the certificate of Seller based on such
September Adjusted Balance Sheets setting forth Seller's
calculations of the Equity Adjustment, Stockholder's Equity and
Policyholders' Surplus, all in accordance with Section 5.9.
(b) If Buyer disagrees with any item or amount
reflected on or omitted from the September Adjusted GAAP Balance
Sheet or the September Adjusted SAP Balance Sheet or with
Seller's calculations of the Equity Adjustment, Stockholder's
Equity or Policyholders' Surplus delivered pursuant to Section
2.3(a), Buyer may, within 30 days after delivery of the
documents referred to in Section 2.3(a), deliver
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a notice to Seller disagreeing with such calculation and setting
forth Buyer's calculation of such amount. Any such notice of
disagreement shall specify those items or amounts as to which
Buyer disagrees, and Buyer shall be deemed to have agreed with
all other items and amounts reflected on or omitted from the
September Adjusted GAAP Balance Sheet, September Adjusted SAP
Balance Sheet and the calculation of the Equity Adjustment,
Stockholder's Equity or Policyholders' Surplus delivered
pursuant to Section 2.3(a) not the subject of such disagreement.
Notwithstanding the foregoing, (i) Buyer shall not be entitled
to deliver a notice of disagreement with respect to (A) the
amounts of liabilities in respect of any major category of the
unpaid claims and claim expenses as shown on Schedule 2.3(b) if
such amounts in respect of such major category reflected on the
September Adjusted Balance Sheets are at least equal to the
corresponding amounts reflected on the September Unaudited GAAP
Balance Sheet or the September Unaudited SAP Balance Sheet, as
the case may be, or (B) the amounts accrued for vacation
liabilities reflected on the September Adjusted Balance Sheets
if such amounts are accurately determined in accordance with
Schedule 5.9, and (ii) Buyer shall not be entitled to deliver
any notice of disagreement unless Buyer's calculation of
Stockholder's Equity or Policyholders' Surplus as shown in such
notice is lower by at least $5,000,000 than the amount thereof
shown on the September Adjusted GAAP Balance Sheet or the
September Adjusted SAP Balance Sheet, respectively.
(c) If a notice of disagreement shall be delivered
pursuant to Section 2.3(b), Seller and Buyer shall, during the
30 days following such delivery, use their best efforts to reach
agreement on the disputed items or amounts in order to
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determine, as may be required, the Stockholder's Equity or
Policyholders' Surplus. If, during such period, Seller and
Buyer are unable to reach such agreement, they shall promptly
thereafter cause a recognized firm of independent certified
accountants of national repute mutually acceptable to Seller and
Buyer (the "Independent Accountants") promptly to review this
Agreement and the disputed items or amounts for the purpose of
calculating the Equity Adjustment, Stockholder's Equity and
Policyholders' Surplus. In making such calculation, the
Independent Accountants shall consider only those items or
amounts reflected on or omitted from the September Adjusted
Balance Sheets or Seller's calculation of Stockholder's Equity
and Policyholders' Surplus as to which Buyer has disagreed. The
Independent Accountants shall deliver to Seller and Buyer, as
promptly as practicable, a report setting forth such
calculation. Such report shall be final and binding upon Seller
and Buyer. The cost of such review and report shall be borne
(i) by Seller if the difference between the Equity Adjustment
and the Equity Adjustment as based upon Seller's calculation
delivered pursuant to Section 2.3(a) is greater than the
difference between the Equity Adjustment and the Equity
Adjustment based on Buyer's calculation delivered pursuant to
Section 2.3(b), (ii) by Buyer if the first such difference is
less than the second such difference and (iii) otherwise equally
by Seller and Buyer. In no event will the Equity Adjustment, as
finally determined pursuant to this Section 2.3(c), be less than
the amount thereof shown in Seller's calculations delivered
pursuant to Section 2.3(a) or more than the amount thereof shown
in Buyer's calculations delivered pursuant to Section 2.3(b).
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(d) Seller agrees that it will, and agrees to cause
its independent accountants and (prior to the Closing Date) the
Companies and their Subsidiaries to, cooperate with Buyer and
its independent accountants and assist them in the conduct of
their review of the September Adjusted Balance Sheets, including
without limitation, the making available to the extent necessary
of books, records, work papers and personnel.
(e) If the amount of the Equity Adjustment is
determined after the Closing Date, then within five business
days after such determination, Seller shall pay to Buyer the
amount of the Equity Adjustment, increased by an amount equal to
0.015068493% thereof for each day from and including October 1,
1995 to but not including the date of such payment. Any such
amount shall be deemed to be an adjustment to the Purchase
Price.
2.4 Certain Contributions and Adjustments. (a)
_____________________________________
Seller agrees that it will, on or prior to December 31, 1995,
make a cash capital contribution to the Companies of $300
million, increased by an amount equal to 0.015068493% thereof
for each day from and including October 1, 1995 to but not
including the date of such contribution.
(b) In the event that the Final NOL Value is greater
than the Estimated NOL Value, Seller shall pay to Buyer an
amount equal to such difference. In the event that the
Estimated NOL Value is greater than the Final NOL Value, Buyer
shall pay to Seller an amount equal to such difference. In
either event, such payment shall be made within five business
days from the date of the determination of the Final NOL Value,
increased by an amount equal to 0.015068493% thereof per
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day for each day from and including the Closing Date to but not
including the date of such payment. Any such amount shall be
deemed an adjustment to the Purchase Price.
2.5 Portfolio Adjustment. (a) As promptly as
____________________
practicable following the Closing Date, Seller shall calculate
the Portfolio Adjustment and deliver to Buyer a certificate
setting forth such calculation in reasonable detail.
(b) If Buyer disagrees with the calculation delivered
pursuant to Section 2.5(a), Buyer may, within 30 days after
delivery of such calculation, deliver a notice to Seller
disagreeing with such calculation and setting forth Buyer's
calculation of such amount. Any such notice of disagreement
shall specify those items or amounts as to which Buyer
disagrees, and Buyer shall be deemed to have agreed with all
other items and amounts contained in the calculation delivered
by Seller.
(c) If a notice of disagreement shall be delivered
pursuant to Section 2.5(b), Seller and Buyer shall, during the
30 days following such delivery, use their best efforts to reach
agreement on the disputed items or amounts in order to determine
the Portfolio Adjustment. If, during such period, Seller and
Buyer are unable to reach such agreement, they shall promptly
thereafter cause the Independent Accountants promptly to review
this Agreement and the disputed items or amounts for the purpose
of calculating the Portfolio Adjustment. In making such
calculation, the Independent Accountants shall consider only
those items or amounts in Seller's calculation as to which Buyer
has disagreed. The Independent Accountants shall deliver to
Seller and Buyer, as promptly as practicable, a report setting
forth such
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calculation. Such report shall be final and binding upon Seller
and Buyer. In no event shall the Portfolio Adjustment
determined pursuant to this paragraph (c) be determined to be a
greater gain or smaller loss, as the case may be, than as shown
in Seller's calculations delivered pursuant to Section 2.5(a) or
a smaller gain or greater loss, as the case may be, than as
shown in Buyer's calculations delivered pursuant to Section
2.5(b). The cost of such review and report shall be borne (i)
by Seller if the difference between the Final Portfolio
Adjustment and the Portfolio Adjustment as calculated by Seller
and set forth on the certificate delivered pursuant to Section
2.5(a) is greater than the difference between the Final
Portfolio Adjustment and the Portfolio Adjustment as calculated
by Buyer and set forth on the notice of disagreement delivered
pursuant to Section 2.5(b), (ii) by Buyer if the first such
difference is less than the second such difference and (iii)
otherwise equally by Seller and Buyer.
(d) Seller and Buyer agree that they will, and agree
to cause their respective independent accountants and the
Companies and their Subsidiaries to, cooperate and assist in the
calculation of the Portfolio Adjustment and in the conduct of
the reviews referred to in this Section, including without
limitation, the making available to the extent necessary of
books, records, work papers and personnel.
(e) If the Final Portfolio Adjustment differs from
the Estimated Portfolio Adjustment, then Seller shall pay to
Buyer or Buyer shall pay to Seller an amount equal to such
difference so that Buyer has paid the Purchase Price it would
have paid and Seller has received the Purchase Price it would
have received had the Final Portfolio Adjustment been used to
determine the Purchase Price. Such payment
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shall be made within five business days from the date of the
determination of the Final Portfolio Adjustment, together with
an amount equal to 0.015068493% of such difference per day for
each day from and including the Closing Date to but not
including the date of such payment. Any such amount shall be
deemed to be an adjustment of the Purchase Price.
2.6 Post-Closing Payments. All payments made to Buyer
_____________________
or Seller after the Closing Date under this Agreement shall be
paid in immediately available funds by wire transfer to an
account of the payee designated in writing by the payee, by
notice to the payor, not later than two business days prior to
the date the payment is due.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date
hereof and as of the Closing Date (but as of no other dates
unless expressly so stated) that:
3.1 Corporate Existence and Power. Seller has been
_____________________________
duly incorporated and is validly existing as an insurance
corporation in good standing under the laws of the State of
Connecticut and has all corporate powers required to carry on
its business as now conducted. Each Company (i) has been duly
incorporated and is validly existing as an insurance corporation
in good standing under the laws of the State of Connecticut,
(ii) has all corporate powers required to carry on its business
as now conducted, (iii) has all material governmental licenses,
authorizations, permits, consents and approvals required to
carry on its business as now conducted
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and (iv) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where
such qualification is necessary, or is duly licensed to do
business as an insurer and is in good standing in each
jurisdiction where such licensing is necessary, as the case may
be, except for those jurisdictions where failure to be so
qualified or licensed, as the case may be, would not,
individually or in the aggregate, have a material adverse effect
on the Companies and their Subsidiaries, taken as a whole.
Seller has heretofore delivered or made available to Buyer true
and complete copies of the certificate of incorporation and
bylaws of Seller, each Company and the Subsidiaries of the
Companies as in effect on the date hereof. Neither of the
Companies nor any of their respective Subsidiaries is in
violation of any of the provisions of its certificate of
incorporation or by-laws.
3.2 Corporate Authorization. The execution, delivery
_______________________
and, subject to the receipt of the approvals referred to in
Section 3.3, performance by Seller of this Agreement and the
Ancillary Agreements to which Seller is a party are within
Seller's corporate powers and have been duly authorized by all
necessary corporate action on the part of Seller. This
Agreement constitutes, and when executed and delivered each
Ancillary Agreement to which Seller is a party will constitute,
a valid and legally binding agreement of Seller, enforceable
against Seller in accordance with its terms, subject to (i)
bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and the
rights of creditors of insurance companies generally and (ii)
general principles of equity (regardless of whether considered
in a proceeding at law or in equity).
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3.3 Governmental Authorization. The execution,
__________________________
delivery and performance by Seller of this Agreement and each
Ancillary Agreement to which Seller is a party require no action
by or in respect of, or filing with, any governmental body,
agency, or official on the part of Seller or any of its
Subsidiaries other than (i) compliance with any applicable
requirements of the HSR Act, (ii) approvals or filings under the
insurance laws of the jurisdictions set forth on Schedule 3.3,
(iii) filings and notices not required to be made or given until
after the Closing Date, (iv) filings, at any time, of tax
returns, tax reports and tax information statements and (v) any
such action or filing as to which the failure to make or obtain
would not, individually or in the aggregate, materially impair
the ability of the Companies and their Subsidiaries, taken as a
whole, to conduct their businesses.
3.4 Non-Contravention. Except as set forth in
_________________
Schedule 3.4, the execution, delivery and performance by Seller
of this Agreement and each Ancillary Agreement to which Seller
is a party do not and will not (i) violate the certificate of
incorporation or bylaws of Seller, any Company or any Subsidiary
of any Company, (ii) assuming compliance with the matters
referred to in Section 3.3, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (iii) require
any consent or other action by any Person under, constitute a
default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of any
Company or any Subsidiary of any Company or to a loss of any
benefit to which any Company or any Subsidiary of any Company is
entitled under, any material agreement or other material
instrument binding upon any Company or any Subsidiary of any
Company or any material license, franchise, permit or other
similar
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authorization held by any Company or any Subsidiary of any
Company, (iv) result in the creation or imposition of any
material Lien on any asset of any Company or any Subsidiary of
any Company or (v) cause or constitute a "distribution date,"
"flip in event" or comparable event under any stockholder rights
plan or comparable plan of any Person the capital stock of which
is directly or indirectly beneficially owned by any Company or
any Subsidiary of any Company (provided that no representation
is made in this clause (v) as to the effect of any beneficial
ownership of such capital stock by Buyer or any of its
Affiliates).
3.5 Capitalization. (a) The authorized capital stock
______________
of ACSC consists of 1,000 shares of ACSC Common Stock. As of
the date hereof, there are outstanding 1,000 shares of ACSC
Common Stock. The authorized capital stock of SFIC consists of
20,000 shares of SFIC Common Stock. As of the date hereof,
there are outstanding 20,000 shares of SFIC Common Stock.
(b) All outstanding shares of capital stock of each
Company have been duly authorized and validly issued and are
fully paid and non-assessable and free of preemptive rights.
Except as set forth in this Section 3.5, there are no
outstanding (i) shares of capital stock or voting securities of
any Company, (ii) securities of any Company convertible into or
exchangeable for shares of capital stock or voting securities of
any Company or (iii) options or other rights to acquire from any
Company, or other obligation of any Company to issue, any
capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of any
Company (the items in clauses (i), (ii) and (iii) being referred
to collectively as the "Company Securities"). There are no
outstanding obligations of
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any Company or any of their respective Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities.
3.6 Ownership of Shares. Seller is the record and
___________________
beneficial owner of the Shares, free and clear of any Lien and
any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of the Shares
other than pursuant to generally applicable regulatory
requirements), and will transfer and deliver to Buyer at the
Closing valid title to the Shares free and clear of any Lien and
any such limitation or restriction, except Liens, limitations or
restrictions arising as a result of any action taken by Buyer or
any of its Affiliates; provided that Seller makes no
________
representation regarding the ability of any Person other than
Seller to transfer or otherwise dispose of the Shares without
registration or qualification under, or in compliance with,
applicable Federal securities or state securities or insurance
laws.
3.7 Subsidiaries. (a) Each Subsidiary of each
____________
Company has been duly incorporated or organized and is validly
existing as a corporation, partnership or association in good
standing under the laws of its jurisdiction of incorporation or
organization and has all powers and all material governmental
licenses, authoriztions, permits, consents and approvals
required to carry on its business as now conducted. Each
Subsidiary of each Company is duly qualified to do business as a
foreign corporation or organization and is in good standing in
each jurisdiction where such qualification is necessary, or is
duly licensed to do business as an insurer and is in good
standing in each jurisdiction where such licensing is necessary,
as the case may be, except for those jurisdictions where failure
to be so qualified or licensed, as
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the case may be, would not, individually or in the aggregate,
have a material adverse effect on the Companies and their
Subsidiaries, taken as a whole. All Subsidiaries of each
Company and their respective jurisdictions of incorporation or
organization are identified on Schedule 3.7.
(b) All outstanding shares of capital stock of each
Subsidiary of each Company have been duly authorized and validly
issued and are fully paid and non-assessable and free of
preemptive rights. As of the Closing Date, except as disclosed
in Schedule 3.7, all of the outstanding capital stock of, and
other voting securities or ownership interests in, each
Subsidiary of each Company will be owned by one of the
Companies, directly or indirectly, free and clear of any Lien
and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of
such capital stock or other voting securities or ownership
interests other than pursuant to generally applicable regulatory
requirements). Except as set forth in Schedule 3.7, there are
no outstanding (i) securities of any of the Companies or any of
their respective Subsidiaries convertible into or exchangeable
for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of any Company or (ii)
options or other rights to acquire from any of the Companies or
any of their respective Subsidiaries, or other obligations of
any of the Companies or any of their respective Subsidiaries to
issue, any capital stock or other voting securities or ownership
interests in, or any securities convertible into or exchangeable
for any capital stock or other voting securities or ownership
interests in, any Subsidiary of any of the Companies (the items
in clauses (i) and (ii) being referred to collectively as the
"Subsidiary Securities"). There are no outstanding
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obligations of any of the Companies or any of their respective
Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
3.8 Financial Statements; SEC Reports. (a) The
_________________________________
audited combined balance sheet of the Companies and their
Subsidiaries as of December 31, 1993 and
December 31, 1994 and the related combined statements of income
and cash flows for each of the years ended December 31, 1993 and
December 31, 1994 and the unaudited combined balance sheet of
the Companies and their Subsidiaries as of September 30, 1995
(the "Unaudited September Balance Sheet") and the related
combined statement of income for the nine months ended September
30, 1995, respectively, previously delivered to Buyer, present
fairly, in all material respects, the combined financial
position of the Companies and their Subsidiaries as of the dates
thereof and the combined results of operations of the Companies
and their Subsidiaries for the periods then ended in conformity
with GAAP consistently applied (subject to normal year-end
adjustments in the case of the unaudited interim financial
statements).
(b) The audited balance sheets of the Companies and
their Subsidiaries as of December 31, 1994, and the related
statements of operations and statements of cash flows for the
year then ended, and their respective Annual Statements for the
fiscal year ended December 31, 1994 (the "Annual Statements")
filed with the insurance regulatory authorities in their
respective jurisdictions of domicile (collectively, the
"Regulators"), copies of which have been delivered to Buyer,
fairly present in all material respects their respective
statutory financial conditions as of such date and the results
of their respective operations for the year then ended in
24
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conformity with SAP. The other information contained in the
Annual Statements fairly presents in all material respects the
information required to be contained therein in conformity with
SAP. The balance sheets of the Companies and their Subsidiaries
in respect of any period ending after December 31, 1994, and the
related statements of operations and statements of cash flows,
which have been filed with Regulators, copies of which have been
delivered to Buyer, fairly present in all material respects
their respective statutory financial conditions as of such date
and the results of their respective operations for the period
then ended in conformity with SAP consistently applied.
(c) As of the date of the latest filing of an SEC
Report, the SEC Reports taken as a whole, including, without
limitation, any financial statements or schedules included
therein, did not contain with regard to Seller's property
casualty business segments taken as a whole any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading, it being understood that for purposes of
this subparagraph (c) "material" is to be assessed in the
context of Seller and all of its Subsidiaries taken as a whole.
As used herein, "SEC Reports" means all forms, reports and
documents filed by Seller with the Securities and Exchange
Commission (the "SEC") since January 1, 1992 and prior to the
date hereof to the extent they contain any information relating
to Seller's property casualty business segments.
3.9 Absence of Certain Changes. Except as disclosed
__________________________
in Schedule 3.9, during the period from the Balance Sheet Date
to the date hereof, the business
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of the Companies and their Subsidiaries has been conducted in
the ordinary course consistent with past practices (including,
without limitation, with regard to underwriting, pricing,
actuarial and investment policies generally) and there has not
been:
(i) any event, occurrence, development or state
of circumstances or facts which has had or would reasonably
be expected to have a Material Adverse Effect on the
Companies, other than those resulting from changes in
general economic conditions;
(ii) any declaration, setting aside or payment
of any dividend or other distribution with respect to any
shares of capital stock of any Company, or any repurchase,
redemption or other acquisition by any Company or any
Subsidiary of any Company of any outstanding shares of
capital stock or other securities of, or other ownership
interests in, any Company or any Subsidiary of any
Company;
(iii) any incurrence, assumption or guarantee by
any Company or any Subsidiary of any Company of any
indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent
with past practices;
(iv) any transaction or commitment made, or any
contract or agreement entered into, by any Company or any
Subsidiary of any Company (including the acquisition or
disposition of any assets) or any relinquishment by any
Company or any Subsidiary of any
26
33
Company of any contract or other right, other than
transactions and commitments in the ordinary course of
business consistent with past practices, or any
acquisition of assets or incurrence of liabilities by any
Company or any Subsidiary of any Company which are not
primarily related to the property and casualty insurance
business of the Companies and their Subsidiaries;
(v) any change in any method of accounting or
accounting practice or policy (including, without
limitation, any reserving method, practice or policy) by
any Company or any Subsidiary of any Company, except for
any such change as a result of a concurrent change in GAAP
or SAP;
(vi) to the extent payable directly or
indirectly by any Company or any Subsidiary of any
Company, any (A) employment, deferred compensation,
severance, retirement or other similar agreement entered
into with any director, officer or employee engaged in
Seller's property/casualty business (or any amendment to
any such existing agreement), (B) grant of any severance
or termination pay to any director, officer or employee
engaged in Seller's property/casualty business other than
in the ordinary course of business, (C) change in
compensation or other benefits payable to any director,
officer or employee engaged in Seller's property/casualty
business, other than (x) increases in base compensation in
the ordinary course of business consistent with past
practice (but in no event greater than 4 1/2% in the
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aggregate on a per annum basis for all such individuals as
a group), (y) with respect to directors or officers,
changes in benefits required by plans and arrangements in
effect as of the Balance Sheet Date and (z) with respect
to employees who are not directors or officers, changes in
benefits in accordance with plans or arrangements in
effect as of the Balance Sheet Date in the ordinary course
of business consistent with past practice or (D) loans or
advances to any directors, officers or employees engaged
in Seller's property/casualty business, except for
ordinary travel and business expenses in the ordinary
course of business consistent with past practice;
(vii) any damage, theft or casualty loss by any
Company or any Subsidiary of any Company in an amount
exceeding $1,000,000;
(viii) any transaction by any Company or any
Subsidiary of any Company involving Company Investment
Assets other than in the ordinary course of business
consistent with past practice;
(ix) any change in any material way by any
Company or any Subsidiary of any Company in underwriting
practices or standards;
(x)(i) any entering into of any facultative
reinsurance contract, other than in the ordinary course of
business consistent with past practice, or (ii) any
commutation of any facultative reinsurance
28
35
contract, or (iii) any entering into or any commutation of
any reinsurance treaty, by any Company or any Subsidiary
of any Company;
(xi) any material insurance transaction by any
Company or any Subsidiary of any Company other than in the
ordinary course of business consistent with past practice;
(xii) any significant change by the Company or
any Subsidiary of any Company in the compensation
structure of, or benefits available to, any significant
agent or with respect to agents generally;
(xii) any investment made in Company Investment
Assets other than in accordance with Seller's investment
policies set forth in Schedule 3.9(xiii); or
(xiv) any agreement or commitment (contingent or
otherwise) by any Company or any Subsidiary of any Company
to do any of the foregoing.
3.10 No Undisclosed Material Liabilities; Investments.
________________________________________________
(a) There are no liabilities of any Company or any Subsidiary
of any Company of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise,
other than:
(i) liabilities provided for in the Unaudited
September Balance Sheet;
(ii) liabilities disclosed on Schedule 3.10(a);
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36
(iii) liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent
with past practice and in amounts and on terms consistent
with past practice; and
(iv) other undisclosed liabilities that are not
individually or in the aggregate material to the Companies
and their Subsidiaries, taken as a whole.
(b) Schedule 3.10(b) describes in reasonable
detail all Company Investment Assets as of the Balance Sheet
Date. For purposes of this Agreement, "Company Investment
Assets" means any investment assets (whether or not required by
GAAP or SAP to be reflected on a balance sheet) beneficially
owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) by any Company or any
Subsidiary of any Company, including, without limitation, bonds,
notes, debentures, mortgage loans, collateral loans and all other
instruments of indebtedness, stocks, partnership or joint venture
interests and all other equity interests, certificates issued by
or interests in trusts, derivatives and all other assets acquired
for investment purposes.
(c) Neither Company nor any Subsidiary of any
Company is an "acquiring person" or comparable person under the
terms of any stockholder rights plan or comparable plan of any
Person the capital stock of which is directly or indirectly
beneficially owned by any Company or any Subsidiary of any
Company, and no "distribution date," "flip in event" or
comparable event has occurred under any such plan as a
consequence of such beneficial ownership (provided that no
30
37
representation is made in this paragraph (c) as to the effect of
any beneficial ownership of such capital stock by Buyer or any
of its Affiliates).
3.11 Material Contracts. (a) Except as disclosed in
__________________
Schedule 3.11, as of the date hereof, neither of the Companies
nor any of their Subsidiaries is a party to or bound by:
(i) any lease of real property where any of the
Companies or their Subsidiaries are tenants (A) providing
for annual base rentals of $1,000,000 or more, (B)
expiring after December 1, 2000 or (C) where the Seller or
any of its Affiliates holds an equity interest in such
real property;
(ii) any agreement for the purchase of
materials, supplies, goods, services, equipment or other
assets, including any license for Software, that provides
for either (A) annual payments by any Company or any
Subsidiary of any Company of $1,000,000 or more or (B)
aggregate payments by any Company or any Subsidiary of any
Company of $5,000,000 or more;
(iii) any limited partnership, joint venture or
other unincorporated business organization or similar
arrangement or agreement in which such Company or
Subsidiary serves as a general partner or otherwise has
unlimited liability, or any other material similar
agreement or arrangement;
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(iv) any agreement relating to the acquisition
or disposition of any business (whether by merger, sale of
stock, sale of assets or otherwise);
(v) any agreement relating to indebtedness for
borrowed money or any guarantee or similar agreement or
arrangement relating thereto, other than (A) any
guarantees issued in the ordinary course of the financial
guarantee business of the Companies and their Subsidiaries
consistent with past practice and (B) any such agreement
with, or relating to, an aggregate outstanding principal
amount or guaranteed obligation not exceeding $10,000,000;
(vi) any license, franchise or similar agreement
material to the Companies and their Subsidiaries, taken as
a whole;
(vii) any agency, dealer, sales representative,
marketing or other similar agreement material to the
Companies and their Subsidiaries, taken as a whole;
(viii) any agreement that restricts or prohibits
any Company or any Subsidiary of any Company from
competing with any Person in any line of business or from
competing in, engaging in or entering into any line of
business in any area and which would so restrict or
prohibit any Company or any Subsidiary of any Company
after the Closing Date;
(ix) any reinsurance treaty or any material
facultative reinsurance contract (in each case applicable
to insurance in force);
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(x) any significant agreement containing "change
in control" or similar provisions relating to change in
control of any of the Companies or their Subsidiaries;
(xi) any powers of attorney other than those
entered into in the ordinary course of business in the
surety bond business;
(xii) any "stop loss" agreements, other than
those entered into in the ordinary course of business
consistent with past practice;
(xiii) any agreements (other than insurance
policies or other similar agreements issued by any Company
or any Subsidiary of any Company in the ordinary course of
its business) material to the Companies and their
Subsidiaries taken as a whole pursuant to which any
Company or any Subsidiary of any Company is obligated to
indemnify any other person; or
(xiv) any agreement with Seller or any of its
Affiliates.
(b) Seller has hereto fore furnished or made
available to Buyer complete and correct copies of the
contracts, agreements and instruments listed on Schedule
3.11, each as amended or modified to the date hereof
(including any waivers with respect thereto) (the
"Significant Agreements"). Except as specifically
disclosed on Schedule 3.11, and except to the extent not
material to the Companies and their Subsidiaries taken as
a whole: each of the Significant Agreements is in full
force and effect and enforceable in accordance with its
terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other
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40
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and the rights of creditors of
insurance companies generally and (ii) general principles of
equity (regardless of whether considered in a proceeding at law
or in equity); neither Seller, nor any of the Companies nor any
of their Subsidiaries has received any notice (written or oral)
of cancellation or termination of, or any expression or
indication of an intention or desire to cancel or terminate, any
of the Significant Agreements; no Significant Agreement is the
subject of, or, to the knowledge of Seller, has been threatened
to be made the subject of, any arbitration, suit or other legal
proceeding; with respect to any Significant Agreement which by
its terms will terminate as of a certain date unless renewed or
unless an option to extend such Significant Agreement is
exercised, neither Seller, nor any of the Companies nor any of
their Subsidiaries has received any notice (written or oral), or
otherwise has any knowledge, that any such Significant Agreement
will not be so renewed or that any such extension option will
not be exercised; and there exists no material event of default
or occurrence, condition or act on the part of any Company or
any Subsidiary of any Company or, to the knowledge of Seller on
the part of the other parties to the Significant Agreements,
which constitutes or would constitute (with notice or lapse of
time or both) a material breach of or material default under any
of the Significant Agreements.
3.12 Litigation. Except as set forth on Schedule 3.12
__________
and, in the case of clause (i) below only, except for any
action, suit, investigation or proceeding that involves a claim
under any insurance, reinsurance or indemnity policy, fidelity
bond, surety bond or similar contract or undertaking issued or
entered into by any Company
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or any Subsidiary of any Company, there is no action, suit,
investigation or proceeding pending against, or, to the
knowledge of Seller, any Company or any Subsidiary of any
Company, threatened against, or affecting the properties of, any
Company or any Subsidiary of either Company or any of their
respective properties before any court or arbitrator or any
governmental body, agency or official, and, to the best
knowledge of Seller and the Companies, there is no reasonable
basis for any such claim (i) in which the actual damages alleged
or sought exceeds $1,000,000 or (ii) which alleges a course of
conduct that is based on alleged facts that may give rise to a
class action lawsuit or (iii) which alleges price-fixing, and in
the case of (ii) and (iii), in Seller's judgment, there is a
reasonable basis for the assertion of such claim or (iv) which
alleges bad faith and, in the case of this clause (iv), in
Seller's judgment, there is a reasonable possibility of ultimate
liability in excess of $1,000,000 over any reserves which have
been established as of the Balance Sheet Date in respect of such
case. As of the date hereof and as of no other date, there is
no action, suit, investigation or proceeding pending against,
or, to the knowledge of Seller, threatened against, or affecting
the property of either Company or any Subsidiary of either
Company or any of their respective properties before any court
or arbitrator or any governmental body, agency or official which
challenges or seeks to prevent the transactions contemplated
hereby. Except as disclosed in Schedule 3.12, neither Company
nor any Subsidiary of any Company nor any of their respective
properties is subject to any material order, writ, judgment,
injunction, decree, determination or award which would prevent
or delay the consummation of the transactions contemplated
hereby. As used in this Section 3.12, "knowledge" of
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Seller, any Company or any Subsidiary of any Company means the
knowledge of the executive officers, the chief legal or
compliance officers of the Seller or the Companies or the senior
in-house counsel for property and casualty insurance matters of
the Companies and their Subsidiaries.
3.13 Compliance with Laws. Except as set forth in
____________________
Schedule 3.13, the Companies and their Subsidiaries are and have
at all times since January 1, 1993 been in compliance in all
material respects with all applicable material laws, statutes,
ordinances and regulations, whether foreign, Federal, state or
local.
3.14 Properties. The Companies and their Subsidiaries
__________
have good title to, or in the case of leased property have valid
leasehold interests in, all of their respective property and
assets (whether real or personal, tangible or intangible) except
for imperfections in title or invalidities in leasehold
interests that do not, individually or in the aggregate,
materially detract from the value reflected on the Unaudited
September Balance Sheet. None of such property or assets is
subject to any Liens, except:
(i) Liens reflected on the Unaudited September
Balance Sheet;
(ii) Liens for taxes not yet due or being
contested in good faith (and for which adequate accruals
or reserves have been established on the Unaudited
September Balance Sheet); and
(iii) Liens which do not, individually or in the
aggregate, materially detract from the value reflected on
the Unaudited
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43
September Balance Sheet or materially interfere with any
present or intended use of any material property or
assets.
3.15 Licenses and Permits; Policies; Regulatory
___________________________________________
Matters. The Companies and their Subsidiaries and, to the
_______
knowledge of Seller and the Companies and their Subsidiaries,
the significant agents of the Companies and their Subsidiaries,
hold all material licenses, franchises, permits or other similar
authorizations (the "Permits") necessary for the ownership and
conduct of the respective businesses of the Companies, their
Subsidiaries and such agents in each of the jurisdictions in
which the Companies, their Subsidiaries and such agents conduct
or operate their respective businesses in the manner now
conducted, and such Permits are in full force and effect except
where any failure to hold any Permit or any failure of any
Permit to be in full force and effect would not, individually or
in the aggregate, materially impair the ability of the Companies
and their Subsidiaries, taken as a whole, to conduct their
businesses. No material violations exist in respect of any
material Permit of the Companies and their Subsidiaries and no
proceeding or investigation is pending or, to the knowledge of
Seller, threatened, that would be reasonably likely to result in
the suspension, revocation or material limitation or restriction
of any material Permit and, to the knowledge of Seller, the
Companies and their Subsidiaries, there is no reasonable basis
for the assertion of any such violation or the institution of
any such proceeding. All insurance policies issued by each
Company and each Subsidiary of each Company, as now in force
are, to the extent required under applicable law, in a form
acceptable to applicable regulatory authorities to the knowledge
of Seller and the Companies and their Subsidiaries, or have been
filed and
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not objected to by such authorities within the period provided
for objection. Each Company and each Subsidiary of each Company
has filed all material reports, statements, documents,
registrations, filings or submissions required to be filed by
any Company or any Subsidiary of any Company, respectively, with
any applicable Federal, state or local regulatory authorities,
including, without limitation, state insurance regulatory
authorities. All such reports, statements, documents,
registrations, filings and submissions complied in all material
respects with applicable law in effect when filed and no
material deficiencies have been asserted by any such regulatory
authority with respect to such reports, statements, documents,
registrations, filings or submissions that have not been
satisfied. Except as set forth on Schedule 3.15, all premium
rates, rating plans and policy forms established or used by any
Company or any Subsidiary of any Company that are required to be
filed with or approved by insurance regulatory authorities have
been so filed or approved, the premiums charged conform in all
material respects to the premiums so filed or approved and
comply in all material respects with the insurance laws
applicable thereto and to the Seller's knowledge, no such
premiums are subject to any review or investigation by any
insurance regulatory authority. As used in this Section 3.15,
"knowledge" of Seller, or any Company or any Subsidiary of any
Company means the knowledge of the executive officers, the chief
legal or compliance officers of the Seller or the Companies or
the senior in-house counsel for property and casualty insurance
matters of the Companies and their Subsidiaries.
3.16 ERISA Representations. (a) Schedule 3.16(a)
_____________________
identifies each Employee Plan. Seller has furnished or made
available to Buyer copies of the
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Employee Plans, summary plan descriptions, and, if applicable,
related trust agreements, and all amendments thereto together
with (i) the most recent annual report
prepared in connection with any Employee Plan (Form 5500
including, if applicable, Schedule B thereto) and (ii) the most
recent actuarial valuation report prepared in connection with
any Employee Plan.
(b) There is no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code, with respect to any pension
plan of Seller or any ERISA Affiliate of Seller. Neither Seller
nor any ERISA Affiliate of Seller has incurred, or reasonably
expects to incur prior to the Closing Date (other than a
liability for premiums under Section 4007 of ERISA), any
liability under Title IV of ERISA that will not be satisfied in
full as of the Closing Date.
(c) Each Employee Plan that is intended to be
qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service
and has pending a request for a determination timely filed with
the Internal Revenue Service in respect of compliance with the
Tax Reform Act of 1986. Except as described in Schedule
3.16(c), each Employee Plan that is not a Multiemployer Plan has
been maintained in material compliance with its terms and with
the requirements prescribed by any and all applicable statutes,
orders, rules and regulations, including but not limited to
ERISA and the Code. No Employee Plan is a Multiemployer Plan or
a multiple employer plan (within the meaning of Section 413(c)
of the Code).
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(d) Schedule 3.16(d)(i) identifies each Benefit
Arrangement. Seller has furnished or made available to Buyer
copies or descriptions of each Benefit Arrangement. Each
Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed
by any and all applicable statutes, orders, rules and
regulations.
(e) Each Employee Plan that is a "group health plan"
(as defined in Section 4980B of the Code) has been operated in
material compliance with Section 4980B of the Code at all times.
(f) With respect to any Employee Plan that provides
disability benefits, the amounts accrued on the September
Adjusted Balance Sheets in accordance with FAS 112 are
reasonably sufficient to pay all future obligations to the
Transferred Employees who are disabled as of the Balance Sheet
Date.
3.17 Environmental Matters. (a) Other than as may be
_____________________
disclosed in the Environmental Reports or in Schedule 3.17, (i)
there are no Hazardous Substances present on the current or
former REO, the current or former Mortgaged Properties or the
current or former Company Facilities requiring material
remediation under Environmental Laws (provided that to the
extent the foregoing representation relates to Hazardous
Substances placed on former REO, former Mortgaged Properties or
former Company Facilities by any third party subsequent to the
date on which such properties were sold or otherwise transferred
by any Company or any Subsidiary of any Company, as the case may
be, to a Person other than any Company or any of its
Subsidiaries, such representation is to the knowledge of Seller)
and (ii) the
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47
Companies and their Subsidiaries are in compliance in all
material respects with all applicable Environmental Laws.
(b) To the knowledge of Seller, other than as may be
disclosed in the Environmental Reports or in Schedule 3.17,
there has been (i) no written notice issued or threatened to be
issued of a material claim against any Company or any Subsidiary
of any Company arising under Environmental Laws concerning
Hazardous Substances present on the current or former REO, the
current or former Mortgaged Properties or the current or former
Company Facilities; (ii) no written notice issued or threatened
to be issued from a governmental authority alleging a material
violation of Environmental Laws by any Company or any Subsidiary
of any Company with respect to the ownership or operation of the
REO or the Company Facilities; (iii) no written notice issued or
threatened to be issued of a material claim against any Company
or any Subsidiary of any Company alleging that it is liable
under the Environmental Laws as a result of the treatment,
storage, release, transportation, manufacture, installation,
containment or disposal of Hazardous Substances at properties
other than the current or former REO's, the current or former
Mortgaged Properties, or the current or former Company
Facilities; and (iv) no written notice issued or threatened to
be issued of a material claim under any Environmental Law
against any Company or any Subsidiary of any Company as a
successor to any other Person.
(c) Seller has made reasonable efforts to make
available to Buyer for review and copying, all environmental
reports in Seller's possession prepared for Seller, any Company
or any Subsidiary of any Company by third party environmental
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consultants concerning the current REO, the current Mortgaged
Properties or the current Company Facilities (the "Environmental
Reports").
(d) To the knowledge of Seller, other than as may be
disclosed in Schedule 3.17, with respect to the current or
former Mortgaged Properties, there have been no acts or
omissions of any Company or any Subsidiary of any Company, in
their capacity as lenders, prior to the Closing Date, on the
basis of which Buyer, any Company or any Subsidiary of any
Company has been found or would be found to be materially
responsible or liable parties under Environmental Laws or
relating to Hazardous Substances.
(e) No representation in this Section 3.17 is intended
to imply any representation as to any obligation or liability
that the Companies or any of their Subsidiaries have or may have
in connection with, as a result of or arising out of any
insurance or reinsurance or indemnity policy, surety bond or
similar contract or undertaking issued or entered into by any
Company or any Subsidiary of any Company in the ordinary course
of business.
(f) To the knowledge of Seller, other than as may be
disclosed in Schedule 3.17, the execution, delivery and
performance by Seller of this Agreement require no action by or
in respect of, or filing with, any governmental body, agency or
official on the part of Seller or any of its Subsidiaries
pursuant to any Environmental Law, other than any such action or
filing as to which the failure to make or obtain would not,
individually or in the aggregate, have material adverse effect
on the Companies and their Subsidiaries, taken as a whole.
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(g) Notwithstanding anything to the contrary in this
Agreement, any and all representations, warranties, covenants
and agreements of Seller contained in this Agreement with
respect to any and all matters relating to Environmental Laws or
Hazardous Substances are contained solely and exclusively in
this Section 3.17.
(h) As used in this Section 3.17, the term "the
knowledge of Seller" means: (i) with respect to representations
concerning the current or former REO, the actual current
knowledge, without investigation, of any executive officer of
Seller, any Company or any Subsidiary of any Company or of the
regional asset manager of Seller or any Company or any
Subsidiary of any Company directly responsible for the
management of the REO's in such manager's region, (ii) with
respect to representations concerning the current or former
Mortgaged Properties, the actual current knowledge, without
investigation, of any executive officer of Seller, any Company
or any Subsidiary of any Company or of the regional investment
manager of Seller or any Company or any Subsidiary of any
Company directly responsible for the management of each loan
secured by a Mortgaged Property in such manager's region, (iii)
with respect to representations concerning the current or former
Company Facilities, the actual current knowledge, without
investigation, of any executive officer of Seller, any Company
or any Subsidiary of any Company or of the environmental
compliance officer of Seller or any Company or any Subsidiary of
any Company responsible for overall environmental compliance
matters concerning Company Facilities.
(i) "Company Facilities" means any offices, buildings
and other real property that are owned or leased by any
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Company or any Subsidiary of any Company and that are used in
the operation of the business of any Company or any Subsidiary
of any Company. "REO" means the real property (including land
and any buildings or other improvements thereon) owned by any
Company or any Subsidiary of any Company but not used in the
operation of the business of any Company or any Subsidiary of
any Company. "Mortgaged Properties" means the real property
(including land and any buildings or other improvements thereon)
subject to a mortgage interest or other Lien held by or in favor
of any Company or any Subsidiary of any Company (other than
mortgages and liens associated with mortgage-backed securities
or private placement bond investments made in the ordinary
course of Seller's securities transactions).
(j) "Environmental Laws" means any and all foreign,
Federal, state or local statutes, laws, regulations, ordinances,
rules or codes now in effect relating to the environment, to the
effect of the environment on human health or safety or to the
use, generation, manufacturing, treatment, disposal, storage,
discharge or release of Hazardous Substances into the
environment, including without limitation, ambient air, surface
water, groundwater or land, or the remediation thereof.
(k) "Hazardous Substances" means any toxic,
radioactive, caustic or otherwise hazardous substance, including
petroleum and its derivatives and by-products, or any substance
having any constituent elements displaying any of the foregoing
characteristics, regulated under Environmental Laws.
3.18 Intercompany Accounts. Schedule 3.18 contains a
_____________________
complete list of (A) all intercompany balances and (B) all
liabilities of the type referred to in Section 7.5(c), in each
case as of the Balance Sheet Date between Seller or any of
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51
its Affiliates, on the one hand, and any Company or any
Subsidiary of any Company, on the other hand. Except as
disclosed on Schedule 3.18, since the Balance Sheet Date, there
has not been any incurrence or accrual of liability (as a result
of allocations or otherwise) by any Company or any Subsidiary of
any Company to Seller or any of its Affiliates or other
transaction between any Company or any Subsidiary of any Company
and Seller or any of its Affiliates, except (i) in the ordinary
course of business in accordance with past practice or (ii) as
contemplated by this Agreement.
3.19 No Representation with Respect to Reserves.
__________________________________________
Notwithstanding any other Section or provision of this Article
3, except as set forth in this Section 3.19, Seller makes no
representation or warranty that the liabilities for unpaid
claims and claim expenses whether reported or incurred but not
reported of the Companies and their Subsidiaries (the "Claims
Provision") are adequate or sufficient. As of the date hereof,
Seller has provided or made available to Coopers & Xxxxxxx
L.L.P., as consultant to Buyer, all material information in
possession of Seller and which Seller reasonably believes is
necessary in order for a reasonable evaluation of the adequacy
and sufficiency of the Claims Provision relating to asbestos
liabilities and environmental liabilities.
3.20 Intellectual Property; Software. (a) The
_______________________________
Companies and their Subsidiaries own or otherwise have rights to
use (in each case, free and clear of any material Liens or other
material limitations or restrictions) all Intellectual Property
used in their respective businesses as currently conducted, and
the consummation of the transactions contemplated hereby will
not result in the loss of any such rights (or
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52
require the payment of any additional fees or royalties in order
to maintain such rights); the use of any Intellectual Property
by the Companies and their Subsidiaries does not infringe on or
otherwise violate the rights of any Person; and to Seller's
knowledge no person is challenging, infringing on or otherwise
violating any right of any Company or any Subsidiary of any
Company with respect to any Intellectual Property owned by
and/or licensed to the Companies and their Subsidiaries. For
purposes of this Agreement "Intellectual Property" shall mean
trademarks, service marks, brand names, certification marks,
trade dress, assumed names, trade names and other indications of
origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or
application; inventions, discoveries and ideas, whether
patentable or not in any jurisdiction; patents, applications for
patents (including, without limitation, divisions,
continuations, continuations in part and renewal applications),
and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and
confidential information and rights in any jurisdiction to limit
the use or disclosure thereof by any Person; writings and other
works, whether copyrightable or not in any jurisdiction;
registrations or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof; and
any similar intellectual property or proprietary rights, but
shall not include Software. For purposes of this Agreement,
"Software" shall mean all computer and telecommunication
software including source and object code and documentation and
any other media (including, without limitation, manuals,
journals and reference books).
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(b) Except as set forth in Schedule 3.20, the
Companies and their Subsidiaries own, or have valid and
enforceable licenses or other rights to use (in each case, free
and clear of any material Liens or other material limitations or
restrictions), all Software used in the conduct of their
respective businesses as currently conducted; the use of the
Software by the Companies and their Subsidiaries does not
infringe on or otherwise violate the rights of any person; and
to Seller's knowledge no person is challenging, infringing on or
otherwise violating any right of any Company or any Subsidiary
of any Company with respect to any Software used by the
Companies and their Subsidiaries.
3.21 Labor Matters. Neither Company nor any
_____________
Subsidiary of any Company is a party to any collective
bargaining or other labor union contract and no collective
bargaining agreement is being negotiated by any Company or any
Subsidiary of any Company. Except as set forth in Schedule
3.21, Seller has no knowledge of any material activities or
proceedings of any labor union to organize any employees of any
Company or any Subsidiary of any Company. There is no material
labor dispute, strike or work stoppage against any Company or
any Subsidiary of any Company pending or, to Sellers's
knowledge, threatened which may interfere with the respective
business activities of the Companies or any of their
Subsidiaries.
3.22 Loans and Advances. Except as set forth in
___________________
Schedule 3.22, neither of the Companies nor any of their
Subsidiaries has any contractual commitment to make any loan,
advance or capital contribution to, or investment in, any other
Person in excess of $100,000.
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3.23 All Assets Necessary. Except as set forth in
____________________
Schedule 3.23, the Companies and their Subsidiaries own, lease
or license all property and assets necessary to carry on their
businesses and operations as presently conducted, all such
assets and properties (other than as Buyer and Seller may
mutually agree) will be conveyed to Buyer (either indirectly by
means of the transfer of the Shares or through an Ancillary
Agreement or as contemplated by Sections 5.11, 7.11 and 7.12) at
the Closing and will as of the Closing (assuming Buyer were to
elect to obtain the services and facilities made available to
Buyer pursuant to the Ancillary Agreements and consents
contemplated by Section 5.11 were obtained) permit Buyer to
conduct such businesses and operations in the same manner as
such businesses and operations have been conducted prior to the
Closing.
3.24 Certain Policies. Subject to the qualifications
________________
set forth therein, Schedule 3.24 sets forth a brief description
of all insurance policies written by or ceded to either of the
Companies or any of their Subsidiaries with respect to any
insured currently or formerly involved in the manufacture of
tobacco products, or to the knowledge of Seller in research,
development or providing technical advice or information with
respect to the manufacture of tobacco products, including the
name of the insured, the policy period and the policy limits.
No notices have been received by Seller or the Companies or
their Subsidiaries or claims made by the insured under any of
such policies. Except as set forth in Schedule 3.24, each such
policy for each insured contains a product liability exclusion,
in the form set forth on Schedule 3.24, for each policy year.
As used in this Section 3.24, "knowledge" of Seller means the
knowledge of the executive officers, the chief legal or
compliance officers of the
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Seller or the Companies or the senior in-house counsel for
property and casualty insurance matters of the Companies and
their Subsidiaries.
3.25 Disclosure. No representation or warranty of
__________
Seller contained in this Agreement (including the Schedules
referenced herein) contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements made
therein, in light of circumstances under which they were made,
not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the
date hereof and as of the Closing Date (but as of no other dates
unless expressly so stated) that:
4.1 Corporate Existence and Power. Buyer has been
_____________________________
duly incorporated and is validly existing as an insurance
corporation in good standing under the laws of Connecticut and
has all corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals required to
carry on its business as now conducted. Buyer has heretofore
delivered to Seller true and complete copies of its certificate
of incorporation and by-laws as in effect on the date hereof.
4.2 Corporate Authorization. The execution, delivery
_______________________
and, subject to the receipt of the approvals referred to in
Section 4.3, performance by Buyer of this Agreement and the
Ancillary Agreements to which Buyer is a party are within the
corporate powers of Buyer and have been duly authorized by all
necessary corporate action on the part of Buyer. This Agreement
constitutes, and when executed and
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delivered each Ancillary Agreement to which Buyer is a party
will constitute, a valid and legally binding agreement of Buyer,
enforceable against Buyer in accordance with its terms, subject
to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally
and the rights of creditors of insurance companies generally and
(ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
4.3 Governmental Authorization. The execution,
__________________________
delivery and performance by Buyer of this Agreement and each
Ancillary Agreement to which Buyer is a party require no action
by or in respect of, or filing with, any governmental body,
agency or official on the part of Buyer or any of its
Subsidiaries other than (i) compliance with any applicable
requirements of the HSR Act, (ii) approvals or filings under the
insurance laws of the jurisdictions set forth in Schedule 4.3,
(iii) filings and notices not required to be made or given until
after the Closing Date, (iv) filings, at any time, of tax
returns, tax reports and tax information statements and (v) any
such action or filing as to which the failure to make or obtain
would not individually or in the aggregate be material.
4.4 Non-Contravention. Except as set forth in
_________________
Schedule 4.4, the execution, delivery and performance by Buyer
of this Agreement and each Ancillary Agreement to which Buyer is
a party do not and will not (i) violate the certificate of
incorporation or by-laws of Buyer, (ii) assuming compliance with
the matters referred to in Section 4.3, violate any applicable
law, rule, regulation, judgment, injunction, order or decree,
(iii) require any consent or other action by any Person under,
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constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or
obligation of Buyer or any of its Subsidiaries or to a loss of
any benefit to which Buyer or any of its Subsidiaries is
entitled under, any material agreement or other instrument
binding upon Buyer or any of its Subsidiaries or any material
license, franchise, permit or other similar authorization held
by Buyer or any of its Subsidiaries or (iv) result in the
creation or imposition of any material Lien on any asset of
Buyer or any of its Subsidiaries.
4.5 Financing. Buyer has, or will have prior to the
_________
Closing, sufficient cash, available lines of credit or other
sources of immediately available funds to enable it to make
payment of the Purchase Price and any other amounts to be paid
by it hereunder.
4.6 Purchase for Investment. Buyer is purchasing the
_______________________
Shares for investment for its own account and not with a view
to, or for sale in connection with, any distribution thereof,
provided, however, that at or after the Closing Buyer may issue
or sell debt or equity securities of the Companies or their
Subsidiaries in connection with the financing of its acquisition
of the Shares. Any such issuance or sale will be effected in
compliance with all applicable securities laws. Buyer (either
alone or together with its advisors) has sufficient knowledge
and experience in financial and business matters so as to be
capable of evaluating the merits and risks of its investments in
the Shares and is capable of bearing the economic risks of such
investment.
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ARTICLE 5
COVENANTS OF SELLER
Seller agrees that:
5.1 Conduct of the Companies. Except as otherwise
________________________
expressly provided in this Agreement, during the period from the
date hereof to the Closing, Seller will cause the Companies and
their Subsidiaries to conduct their operations according to
their ordinary course of business consistent with past practice,
will cause the Companies and their Subsidiaries to use their
reasonable best efforts to preserve intact their respective
business organizations, generally to keep available the services
of their respective officers and employees and generally to
maintain existing relationships with agents, licensors,
licensees, suppliers, contractors, distributors, customers and
others having business relationships with them, and will cause
the Companies and their Subsidiaries, to the extent permitted by
applicable law, to confer with Buyer on a regular basis and
confer with Buyer on significant operational matters and
material decisions affecting the business of the Companies and
the Subsidiaries. Without limiting the generality of the
foregoing, as promptly as practicable following the date hereof,
Seller shall establish an interim transition committee (the
"Transition Committee") which shall meet on a regular basis to
review the financial and operational affairs of the Companies
and their Subsidiaries. Such review shall be conducted in
accordance with applicable law and shall not cover current or
future pricing of specific products, marketing or strategic
plans, specific breakdowns of sales by customers, or plans to
introduce new competitive products. A majority of the
Transition Committee shall consist of senior officers of the
Companies designated by
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Seller (including their respective chief executive and chief
financial officers) and one or more representatives of Seller.
The Transition Committee shall also include two individuals
designated by Buyer. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this
Agreement or as set forth in Schedule 5.1, Seller will cause
each of the Companies and each Subsidiary of any Company not to,
without the prior written consent of Buyer:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any
class or any other securities or equity equivalents (including,
without limitation, stock appreciation rights), or amend any of
the terms of any such securities or agreements outstanding as of
the date hereof;
(c) split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock, or property or any
combination thereof) in respect of its capital stock, or redeem,
repurchase or otherwise acquire any of its securities;
(d)(i) incur any indebtedness for borrowed money
(except for short term indebtedness incurred in the ordinary
course of business consistent with past practice pursuant to
existing lines of credit or extensions or renewals thereof) or
issue any debt securities or, except in the ordinary course of
business consistent with past practice, assume, guarantee or
endorse the obligations of any other Person; (ii) make any
loans, advances or capital contributions to, or investments in,
any other Person
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(other than (A) to wholly owned Subsidiaries of the Companies,
(B) subject to Section 7.11, investments in the ordinary course
of business consistent with past practice, (C) loans to agents
in the ordinary course of business consistent with past practice
not exceeding $500,000 aggregate principal amount to all agents
or (D) pursuant to the terms of the agreements listed in
Schedule 5.1), in excess of $100,000; (iii) pledge or otherwise
encumber shares of its capital stock; (iv) enter into or invest
in any derivative financial instruments except in the ordinary
course of business consistent with current investment and risk
management policies; or (v) except in the ordinary course of
business consistent with past practice, mortgage or pledge any
of its assets, tangible or intangible, or create or suffer to
exist any Lien thereupon;
(e) to the extent payable directly or indirectly by
any Company or any Subsidiary of any Company: enter into, adopt
or (except as may be required by law or the terms of any such
arrangement) terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee engaged in Seller's
property and casualty insurance business, amend any such
arrangement as it relates to such directors, officers or
employees or (except for increases in base compensation in the
ordinary course of business consistent with past practice, but
in no event greater than 4 1/2% in the aggregate on a per annum
basis for all such individuals as a group) increase in any
manner the compensation
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or benefits of any director, officer or employee engaged in
Seller's property and casualty insurance business or, with
respect to any director or officer engaged in Seller's property
and casualty insurance business, pay any benefit not required by
any plan or arrangement as in effect as of the date hereof or,
with respect to any employee engaged in Seller's property and
casualty insurance business who is not an officer or director,
pay any benefit other than in the ordinary course of business
consistent with past practice in accordance with plans or
arrangements in effect as of the date hereof (including, without
limitation, with respect to any such director, officer or
employee, the granting of stock options, restricted stock, stock
appreciation rights or performance units); provided that Buyer
agrees it will not unreasonably withhold its consent, if
requested by Seller, to transactions proposed under this
paragraph (e) (other than increases in base compensation);
(f) acquire, sell, lease or dispose of any assets
outside the ordinary course of business (including, without
limitation, any assets which are not primarily related to the
property and casualty insurance business conducted by the
Companies and their Subsidiaries) or any assets which in the
aggregate are material to the Companies and their Subsidiaries,
taken as a whole, or enter into any contract, agreement,
commitment or transaction with respect thereto outside the
ordinary course of business consistent with past practice;
(g) change any of the accounting principles,
practices, methods or policies (including, without limitation,
any reserving methods, practices or policies) used by it, except
as may be required as a result of a change in law, SEC
guidelines or GAAP or SAP;
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(h) change the method of determining the GAAP reserves
for any guaranty fund assessment, second injury fund assessment,
special insurance assessment or similar assessment or tax;
(i) (i) acquire (by merger, consolidation, or
acquisition of stock or assets, but excluding foreclosure) any
corporation, partnership or other business organization or
division thereof; (ii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $500,000 or,
in the aggregate, are in excess of $2,500,000; (iii) settle any
litigation existing as of the Balance Sheet Date for amounts
more than $1,500,000 above held reserves existing as of the
Balance Sheet Date; (iv) settle any litigation commenced after
the Balance Sheet Date for amounts more than $1,500,000; or (v)
enter into or amend any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(j) make any Tax election or settle or compromise any
Tax liability, other than in the ordinary course of business and
as limited by Article 8 hereof or enter into any tax sharing
agreements or arrangements with any party, or amend or modify
the Tax Sharing Agreement in a manner which adversely affects
any of the Companies or their Subsidiaries;
(k) pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in the consolidated financial
statements (or the notes thereto) of the Companies and their
Subsidiaries or incurred in the ordinary course of business
consistent with past practice;
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(l) terminate, or in any manner material thereto
modify, amend or waive compliance with, any provision of any of
the Significant Agreements;
(m) change its underwriting standards or practices in
any material way;
(n) (i) enter into any facultative reinsurance
contract other than in the ordinary course of business
consistent with past practice; (ii) commute any reinsurance
contract (provided that Buyer will not unreasonably withhold its
consent to any of the transactions specified in the foregoing
clauses (i) and (ii) and provided further that Seller may cause
ACSC to enter into an excess of loss reinsurance contract with a
term of up to one year, provided that Seller agrees to use its
best efforts to negotiate with the other party to such contract
to provide for a shorter term, such term to be as close to six
months as is reasonably practicable); or (iii) without giving
Buyer at least 10 business days' prior written notice thereof,
enter into any treaty reinsurance contract;
(o) effect any material or unusual insurance
transaction other than in the ordinary course of business
consistent with past practice;
(p) significantly change the compensation structure
of, or other benefits available to, any of its significant
agents or to its agents generally;
(q) make any investment in Company Investment Assets
other than in accordance with Seller's investment policies set
forth in Schedule 3.9(xiii);
(r) with respect to any leased facility shared by
Seller or any of its Affiliates, on the one hand, and any
Company or any Subsidiary of any Company, on the other hand, in
which the Companies and their Subsidiaries occupy less than
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50% of such facility as of the date hereof, enter into or renew
any lease or other arrangement in the name of any Company or any
Subsidiary of any Company relating to such facility;
(s) effect any transactions with Seller or any of its
Affiliates, other than pursuant to arrangements existing as of
the date hereof;
(t) except to the extent permitted by paragraphs (a)
through (r) above, enter into any agreement of the type
described in Section 3.11(a)(i), (ii), (iii), (vi), (vii),
(viii), (x), (xi), (xii) or (xiii); or
(u) take, or agree in writing or otherwise to take,
any of the actions described above in this Section 5.1.
5.2 Access to Information. From the date hereof until
_____________________
the Closing Date, subject to the terms of the Confidentiality
Agreement referred to in Section 6.1, any applicable contractual
restrictions and applicable legal privileges, and to the extent
applicable law would not thereby be violated Seller will (i)
give, and will cause the Companies and their Subsidiaries to
give, Buyer, its counsel, financial advisors, auditors and other
authorized representatives full access, upon reasonable prior
notice and during normal business hours, to the offices,
properties, books and records of the Companies and each of their
Subsidiaries and to the books and records of Seller relating to
the Companies and their Subsidiaries, (ii) furnish, and will
cause the Companies and their Subsidiaries to furnish, to Buyer,
its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other
information relating to the Companies or any of their
Subsidiaries as such Persons may reasonably request and (iii)
instruct the employees, counsel and
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financial advisors of Seller or the Companies or any of their
Subsidiaries to cooperate with Buyer in its investigation of the
Companies or any of their Subsidiaries; provided that this
Section 5.2 shall not obligate Seller to provide or make
available to Buyer any employee medical records; provided,
further, that to the extent contractual restrictions limit
Seller's ability to take any of the actions set forth in this
Section 5.2, Seller shall use its best efforts to obtain any
necessary contractual consent or accommodate any reasonable
request by Buyer with respect to such action by alternative
means and provided, further, that to the extent applicable
legal privileges or applicable laws limit Seller's ability to
take any of the actions set forth in this Section 5.2, Seller
shall use its best efforts to accommodate any reasonable request
by Buyer with respect to such action by alternative means.
5.3 Notices of Certain Events. Seller shall promptly
_________________________
notify Buyer of:
(a) any notice or other communication received by
Seller from any Person alleging that the consent of
such Person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication received by
Seller relating to the transactions contemplated by
this Agreement and any other significant notices or
other communications from any governmental or
regulatory agency or authority; and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to Seller's knowledge
threatened against, relating to or involving or
otherwise affecting Seller, the Companies or any
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Subsidiary of any of the Companies that, if pending on
the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.12 or that
relate to the consummation of the transactions
contemplated by this Agreement.
5.4 Resignations. Seller will deliver to Buyer the
____________
resignations of all officers and directors of the Companies and
each Subsidiary of any of the Companies who will be officers,
directors or employees of Seller or any of its Affiliates after
the Closing Date from their positions with each of the Companies
and each Subsidiary of any of the Companies at or prior to the
Closing Date.
5.5 Covenant Not to Compete. For a period of five
_______________________
years after the Closing, Seller will not, and will cause its
Affiliates not to, engage, directly or indirectly, in any
business in the United States, Canada or the United Kingdom that
competes with any of the businesses of the Companies and their
Subsidiaries as conducted in such countries as of the Closing;
provided that Seller and its Affiliates shall not be prohibited
________
from engaging in any such businesses to the extent that such
business is (a) incidental to any business that does not
otherwise primarily compete with any of the businesses of the
Companies and their Subsidiaries as conducted in such countries
as of the Closing, (b) an integral part of any such business of
Seller and its Affiliates and (c) reasonably necessary to be
competitive with respect to any such business of Seller and its
Affiliates; and provided further that Seller and its Affiliates
________ _______
shall not be prohibited from conducting any of the activities
set forth in Schedule 5.5.
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5.6 No Solicitation. Seller will immediately cease
_______________
any existing discussions or negotiations with any third parties
conducted prior to the date hereof with respect to any
Acquisition Proposal (as defined below). Seller shall not,
directly or indirectly, through any officer, director, employee,
representative or agent or any of its Subsidiaries, (i) solicit,
initiate, or encourage any inquiries or proposals that
constitute, or would lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets,
sale of a substantial percentage of shares of capital stock or
similar transactions involving any of the Companies or their
Subsidiaries, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being
referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or
provide any nonpublic information to any person or entity
relating to, any Acquisition Proposal or (iii) agree to or
approve any Acquisition Proposal. Seller shall notify Buyer
immediately (and no later than 24 hours) after receipt by Seller
of any Acquisition Proposal or any request for nonpublic
information in connection with an Acquisition Proposal or for
access to the properties, books or records of the Companies or
any of their Subsidiaries by any person or entity that informs
Seller that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally (and
confirmed in writing) and shall indicate the identity of the
offeror and the terms and conditions of such proposal, inquiry
or contract.
5.7 Certain Other Transactions. (a) At or prior to
__________________________
Closing, Seller will either (i) enter into a novation whereby
Seller substitutes itself or one of its Affiliates for ACSC as
assuming reinsurer under the Aggregate Excess Reinsurance
Agreement
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between ACSC and Aetna ReInsurance (U.K.) Ltd. dated May 28,
1993 (the "Aetna Re U.K. Stop Loss") and Aetna ReInsurance
(U.K.) Ltd. releases ACSC from all liability thereunder; or (ii)
otherwise indemnify Buyer to the extent that the amount paid by
ACSC under the Aetna Re U.K. Stop Loss exceeds the amount
reflected as a reserve (which Seller represents will not exceed
$35,700,000) on the September Audited GAAP Balance Sheet for
liabilities or potential liabilities under such agreement. In
the event Seller elects to substitute itself or one of its
Affiliates for ACSC as assuming reinsurer under the Aetna Re
U.K. Stop Loss, the consideration for such novation will be an
amount equal to ACSC's held reserve level relating to the Aetna
Re U.K. Stop Loss at the time of such novation. Subject to
receipt of any necessary regulatory approvals, such amount will
be paid to the assuming company by ACSC as reflected on the
September Audited Balance Sheet. In the event that Seller
elects to indemnify Buyer pursuant to clause (ii) of the first
sentence of this Section 5.7(a), to the extent that the amount
paid by ACSC under the Aetna Re U.K. Stop Loss is less than the
amount reflected as a reserve on the September Audited GAAP
Balance Sheet for liabilities or potential liabilities under
such agreement, Buyer shall pay such amount to Seller.
(b) At or prior to the Closing, Seller will (i) cause
Aetna Life Insurance Company of Illinois ("XXXX") to be
substituted for Aetna Casualty & Surety Company of Illinois
("AC&S of Illinois") as reinsurer under the original cession
from XXXX to AC&S of Illinois of Aetna Life Insurance Company's
long-term disability and credit/mortgage disability business,
and AC&S of Illinois will be released from all liabilities
thereunder and (ii) take all other actions necessary to
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ensure that, following the Closing, neither Company nor any
Subsidiary of any Company shall have any liability with respect
to any such agreements.
5.8 Confidentiality Agreements. Seller agrees that,
__________________________
without Buyer's consent, after the date hereof and until the
expiration of such agreements, it will not terminate, amend,
waive or modify any provision of any confidentiality agreement
pursuant to which information was provided to any Person (other
than Buyer) with respect to the Companies or their Subsidiaries
or their businesses and operations. Seller shall, at Buyer's
expense, take all action reasonably requested by Buyer to
enforce the terms of each such confidentiality agreement.
5.9 Other Financial Statements. (a) As promptly as
__________________________
practicable after the date hereof, but in no event later than 60
days after the date hereof, Seller will prepare or cause to be
prepared and delivered to Buyer, together with unqualified
reports of KPMG Peat Marwick LLP thereon, (i) an audited
combined balance sheet of the Companies and their Subsidiaries
as of September 30, 1995 (the "September Audited GAAP Balance
Sheet") and audited combined statements of results of operations
and cash flows of the Companies and their Subsidiaries for the
nine
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months ended September 30, 1995, in each case prepared in
accordance with GAAP applied on a basis consistent with that
used in the preparation of the audited financial statements
referred to in Section 3.8(a), and (ii) an audited combined
balance sheet of the Companies and their Subsidiaries as of
September 30, 1995 (the "September Audited SAP Balance Sheet"
and, together with the September Audited GAAP Balance Sheet, the
"September Audited Balance Sheets") and an audited combined
statement of results of operations of the Companies and their
Subsidiaries for the nine months ended September 30, 1995, in
each case prepared in accordance with SAP applied on a basis
consistent with that used in the preparation of the audited
financial statements referred to in Section 3.8(b).
(b) The September Audited Balance Sheets shall be
accompanied by a schedule reflecting the balance sheet
adjustments described in Schedule 5.9. The September Audited
GAAP Balance Sheet, as so adjusted, is referred to herein as the
"September Adjusted GAAP Balance Sheet," the September Audited
SAP Balance Sheet, as so adjusted, is referred to herein as the
"September Adjusted SAP Balance Sheet," and the September
Adjusted GAAP Balance Sheet and the September Adjusted SAP
Balance Sheet, collectively, are referred to herein as the
"September Adjusted Balance Sheets." The report of KPMG Peat
Marwick LLP referred to in Section 5.9(a) shall state that such
firm has reviewed such adjustments. All audited financial
statements delivered pursuant to this Section 5.9 will be
audited in accordance with generally accepted auditing
standards.
(c) As promptly as practicable after December 31,
1995, but in no event later than March 15, 1996, Seller will
prepare or cause to be prepared and delivered to Buyer, together
with unqualified reports of KPMG Peat Marwick LLP thereon, (i)
an audited combined balance sheet of the Companies and their
Subsidiaries as of December 31, 1995 and audited combined
statements of results of operations and cash flows of the
Companies and their Subsidiaries for the year ended December 31,
1995, in each case prepared in conformity with GAAP consistently
applied and (ii) an audited combined balance sheet of the
Companies and their Subsidiaries as of December 31, 1995 and an
audited combined statement of results of
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operations of the Companies and their Subsidiaries for the year
ended December 31, 1995, in each case prepared in conformity
with SAP consistently applied.
(d) As promptly as practicable after the Closing,
but in no event later than 60 days after the Closing, Seller
will prepare or cause to be prepared and delivered to Buyer,
together with unqualified reports of KPMG Peat Marwick LLP
thereon, (i) an audited combined balance sheet of the Companies
and their Subsidiaries as of the Closing Date, if the Closing
Date is the last day of a calendar month, or if the Closing Date
is not the last day of a calendar month, as of the last day in
the calendar month immediately preceding the calendar month in
which the Closing occurs (such date, the "Deemed Closing Date")
(the "Closing Date GAAP Balance Sheet") and audited combined
statements of results of operations and cash flows of the
Companies and their Subsidiaries for the period beginning on the
January 1st next preceding the Deemed Closing Date and ending on
the Deemed Closing Date, in each case prepared in conformity
with GAAP consistently applied and (ii) an audited combined
balance sheet of the Companies and their Subsidiaries as of the
Deemed Closing Date and an audited combined statement of results
of operations of the Companies and their Subsidiaries for the
period beginning on the January 1st next preceding the Deemed
Closing Date and ending on the Deemed Closing Date, in each case
prepared in conformity with SAP consistently applied. In
addition, from and after the date hereof until the Closing Date,
Seller will prepare or cause to be prepared and, to the extent
permitted by applicable law, delivered to the members of the
Transition Committee the same periodic unaudited financial
information relating to the Companies and their Subsidiaries
which is provided to the senior management
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of Seller and the Companies. Buyer shall bear 100% of the cost
of the audit of the financial statements as of and for the
period ending on the Deemed Closing Date referred to in this
Section, and Seller shall bear 100% of the cost of the audit of
all other financial statements and information referred to in
this Section.
(e) As promptly as practicable after December 31,
1995, but in no event later than March 15, 1996, Seller will
deliver to Buyer copies of the Companies' and their
Subsidiaries' respective annual statements for the fiscal year
ended December 31, 1995, in the forms filed with the Regulators
in their respective jurisdictions of domicile.
5.10 1992 Audit. Seller shall cause to be prepared
__________
and delivered to Buyer, as promptly as practicable, but in no
event later than December 31, 1995, audited combined statements
of results of operations and cash flows of the Companies and
their Subsidiaries for the year ended December 31, 1992,
prepared in accordance with GAAP consistently applied, together
with the unqualified reports of KPMG Peat Marwick LLP thereon.
Buyer shall bear 100% of the cost of the audit of the financial
statements referred to in this Section.
5.11 Use of Computer Software. (a) Prior to the
________________________
execution hereof, Seller and the Companies have entered into the
Software License Agreement annexed hereto as Exhibit 5.11 (the
"Software License Agreement").
(b) With respect to all Software not owned by Seller
but which is presently used in the operation of the business of
any of the Companies or their Subsidiaries as that business is
conducted as of the date hereof, Seller shall use its best
efforts, prior to Closing, to transfer or procure from the
necessary third parties
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an enforceable license with terms and conditions of like tenor
to those that are currently enforced against Seller. Seller and
Buyer shall share all costs and expenses in excess of ongoing
royalty obligations incurred in connection with the transfer or
license to the Companies and their Subsidiaries of all such
Software, including, but not limited to, payment of any transfer
or license fees or similar costs, in accordance with the last
sentence of this paragraph (b). In the event that Seller is
unable to effect the transfer or license to the Companies and
their Subsidiaries of any such Software, Seller shall continue
following the Closing to use its best efforts to effect such
transfer or license in accordance with this Section 5.11, and
shall in the interim make arrangements for the provision of
replacement Software to the Companies and their Subsidiaries as
of the Closing, which replacement software shall be reasonably
acceptable to Buyer, the cost of which arrangements shall be
shared by Seller and Buyer as provided in the following
sentence. Seller shall pay 80%, and Buyer shall pay 20%, of the
first $10 million of any costs and expenses referred to in this
paragraph (b), and Seller and Buyer shall share equally in any
such costs and expenses in excess of $10 million.
(c) From the date hereof and prior to the Closing,
Seller agrees that to the extent it develops, acquires or
licenses any Software that is used in the operation of the
business of the Companies and their Subsidiaries, any such
Software owned exclusively by Seller shall be licensed to the
Companies and their Subsidiaries prior to the Closing on the
same terms and conditions as set forth in the Software License
Agreement, and any such Software not owned exclusively by Seller
shall be licensed directly by one or more of the Companies and
the Subsidiaries.
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(d) To the extent that Seller or the Companies or
the Subsidiaries of the Companies negotiate or renegotiate
licenses, leases, extensions of leases, purchases or sales of
Software referred to in paragraphs (b) and (c) above, Seller
shall notify Buyer of such discussions and Buyer and Seller will
jointly participate in such negotiations or renegotiations as
long as Seller has ongoing obligations under this Section 5.11.
Section 5.12 Aetna Casualty Company. Seller will
______________________
use its best efforts to change, as soon as practicable after the
Closing Date consistent with any required regulatory approvals,
the corporate name of "Aetna Casualty Company" to a name which
may include the word "Aetna" but shall not include the word
"Casualty" or "Surety."
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
6.1 Confidentiality. All information provided to
_______________
Buyer or any of the Persons referred to in Section 5.2 will be
treated as if provided under the Confidentiality Agreement,
dated October 2, 1995, between Seller and Buyer (the
"Confidentiality Agreement").
6.2 Post-Closing Access. Buyer will cause the
___________________
Companies and each of their Subsidiaries, on and after the
Closing Date, to afford promptly to Seller and its agents
reasonable access, upon reasonable prior notice and during
normal business hours, to their offices, properties, books,
records, employees and auditors to the
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extent reasonably necessary to permit Seller to determine any
matter relating to its ownership of the Companies prior to the
Closing Date.
6.3 AmRe Agreement. If, at any time after the Closing
______________
Date and for so long as the AmRe Agreement is in effect, the
rating of ACSC or such other Person which is the primary obligor
(the "Obligor") under the Aggregate Excess of Loss Reinsurance
Agreement between ACSC and American Re-Insurance Company dated
September 30, 1992 (the "AmRe Agreement") as determined by A.M.
Best falls below "A-" or its equivalent (or, if A.M. Best shall
cease to publish ratings of insurance companies, an equivalent
claims paying rating by a nationally recognized rating agency)
(an "Adequate Rating"), Buyer shall promptly inform Seller of
such fact and, at Buyer's option, shall (i) cause the Obligor to
establish and fund a trust (satisfying the requirements of
Regulation 113 of the New York Insurance Department or any
successor provision thereto) with cash or cash equivalents in an
amount equal to the Termination Account from time to time as
provided in Article XIII of the AmRe Agreement (the "Termination
Account") with the assets of such trust to be held and used
solely for the purpose of satisfying the obligations of the
Obligor under the AmRe Agreement, (ii) cause the parent company
of the Obligor which is the immediate parent company of the
property and casualty insurance operations of Buyer (the
"Immediate Parent") to unconditionally guarantee the obligations
of the Obligor under the AmRe Agreement (provided that if any
such Immediate Parent ceases to be such, Buyer shall again have
the obligation to elect one of the alternatives in clause (i),
(ii) (with respect to the then Immediate Parent), or (iii) of
this sentence, subject to the last sentence of this Section 6.3)
or (iii) obtain
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an unconditional letter of credit in favor of Seller in an
amount not less than the Termination Account issued by a bank
organized under the laws of the United States with combined
capital and surplus of at least $3,000,000,000 and having a
long-term deposit rating of "A+" or "A-1" or better from
Standard & Poor's Corporation or Xxxxx'x Investor Services,
Inc., respectively, which letter of credit would be drawn on
solely for the purpose of satisfying the obligations of the
Obligor under the AmRe Agreement. Buyer's obligation under the
first sentence of this Section 6.3 shall terminate, and any
existing trust, guarantee or letter of credit will be terminated
at the election of the Obligor, at such time as the Obligor
regains an Adequate Rating; provided that Buyer's obligation
________
under this Section 6.3 shall again be reinstated at any time
such obligation is required in accordance with the first
sentence of this Section 6.3.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Buyer and Seller agree that:
7 .1 Reasonable Efforts. Subject to the terms and
__________________
conditions of this Agreement, Buyer and Seller will use their
reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably necessary
or desirable under applicable laws and regulations to consummate
the transactions contemplated by this Agreement. Buyer and
Seller will promptly, and in any event within 30 days of the
date hereof, prepare and file all applications, notices,
consents and other documents necessary or advisable to obtain
the regulatory approvals
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specified in Schedule 4.3 and Schedule 3.3, respectively,
promptly file all supplements or amendments thereto and use
reasonable efforts to obtain the regulatory approvals specified
in Schedule 4.3 and Schedule 3.3 as promptly as practicable.
Buyer and Seller will provide each other and their counsel the
opportunity to review in advance and comment on all such
filings. Buyer and Seller will keep each other informed of the
status of matters relating to obtaining the regulatory approvals
specified in Schedule 4.3 and Schedule 3.3. Seller and Buyer
agree, and Seller, prior to the Closing, and Buyer, after the
Closing, agree to cause the Companies and each Subsidiary of any
of the Companies to execute and deliver such other documents,
certificates, agreements and other writings and to take such
other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions
contemplated by this Agreement.
7.2 Certain Filings. Seller and Buyer shall cooperate
_______________
with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency,
official or authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to
any contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking
such reasonable actions or making any such filings, furnishing
information required in connection therewith and reasonably
seeking to obtain in timely fashion any such actions, consents,
approvals or waivers.
7.3 Public Announcements. The parties agree to
____________________
consult with each other before issuing any press release or
making any public statement with respect to this Agreement or
the transactions contemplated hereby and, except as may be
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required by applicable law or any listing agreement with any
national securities exchange, will not issue any such press
release or make any such public statement prior to such
consultation.
7.4 Trademarks; Trade Names. (a) Prior to the
_______________________
execution hereof, the Companies and Seller have entered into the
license agreement attached hereto as Exhibit 7.4(a) (the
"License Agreement"). Prior to the execution hereof, the
Companies and Seller have also entered into the assignment
agreement attached hereto as Exhibit 7.4(b) (the "Assignment
Agreement").
(b) After the Closing, Buyer will not, and will not
permit the Companies or any of their Subsidiaries to, use any of
Seller's other logos, marks or names not specifically licensed
or assigned by the License Agreement or the Assignment Agreement
giving effect to any updates to the schedules thereto as
provided therein.
(c) On or before the expiration of the term of the
License Agreement, Buyer will cause each of the Companies and
their Subsidiaries, to the extent necessary, to file with the
applicable governmental body, agency or official amendments to
the Companies' or such Subsidiaries' articles or certificate of
incorporation to delete from its name the word "Aetna" and any
marks and names derived therefrom and shall do or cause to be
done all other acts, including the payment of any fees required
in connection therewith, to cause each such amendment to become
effective.
(d) Seller agrees to cooperate with Buyer in
connection with all regulatory matters relating to the License
Agreement and the Assignment Agreement.
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(e) After the Closing, Buyer will cause the
Companies and their Subsidiaries to use the marks and names
licensed to them pursuant to the License Agreement only in
connection with one or more of Buyer's existing names or marks.
(f) Notwithstanding any provision in this Agreement
or the License Agreement to the contrary, following the Closing,
the Companies and their Subsidiaries may continue to use signs,
labels, containers, stationery, forms (including policy forms)
and other printed material or matter which are included as of
the Closing in the assets or inventory of any Company or any
Subsidiary of any Company; provided that Buyer shall (i) use its
________
reasonable efforts to deplete the supply of such materials
(excluding signs) containing or bearing the trademarks, trade
names and service marks listed on Schedule B to the License
Agreement as soon as practicable in the ordinary course of
business, but in no event later than six months after the
Closing Date and (ii) as promptly as practicable following the
Closing, remove any such signs which contain or bear any of the
trademarks, trade names and service marks listed on Schedule B
to the License Agreement.
7.5 Intercompany Accounts. (a) All intercompany
_____________________
accounts (other than those under or relating to reinsurance
contracts and arrangements to the extent not then due and
payable) between Seller or any of its Affiliates, on the one
hand, and any Company or any Subsidiary of any Company, on the
other hand, as of the Closing shall be settled (irrespective of
the terms of payment of such intercompany accounts) in the
manner provided in this Section 7.5. At least five business
days prior to the Closing, Seller shall prepare and deliver to
Buyer a statement setting out in reasonable detail the
calculation of all such intercompany account balances
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based upon the latest available financial information as of such
date and, to the extent requested by Buyer, provide Buyer with
supporting documentation to verify the underlying intercompany
charges and transactions. All such intercompany account
balances shall be paid in full in cash prior to the Closing.
Except as contemplated by Section 5.7 and Section 7.12, all
intercompany reinsurance agreements shall remain in effect and
shall be performed and settled in accordance with their
respective terms.
(b) As promptly as practicable, but no later than 60
days after the Closing Date, Seller will cause to be prepared
and delivered to Buyer a statement setting out in reasonable
detail the calculation of such intercompany account balances as
of the Closing Date (giving effect to any settlement under
subsection (a) and any other payments in respect thereof).
Buyer and Seller shall cooperate in the preparation of any such
calculation including the provision of supporting documentation
to verify the underlying intercompany charges, transaction and
payments. If Buyer disagrees with Seller's calculation of such
intercompany balances, Buyer may, within 30 days after delivery
of such statement, deliver a notice to Seller disagreeing with
such calculation and setting forth Buyer's calculation of such
amount. If Buyer and Seller are unable to resolve such
disagreement within 30 days thereafter, such disagreement shall
be resolved by the Independent Accountants. The net amount of
any such intercompany balance shall be paid in cash promptly
thereafter, together with interest thereon from and including
the Closing Date to but excluding the date of payment at a rate
per annum equal to the three-month London Interbank Offered Rate
(as published in The Wall Street Journal on the Closing Date)
plus 40 basis
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points. Such interest shall be payable at the same time as the
payable to which it relates and shall be calculated on the basis
of a year of 365 days and the actual number of days elapsed.
(c) Liabilities of the Companies and their
Subsidiaries reflecting allocations of certain expenses of
Seller and its Affiliates set forth on Schedule 7.5(c) shall be
settled in the manner contemplated by Section 7.5(a) and (b)
with respect to intercompany accounts.
7.6 Non-Solicitation of Employees. (a) For a period
_____________________________
commencing on the date hereof through the second anniversary of
the Closing Date, (i) neither Seller nor any of its Affiliates
shall affirmatively seek to hire any officer or key employee of
the Companies or any Subsidiary whose annual base salary as of
the date hereof equals or exceeds $75,000 in any capacity
whatsoever without the express written consent of Buyer, and
(ii) none of Buyer or any of its Affiliates shall affirmatively
seek to hire any officer or key employee of Seller whose annual
base salary as of the date hereof equals or exceeds $75,000 and
with whom Buyer had significant contact in connection with the
transactions contemplated hereby in any capacity whatsoever
without the express written consent of Seller.
(b) For a period commencing on the date hereof
through the second anniversary of the termination of this
Agreement pursuant to Section 12.1, none of Buyer or any of its
Affiliates shall (x) affirmatively seek to hire in any capacity
whatsoever any officer or key employee of the Companies whose
annual base salary as of the date hereof equals or exceeds
$75,000 and with whom Buyer had significant contact in
connection with the transactions contemplated hereby or (y)
while any such
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officer or key employee is employed by Seller or any of its
Affiliates in a position having greater or substantially the
same level of compensation and responsibility as the position
with the Companies held by such officer or key employee on the
date hereof, hire any such officer or key employee in any
capacity whatsoever without, in either case (x) or (y), the
express written consent of Seller.
(c) Seller recognizes that the provisions of clause
(a)(i) of this Section 7.6 are reasonable and necessary for
Buyer's protection and Buyer recognizes that the provisions of
clause (a)(ii) and paragraph (b) of this Section 7.6 are
reasonable and necessary for Seller's protection, and Seller and
Buyer acknowledge that any breach of Section 7.6(a) or (b) will
cause irreparable injury to Seller or Buyer, as the case may be,
which injury will not be reasonably measurable or compensable by
money damages. Accordingly, each of the parties hereto agrees
that it shall be entitled without posting any bond to an
injunction or injunctions to prevent breaches of the provisions
of paragraphs (a) and (b) of this Section 7.6 and to enforce
specifically the terms and provisions hereof in any action
instituted in any court of the United States or any state
thereof having subject matter jurisdiction in addition to any
other remedy to which such party may be entitled at law or
equity.
(d) If any provision of this Section 7.6 is held
unenforceable because of the scope or duration of its
applicability, the court making such determinations shall have
the power to modify such scope or duration and such provisions
shall then be applicable in such modified form.
7.7 Real Estate. Seller and the Companies shall enter
___________
into a sublease, effective as of the Closing Date, providing for
the sublease by one or both of the
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Companies of Seller's "CityPlace" facility and the lease by one
or both of the Companies of Seller's Windsor facility, which
sublease and lease shall have the principal terms set forth on
Exhibit 7.7.
7.8 Transition Agreements. At the Closing, Seller,
_____________________
Buyer and, as applicable, the Companies and their Subsidiaries
will enter into transition agreements having the principal terms
set forth in Exhibit 7.8.
7.9 Post-Closing Access. From and after the Closing
___________________
Date, Seller shall retain the originals of all records of the
Companies and their Subsidiaries concerning Taxes for which
Seller is responsible hereunder. To the extent permitted by
applicable law, Seller shall at Closing provide to Buyer copies
(or at its election originals) of all of the personnel, payroll,
accounting and tax records (other than consolidated tax returns,
consolidated accounting records and consolidated financial
statements of Seller) of the Companies and their Subsidiaries
that heretofore have been maintained by Seller. Seller shall
cause all other books and records of the Companies and their
Subsidiaries, whether currently maintained by the Seller, any
Company or any Subsidiary of any Company, or a third party, to
be available on the premises of the applicable Company or
Subsidiary on the Closing Date. To the extent permitted by
applicable law, Seller will, on and after the Closing Date,
afford promptly to Buyer and its agents reasonable access, upon
reasonable prior notice and during normal business hours, to its
offices, properties, books, records, employees and auditors to
the extent reasonably necessary to permit Buyer to determine any
matter relating to the business of the Companies prior to the
Closing Date. Buyer may, at its own expense, make such copies
of and excerpts from such books and
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records as it may deem necessary for the preparation of tax or
regulatory reports or other purposes permitted hereby. Seller
shall maintain all such books and records for the period
required by law. Seller will hold, and will use its best
efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold,
in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all
confidential documents and information concerning the Companies
or any Subsidiary of the Companies provided to it by Buyer
pursuant to Section 6.2.
7.10 Supplemental Disclosure. Each of Seller and
_______________________
Buyer shall have the continuing obligation promptly to advise
the other with respect to (i) any material matter hereafter
arising and (ii) any material matter hereafter discovered which,
in the case of a matter being disclosed pursuant to clause (i)
hereof if existing at the date hereof or, in the case of a
matter being disclosed pursuant to clause (ii) hereof, if known
at the date hereof would have been required to be set forth or
described in the respective Schedules provided by them;
provided, however, that for the purpose of the rights and
________ _______
obligations of the parties hereunder, any such supplemental or
amended disclosure by any party shall not be deemed to have been
disclosed as of the date hereof, to constitute part of, or an
amendment or supplement to, such Party's Schedules or cure any
breach or inaccuracy of a representation or warranty unless so
agreed to in writing by the other party. If prior to the
Closing Seller or Buyer becomes aware of a breach or inaccuracy
of a representation or warranty made by it herein, such party
shall use its best efforts to cure such breach or inaccuracy as
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promptly as practicable; provided, however, that no such cure
________ _______
will relieve such party of any liability for such breach or
inaccuracy.
7.11 Investment Portfolio; Real Estate Transactions.
______________________________________________
(a) From the date of this Agreement until the Closing Date,
Buyer and Seller agree that (i) the investment portfolio of the
Companies and their Subsidiaries consisting of bonds, notes,
debentures and all other instruments of indebtedness, excluding
mortgage loans, but including mortgage-backed securities ("Bond
Portfolio"), shall be invested and managed at the direction of
Buyer; provided that such investment and management shall be
consistent with the existing investment guidelines of the
Companies and their Subsidiaries set forth in Schedule
3.9(xiii), except that investments in U.S. Treasuries/Agencies
may be increased to a level up to 40% of invested assets,
provided that with respect to the additional 20% allowance being
________
provided herein, the duration of such additional 20% shall not
exceed an average of 5.0 years and provided further that no tax
________ _______
exempt securities shall be purchased other than to replace tax
exempt securities that are sold or redeemed or mature; and (ii)
the equity investment portfolio of the Companies and their
Subsidiaries consisting of the securities listed on Schedule
7.11(a) ("Equity Portfolio") shall be managed at the direction
of Seller. Transactions involving real estate investments,
mortgage loans and other Company Investment Assets not including
the Bond Portfolio or the Equity Portfolio shall be managed at
the direction of Seller, in consultation with Buyer. Subject to
the foregoing, Seller shall effect the actual execution of
transactions for all Company Investment Assets. To the extent
that investment holdings at September 30, 1995 are at levels
outside the existing investment guidelines of the Companies and
their
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Subsidiaries, no action is required pursuant to this Agreement
to change the levels of such holdings.
(b) Seller agrees that at the Closing the aggregate
market value of the securities held in the Equity Portfolio
shall not exceed $400 million, reduced by (i) the market value
at the Closing of all shares of common stock, par value $1.00
per share ("MBIA Stock"), of MBIA, Inc. ("MBIA") held in the
Equity Portfolio and (ii) 95.5% of the gross proceeds from the
sale at or prior to the Closing of any shares of MBIA Stock to
Seller or other Person(s). Prior to the Closing, Seller shall
use its reasonable efforts to liquidate for cash, at least 50%
of the shares of MBIA Stock held in the Equity Portfolio at the
date hereof; provided that Seller need not seek to liquidate
shares of MBIA Stock to the extent Seller provides Buyer with
reasonable evidence of Seller's inability to obtain a price for
such shares at least equal to the market value thereof at the
Balance Sheet Date. Absent such evidence, Seller shall not
permit to remain in the Equity Portfolio, and shall retain at or
prior to the Closing, such shares of MBIA Stock, and in
consideration for any such shares so retained, shall deliver to
the Companies at the time of such retention, cash in an amount
equal to 95.5% of the market value of such shares at such time.
Notwithstanding any other provision of this Agreement to the
contrary, Seller shall not permit to remain in the Equity
Portfolio as of the Closing a number of shares of MBIA Stock or
shares of common stock, par value $0.10 per share ("ERI Stock"),
of Executive Risk Inc. ("ERI") that would result in Buyer being
(x) an "Acquiring Person" under the Rights Agreement, dated as
of December 31, 1993, between ERI and Mellon Bank, N.A., or the
Rights Agreement, dated as of December 12, 1991,
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between MBIA and Mellon Bank, N.A. or (y) subject, with respect
to ERI, to the restrictions on "business combinations" with an
"interested stockholder" under Section 203 of the Delaware
General Corporation Law. Notwithstanding any other provision of
this Agreement to the contrary, this Agreement shall not
constitute an agreement, arrangement or understanding to acquire
or dispose of any, and Seller shall therefore retain all, shares
of MBIA Stock and ERI Stock, other than in either case any
shares up to an amount that may remain in the Equity Portfolio
by operation of the immediately preceding sentence. In
consideration for any such shares so retained, Seller shall
deliver to the Companies at the time of such retention cash in
an amount equal to the market value (or, in the case of MBIA
Stock, 95.5% thereof) of such shares at such time. Prior to the
Closing, Buyer shall notify Seller of any shares of MBIA Stock
or ERI Stock beneficially owned by Buyer, and Seller shall have
no liability to Buyer for any losses incurred by Buyer due to
any inaccuracy in such notification. Seller agrees that no
shares of MBIA Stock shall be sold or retained for consideration
other than cash.
(c) At or prior to the Closing, Seller shall
purchase or cause another Person to purchase for cash securities
of American Re-Insurance Company held in the Equity Portfolio so
that at Closing the aggregate market value of such securities
held in the Equity Portfolio is not more than $20 million.
Seller further agrees that the securities listed on Schedule
7.11(aa) shall not at the Closing be held in the Equity
Portfolio.
(d) At the Closing, if requested by Buyer, Seller
shall transfer to the Companies readily marketable securities
(to be reasonably agreed upon by Seller and
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Buyer) with a market value at the Closing of up to one-seventh
(but in no event more than $20 million in the aggregate) of the
aggregate market value of the Equity Portfolio at such time, and
in exchange therefor Buyer shall transfer to Seller securities
held in the Equity Portfolio of equal market value at such time.
(e) For purposes of this Section, securities to be
valued at the Closing shall be valued at the market value at the
close of business on the business day prior to the Closing Date
(determined in accordance with Seller's pricing policies
consistent with past practices), except that the value of any
shares of MBIA Stock as so determined shall be reduced by
4 1/2%.
(f) From the Balance Sheet Date to the date hereof
Seller has not acquired any securities for the Equity Portfolio.
From the date hereof until the Closing Date Seller shall
transfer to the Bond Portfolio all cash proceeds received in
respect of sales of securities in the Equity Portfolio
immediately following receipt of such proceeds.
(g) Schedule 7.11(b) lists (a) all mortgages with
respect to which both a Company or Subsidiary of a Company and
Seller or an Affiliate is a party (the "Shared Mortgages"), (b)
each mortgage held by either Company or any of their
Subsidiaries which is cross defaulted or cross collateralized
with a mortgage held by Seller or an Affiliate of Seller (the
"Cross Collateralized Mortgages") and (c) each real property in
which or with respect to which both a Company or Subsidiary of a
Company and Seller or an Affiliate has an ownership interest
(the "Shared Real Estate"). Prior to the Closing, and subject
to the receipt of all necessary consents and approvals (which
Seller shall use its best efforts to obtain in a timely manner),
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Seller shall exchange or cause to be exchanged for the
Companies' and their Subsidiaries' interest in the Shared
Mortgages and the Shared Real Estate, Seller's and its
Affiliates' interest in the mortgages and properties set forth
on Schedule 7.11(c); provided that if Seller does not effect the
exchange of any such interest of any of the Companies or their
Subsidiaries in any such Shared Mortgage or Shared Real Estate
prior to the Closing (by reason of the failure to obtain any
necessary consent or otherwise), then Seller shall use
reasonable good faith efforts (including, but not limited to,
committing to and effectuating the sale of its portion of any
such shared investment on the same terms and conditions as the
applicable Company or Subsidiary thereof may agree to sell its
portion of such investment) to ensure that following the Closing
the applicable Company or Subsidiary thereof will be permitted
to sell its interest in such investment without any material
limitations on such sale.
(h) With respect to each Cross Collateralized
Mortgage, prior to Closing, Seller shall either (i) exchange or
cause to be exchanged for the interest of the Companies or their
Subsidiaries in the Cross Collateralized Mortgage, Seller's or
its Affiliate's interest in mortgages reasonably acceptable to
Buyer or (ii) cause the cross collateral or cross default
provisions of the Cross Collateralized Mortgage to be deleted or
released.
7.12 Other Agreements. (a) Effective at the Closing,
________________
Buyer shall cause one of the Companies or one of their
Subsidiaries (the "AL&C Buyer") to assume on a 100% quota share
basis all of Seller's previously existing, in-force, new and
renewal direct written property and casualty insurance business
carried on directly by Seller in the states of Connecticut and
Pennsylvania (the "AL&C
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Business") in exchange for the payment to Buyer of an amount
equal to the sum of the reserves for unearned premium, loss
adjustment expense and incurred loss and other outstanding
liabilities directly related to the AL&C Business as of the
Closing Date. For each such insured, Buyer shall cause the AL&C
Buyer to make offers of renewal to all persons insured under the
AL&C Business at the next succeeding renewal date that occurs
after the Closing. Seller agrees to provide the AL&C Buyer such
underwriting information as may be reasonably required to
effectuate the foregoing transactions. Buyer agrees to
indemnify Seller for any losses sustained or expenses incurred
by Seller as a result of the failure of Buyer or the AL&C Buyer
to perform their obligations under this Section 7.12(a) or under
the AL&C Business assumed.
(b) ACSC has written and continues to write stop
loss insurance business ("Stop Loss Business") in connection
with group health business conducted by Seller's Aetna Health
Plans Strategic Business Unit ("AHP"). All liabilities related
to the Stop Loss Business are reinsured to Aetna Casualty
Company ("ACC") on a 100% quota share basis pursuant to the Stop
Loss Reinsurance Agreement dated March 25, 1991, by and between
ACSC and ACC (the "Stop Loss Quota Share"). Buyer agrees that
Seller shall retain the Stop Loss Business. Seller shall cause
ACC, or another Affiliate, to make offers of renewal to all
Persons insured under the Stop Loss Business at the next
succeeding renewal date for each such insured that occurs after
Closing. Buyer agrees to provide Seller or its designated
Affiliate such underwriting information as may be reasonably
necessary to effectuate the foregoing transactions.
Notwithstanding anything in this Section 7.12(b) to the
contrary, until
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such time as all of the Stop Loss Business is being written in
ACC or another Affiliate of Seller (but in no event for longer
than three months following the Closing), Buyer agrees to
continue to make ACSC available to Seller as an underwriter of
Stop Loss Business in the State of Missouri, and to reinsure all
such liabilities to ACC pursuant to the terms of the Stop Loss
Quota Share. Seller agrees to indemnify Buyer for any losses
sustained or expenses incurred by Buyer as a result of the
failure of Seller or its Affiliates to perform their obligations
under this Section 7.12(b) or under the Stop Loss Business. For
so long as the Stop Loss Quota Share remains in effect, Seller
agrees to cause one of its Affiliates to administer all of the
Stop Loss Business.
7.13 Certain Insurance Policies. To the extent that,
__________________________
after the Closing, any Company or any Subsidiary of any Company
experiences any loss arising out of any event occurring prior to
the Closing, which loss is covered by any insurance policy
maintained by Seller or any of its Affiliates for the benefit of
any Company or any Subsidiary of any Company, Seller will use
its best efforts to assist the Companies and their Subsidiaries
in pursuing a claim under such policy and shall remit to the
Companies or their Subsidiaries any proceeds received by Seller
or its Affiliates pursuant to such policy (it being understood
that Seller has no obligation to provide or pay for insurance
coverage for any of the Companies or their Subsidiaries after
the Closing).
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ARTICLE 8
TAX MATTERS
8.1 Definitions. The following terms, as used herein,
___________
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as
amended.
"Combined State Tax" means, with respect to each state
or local taxing jurisdiction, any income, franchise or similar
tax payable to such state or local taxing jurisdiction in which
a member of the Seller Group files Returns (as hereinafter
defined) with the Companies and their Subsidiaries (or any
member thereof), on a consolidated, combined or unitary basis
for purposes of such income or franchise tax.
"Federal Tax" means any Tax imposed under the Code.
"Final Determination" shall mean (i) with respect to
Federal Taxes, a "determination" as defined in Section 1313(a)
of the Code or the execution of an Internal Revenue Service Form
870AD and, (ii) with respect to Taxes other than Federal Taxes,
any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review
or modification through proceedings or otherwise (including the
expiration of a statute of limitations or a period for the
filing of claims for refunds, amended returns or appeals from
adverse determinations).
"NOLs" mean all net operating losses and net capital
losses of the Companies and their Subsidiaries.
"Post-Closing Tax Period" means any Tax period
beginning after the Closing Date and the portion of any Straddle
Period beginning after the Closing Date pursuant to Section
8.5(i).
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"Post-September 30 Tax Period" means (i) the portion of
calendar year 1995 beginning after September 30, 1995, (ii) any
Tax period beginning after December 31, 1995 and ending on or
prior to the Closing Date, and (iii) the portion of any Straddle
Period ending on and including the Closing Date pursuant to
Section 8.5(i).
"Pre-September 30 Tax Period" means any Tax period
ending on or before September 30, 1995 and the portion of
calendar year 1995 ending on and including September 30, 1995.
"Seller Group" means, (i) with respect to Federal
Taxes, the affiliated group of corporations (as defined in
Section 1504(a) of the Code with due regard to Section 1504(c)
of the Code) of which Seller is a member and, (ii) with respect
to state or local income or franchise Taxes, the consolidated,
combined, unitary or similar group of which Seller or any of its
Affiliates is a member.
"Separate State Tax" means with respect to each state,
local or foreign taxing jurisdiction, any tax (other than
Combined State Tax) payable by the Companies and their
Subsidiaries to such state, local or foreign taxing
jurisdiction.
"Separate State Income Tax" means with respect to each
state, local or foreign taxing jurisdiction, any income,
franchise or similar tax (other than Combined State Tax) payable
by the Companies and their Subsidiaries to such state, local or
foreign taxing jurisdiction.
"Straddle Period" means any Tax period beginning before
and ending after the Closing Date.
"Tax" or "Taxes" means all taxes, charges, fees, levies
or other assessments, including, without limitation, any net
income tax or franchise tax based
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on net income, any alternative or add-on minimum taxes, any
gross income, gross receipts, premium, sales, use, ad valorem,
value added, transfer, profits, license, social security,
medicare, payroll, employment, excise, severance, stamp,
occupation, property, environmental or windfall profit tax,
custom duty or other tax, governmental fee or other like
assessment, together with any interest, penalty, addition to tax
or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any
such tax (a "Taxing Authority").
"Tax Benefit" means any deduction, credit,
amortization, exclusion from income, loss or other tax
attribute.
"Tax Sharing Agreement" means the Tax Sharing
Agreement, entered into by Seller and its Subsidiaries,
applicable to the taxable year ending December 31, 1994 and all
other periods specified therein, and the procedures and
practices employed pursuant thereto or reflected therein
including, without limitation, all procedures and practices with
respect to alternative minimum taxes.
8.2 Tax Representations. Seller represents and
___________________
warrants to Buyer as of the date hereof that, except as set
forth on Schedule 8.2:
(i) all Tax returns, statements, reports, forms and
other documentation (collectively, "Returns") required to be
filed with any Taxing Authority by or with respect to the
Companies or any of their Subsidiaries on or before the Closing
Date with respect to any Pre-September 30 Tax Period have been
filed or will be timely filed on or before the Closing Date in
accordance with all applicable laws, and all such Returns are
true, correct and complete in all material respects;
(ii) the Companies and their Subsidiaries have
timely paid all Taxes shown to be due on such Returns;
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(iii) the Companies and their Subsidiaries have made
adequate provision on the September Adjusted GAAP Balance Sheet
for all Taxes payable by the Companies and their Subsidiaries
for any Pre-September 30 Tax Period for which no Return has yet
been filed or for which Returns have been filed but payment of
the Tax shown to be due thereon is not yet due;
(iv) there is no action, suit, proceeding,
investigation, assessment, adjustment, audit or claim now
proposed or pending against or with respect to the Companies or
their Subsidiaries in respect of any Tax;
(v) there are no outstanding waivers or other
agreements extending any statutory periods of limitation for the
assessment of Taxes of the Companies and their Subsidiaries;
(vi) on or prior to the date hereof, Seller has
provided Buyer with copies of all record retention agreements
currently in effect between the Seller Group and any Taxing
Authority, and no such record retention agreements have been
entered into or modified since September 30, 1995; and
(vii) the Tax Sharing Agreement is the only
agreement which governs the liability for Taxes between Seller
and the Companies and their Subsidiaries.
8.3 Tax Covenants. (a) Except as otherwise required
_____________
by law, Buyer covenants that it will not cause or permit the
Companies, any of their Subsidiaries or any Affiliate of Buyer
(i) to take any action on the Closing Date, other than in the
ordinary course of business or except as agreed in writing
between the parties (including, but not limited to, the
distribution of any dividend or the effectuation of any
redemption) that could give rise to any Tax liability or loss of
the Seller Group under this Agreement, (ii) to make any election
or deemed election
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under Section 338 of the Code with respect to the purchase of
the Shares pursuant to this Agreement or (iii) to amend any
Return or file a claim for refund that results in any increased
Tax liability or reduction of any Tax Benefit of the Seller
Group or any Seller Affiliate.
(b) Except as otherwise required by law or set forth
in section (c) below, Seller covenants and agrees that no member
of the Seller Group shall amend any Return, file any claim for
refund, change any method of tax accounting, or make or change
any Tax election with respect to (i) any Tax period that results
in any increased Tax liability or reduction of Tax Benefits of
Buyer, the Companies or any of their Subsidiaries, or any of
their Affiliates in respect of any Post-September 30 Tax Period
or any Post-Closing Tax Period and (ii) any Post-September 30
Tax Period. Furthermore, Seller covenants and agrees that it
shall not make any change to its election under Treasury
Regulation section 1.1502-20(g) as described in Section 8.7
hereof.
(c) Prior to the Closing, Seller will reverse any
deductions taken pursuant to Section 847 of the Code. Such
reversal shall have no effect on the current or deferred tax
balances on the September Adjusted GAAP Balance Sheet and shall
not result in any Tax expense (state or Federal) for the
Companies and their Subsidiaries for any Post-September 30 Tax
Period or any Post-Closing Tax Period.
(d) Each party agrees that, as between the Seller on
the one hand and the Buyer on the other hand, the other is to
have no liability for any Tax or reduction of Tax Benefits
resulting from any action referred to in Sections 8.3(a), (b)
and (c), and each party shall indemnify and hold harmless
(hereafter, the "Tax Indemnified Party") the other party and its
Affiliates (hereafter, the "Tax Indemni-
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fied Party") against any such Tax or reduction in Tax Benefits.
Each Tax Indemnified Party shall give prompt notice to the Tax
Indemnifying Party of the assertion of any claim, or the
commencement of any action or proceeding, in respect of which
indemnity may be sought under this Section 8.3(d). Failure to
give the Tax Indemnifying Party such notice shall not relieve
such party of its indemnification obligation pursuant to
Sections 8.3(a), (b) and (c) unless and to the extent that the
Tax Indemnifying Party and its Affiliates are materially
prejudiced as a result thereof. The Tax Indemnifying Party
shall be entitled to participate in, and to the extent the
matter reasonably can be handled separately from other items not
within the scope of this Agreement, shall be entitled to control
the defense of any such claim, action or proceeding at its own
expense and neither party shall settle any such claim, action or
proceeding without the other party's prior written consent,
which shall not be unreasonably withheld.
(e) Buyer shall promptly pay or cause to be paid to
Seller all refunds of Taxes (including any interest thereon)
received by Buyer or any of its Affiliates which are
attributable to Taxes paid by or on behalf of Seller, the
Companies or any of their Subsidiaries with respect to any Pre-
September 30 Tax Period to the extent that such refund and any
interest thereon were not reflected on the September Adjusted
GAAP Balance Sheet.
(f) Seller shall promptly pay or cause to be paid to
Buyer all refunds of Taxes (including any interest thereon)
received by any member of the Seller Group which are
attributable to Taxes paid by or on behalf of the Companies or
any of their Subsidiaries to the extent that such refund and any
interest thereon were reflected on the September Adjusted GAAP
Balance Sheet.
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(g) All transfer, documentary, sales, use, stamp,
registration and other such Taxes incurred in connection with
this Agreement other than Taxes incurred in connection with the
Transition Agreements (including, without limitation, any New
York State real property transfer and transfer gains Taxes, New
York City real property transfer Tax and any similar Taxes
imposed in other states or subdivisions) (collectively,
"Conveyance Taxes") shall be paid by Seller. Seller will, at
its own expense, file all necessary Returns with respect to all
such Conveyance Taxes, and, to the extent required by applicable
law, Buyer will, and will cause its Affiliates to, join in the
execution of any such Returns. Buyer shall, within ten days of
a written request therefor (including a statement calculating in
reasonable detail Buyer's payment obligation pursuant to this
Section 8.3(g)), reimburse Seller for 50% of all such Conveyance
Taxes and Seller's out-of-pocket expenses incurred in connection
with the filing of such Returns.
(h) Buyer and Seller shall jointly determine the
provision for discounted P&C losses of the Companies and their
Subsidiaries under Sections 832(b)(5) and 846 of the Code for
the taxable period ending on the Closing Date. If the parties
are unable to agree on the provision for discounted P&C losses,
such dispute shall be resolved by independent accountants or an
actuarial consultant acceptable to both parties whose fees and
expenses shall be borne equally by Buyer and Seller.
8.4 Termination of Existing Tax Sharing Agreements.
______________________________________________
On the date hereof or as soon as practicable thereafter, the Tax
Sharing Agreement between the Companies and their Subsidiaries
and any member of the Seller Group shall be terminated as of
September 30, 1995. After such date, neither the Companies and
their
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Subsidiaries, Seller nor any of its Affiliates shall have any
further rights or liabilities thereunder. This Agreement shall
be the sole Tax sharing agreement relating to the Companies and
their Subsidiaries for all Tax periods ending on or prior to the
Closing Date.
8.5 Return Filings and Payment of Tax. (a) Seller
_________________________________
shall prepare and file or cause the relevant Company or
Subsidiary to prepare and file on a timely basis and consistent
with past practices all Returns with respect to the Companies
and their Subsidiaries for (i) all Pre-September 30 Tax Periods
(excluding calendar year 1995), (ii) calendar year 1995 and
(iii) all Post-September 30 Tax Periods (excluding calendar year
1995 and any Straddle Period).
(b) Buyer shall prepare or cause to be prepared and
file or cause to be filed on a timely basis all other Returns
with respect to the Companies and their Subsidiaries. Buyer
shall pay or cause to be paid to the appropriate Taxing
Authority the Taxes shown to be due on all Returns required to
be filed by it pursuant to this Section 8.5(b).
(c) In connection with Returns described in
subsection (i) of Section 8.5(a), (x) Seller shall pay or cause
the relevant Company or Subsidiary to pay, to the extent such
Tax liability is reflected as a current liability on the
September Adjusted GAAP Balance Sheet (as adjusted for any
payments made by the Companies and their Subsidiaries with
respect to such Returns after September 30, 1995 and prior to
the payment date in question), the appropriate Taxing Authority
the amount of Taxes shown to be due on such Returns, and (y) to
the extent the amount, if any, reflected as a current liability
on the September Adjusted GAAP Balance Sheet with respect
thereto exceeds the actual amount of such liability, the
Companies and their
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Subsidiaries shall pay such excess to Seller simultaneously with
the payment of Taxes to such Taxing Authority.
(d) In connection with Returns for calendar year
1995, (x) with respect to the Pre-September 30 Tax Period of
such year, Seller shall pay to the relevant Taxing Authority or
Seller (or, if such payment is due after the Closing Date,
Buyer) shall cause the relevant Company or Subsidiary to pay, to
the extent such Tax liability is reflected as a current
liability on the September Adjusted GAAP Balance Sheet (as
adjusted for any payments made by the Companies and their
Subsidiaries with respect to such Returns after September 30,
1995 and prior to the payment date in question), Seller or the
appropriate Taxing Authority such Company's or Subsidiary's
Attributable Amount (as defined in Section 8.5(i)) with respect
to such Returns, (y) with respect to the Post-September 30 Tax
Period of such year, Seller (or, if such payment is due after
the Closing Date, Buyer) shall cause the relevant Company or
Subsidiary to pay Seller or the appropriate Taxing Authority
such Company's or Subsidiary's Attributable Amount with respect
to such Returns, and (z) to the extent the amount reflected as a
current liability on the September Adjusted GAAP Balance Sheet
with respect to the Pre-September 30 Tax Period of such year
exceeds the Attributable Amount with respect to such period,
Seller or Buyer, as the case may be, shall cause the Companies
and their Subsidiaries to pay such excess to Seller
simultaneously with the payment of Taxes to such Taxing
Authority. For purposes of this subsection (d), any payments
required to be made by the Companies and their Subsidiaries
shall be made one business day prior to the due date of the
relevant Return (giving effect to any applicable extensions
thereto).
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(e) In connection with Returns described in
subsection (iii) of Section 8.5(a), Seller (or, if the payment
with respect to such Return is due after the Closing Date,
Buyer) shall cause the relevant Company or Subsidiary to pay
Seller or the appropriate Taxing Authority such Company's or
Subsidiary's Attributable Amount with respect to such Returns
one business day prior to the due date for such Return (giving
effect to any applicable extensions thereto).
(f) With respect to any Straddle Period, Seller or
Buyer, as the case may be, shall cause the Companies and their
Subsidiaries to pay, when due, Seller or the appropriate Taxing
Authority the Attributable Amount, if any, with respect thereto.
(g) Seller shall (i) provide Buyer with a copy of
the income and franchise Tax Returns described in Section 8.5(a)
hereof which have not been filed as of the date hereof at least
fifteen days prior to filing such Returns, and (ii) make
available for Buyer's review the premium Tax Returns described
in Section 8.5(a) hereof which have not been filed as of the
date hereof as soon as reasonably practicable, but in no event
more than 60 days after filing such Returns, in both cases,
accompanied by a statement calculating in reasonable detail the
Attributable Amount, if any, pursuant to Sections 8.5(c), (d),
(e) and (f). To the extent that the total amount of Tax
payments made by the Companies and their Subsidiaries with
respect to such Returns pursuant to Sections 8.5(c), (d), (e)
and (f) (other than payments made by the Companies and their
Subsidiaries pursuant to Section 8.5(c)(y) or Section 8.5(d)(z))
exceeds the aggregate amount of the liability shown on such
statements or, in the case of Section 8.5(c) and the Pre-
September 30 Tax Period of calendar year 1995, if less, the
amount reflected on the September Adjusted GAAP
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Balance Sheet, Seller shall pay the Companies and their
Subsidiaries within 30 days the amount of such excess.
(h) If Buyer disputes a liability of the Companies
and their Subsidiaries as determined by Seller under Section
8.5(g), Buyer may, within 30 days after delivery of the
statement referred to in Section 8.5(g), deliver a notice to
Seller disagreeing with such calculation and setting forth
Buyer's calculation of such amount. Any notice of disagreement
shall specify those items and amounts as to which Buyer
disagrees, and, solely for purposes of this Section 8.5, Buyer
shall be deemed to have agreed with all other items and amounts
contained in the statement not the subject of such disagreement,
except for such items and amounts which may be affected by any
disputed items and amounts. If a notice of disagreement shall
be delivered pursuant to this Section 8.5(h), Seller and Buyer
shall, during the 30 days following such delivery, use their
best efforts to reach agreement on the disputed items or
amounts. If the parties are unable to agree on the allocation
of Tax payments between Seller, on the one hand, and the
Companies and their Subsidiaries, on the other hand, under
Sections 8.5(c), (d), (e) and (f) during such period, such
dispute shall be resolved by the Independent Accountants whose
fees and expenses shall be borne by the Companies and their
Subsidiaries unless the resolution of such dispute as determined
by such accountants results in an adjustment that reduces the
obligation of the Companies and their Subsidiaries with respect
to the disputed item or amount by more than 10% of such amount
as determined by Seller pursuant to Section 8.5(g), in which
case Seller shall bear the cost of such fees and expenses, and
the party owing Taxes shall pay to the other party the amount
determined by such accountants within three business days of
such determination.
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(i) For purposes of this Article 8, the Taxes
attributable to the Companies and their Subsidiaries (the
"Attributable Amount") shall be (i) with respect to each Federal
Tax and Combined State Tax Return prepared pursuant to Section
8.5(a), an amount equal to the Tax liability that the Companies
and their Subsidiaries would pay on their taxable income if they
were not filing combined, consolidated or unitary returns with
any other member of the Seller Group (excluding the Companies
and their Subsidiaries), and (ii) for each Separate State Tax
Return, the Tax liability of the Company and its Subsidiaries.
For purposes of this Section 8.5(i), the Attributable Amount for
the Pre-September 30 Tax Period and the Post-September 30 Tax
Period of calendar year 1995 shall be allocated on an "interim
closing of the books method" as of 11:59 p.m. on September 30
and the Closing Date, respectively; provided, however, that
________ _______
exemptions, allowances, deductions or other Taxes determined on
a basis other than income, premium or sales that are calculated
on an annual basis and annual property taxes shall be prorated
by allocating the amount of such exemptions, allowances or
deductions in the case of calendar year 1995, to Seller, by
multiplying such amount by 273/365; provided, further, that the
________ _______
same amount of taxable income or loss of the Companies and their
Subsidiaries for the Pre-September 30 Tax Period of calendar
year 1995 used for determining the value of the NOLs reflected
on the September Adjusted GAAP Balance Sheet shall be assumed to
be the actual taxable income or loss of the Companies and their
Subsidiaries for such period; provided, further, that for
________ _______
purposes of determining the taxable income or loss of the
Companies and their Subsidiaries for any Post-September 30 Tax
Period, the September 30 NOLs shall be assumed to be the actual
NOLs as of September 30, 1995.
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(j) For purposes of Section 8.5 and Section 8.8, the
reserves accrued on the September Adjusted GAAP Balance Sheet
with respect to any guaranty fund assessment, second injury fund
assessment, special insurance assessment or similar assessment
or tax shall be deemed to be the legal liability of the
Companies and their Subsidiaries on September 30, 1995. No
payments under Section 8.5 shall be made between Buyer or the
Companies and their Subsidiaries and Seller with respect to any
guaranty fund assessment, second injury fund assessment, special
insurance assessment or similar assessment or tax.
8.6 Cooperation on Tax Matters. (a) Buyer shall, and
__________________________
shall cause its Affiliates, the Companies and the Subsidiaries
to, and Seller shall, and shall cause the members of the Seller
Group to, provide any requesting party with such reasonable
assistance (including the execution and delivery of such powers
of attorney as are reasonably necessary to carry out the intent
of this section) and information (including access to books and
records) as may reasonably be requested by such party in
connection with (i) the preparation of any Return, (ii) the
conduct of any proceeding relating to liability for or refunds
or adjustments with respect to Taxes, and (iii) any other matter
that is a subject of this Article 8. Such cooperation and
assistance shall be provided to the requesting party promptly
upon its request.
(b) Buyer and its Affiliates, on the one hand, and
Seller and the Seller Group, on the other hand, shall retain or
cause to be retained all Returns, schedules, workpapers, and all
material records or other documents relating thereto, until the
expiration of the statute of limitations (including any waivers
or extensions thereof) of the taxable years to which such
Returns and other documents relate. Prior to transferring,
discarding or destroying any material records or documents
relating
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to any Pre-September 30 Tax Period or Post-September 30 Tax
Period, Buyer and its Affiliates, on the one hand, and Seller
and the Seller Group, on the other, shall provide the other
party with reasonable notice and, if such party so requests, the
opportunity to take possession of such records and documents
solely at its cost and expense. Furthermore, each party agrees
to abide by or cause the abidance with all record retention
agreements entered into with any Taxing Authority to the extent
that compliance therewith was possible as of September 30, 1995.
Seller and its Affiliates shall not without the prior written
consent of Buyer enter into or modify any record retention
agreement with any Taxing Authority which relates to the
Companies or any of their Subsidiaries. In order to keep all
parties informed as to the expiration of the statute of
limitations for any period, at least thirty days prior to the
end of each calendar year, each Party (the "Notifying Party")
shall provide the other (the "Notified Party") with a schedule
setting forth in reasonable detail which Pre-September 30 Tax
Periods or Post-September 30 Tax Periods remain open with
respect to the assessment of income taxes of the Companies and
their Subsidiaries as of the date of such notice and a good
faith estimate of when such Tax periods are expected to be
closed by the expiration of the applicable statutory period of
limitations or otherwise. To the extent that the Notified Party
does not receive the notice described in the preceding sentence
with respect to any Pre-September 30 Tax Period or Post-
September 30 Tax Period of the Companies or any of its
Subsidiaries, such Notified Party shall retain such books and
records relating to such Pre-September 30 Tax Periods and Post-
September 30 Tax Periods until the expiration of the applicable
statutory period of limitations (without giving effect to any
extensions or waivers) and, subject to any record retention
agreements with any Taxing Authority then in force, shall
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notify the Notifying Party by registered mail and facsimile of
its intention to destroy or dispose of such books and records
(the "Disposal Notice"). To the extent that the Notified Party
does not receive a response from the Notifying Party within
thirty days of sending the Disposal Notice that the applicable
statutory period of limitations for the years in question remain
open or that the Notifying Party intends to take possession of
such books and records within sixty days of receipt of such
Disposal Notice at its sole cost and expense, the Notified Party
shall be entitled to destroy or dispose of any such books and
records after the expiration of such statutory period of
limitations (without giving effect to any extensions or
waivers).
(c) Seller shall furnish to Buyer, simultaneously
with the delivery of the September Adjusted GAAP Balance Sheet
pursuant to Section 2.3(a), a schedule of the deferred and
current Tax assets (including any NOLs) and deferred and current
Tax liabilities of the Companies and their Subsidiaries to the
extent such items are reflected on the September Adjusted GAAP
Balance Sheet. Such schedule shall include a listing of
temporary differences (including NOLs), the amount of deferred
tax assets (including NOLs) or deferred tax liabilities
associated with each temporary difference and the estimated
reversal period (by amount and year) of each temporary
difference. The schedule shall also include a detail of current
tax assets and liabilities by type of tax (premium, property,
state income, etc.).
8.7 Tax Benefits. (a) Seller shall elect to
____________
reattribute to itself, in accordance with Treasury regulation
1.1502-20(g), an amount of NOLs equal to the September 30 NOLs
(v) reduced by (i) the portion of such NOLs for which the Seller
has made payment pursuant to Section 8.7(j) hereof, and (ii) the
portion of such NOLs used by the Companies and their
Subsidiaries to reduce their taxable income
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for a Post-September 30 Tax Period and (w) increased by the
amount, if any, of NOLs attributable to Post-September 30
Special Items, as described in the last sentence of Section
8.7(e) hereof. Seller shall also reattribute any remaining
amount of NOLs, based on the 1996 Seller Group consolidated
Federal Tax Return, not otherwise fairly attributable to NOLs
described in Section 8.7(k)(ii). For purposes of this Section
8.7(a), "taxable income" of the Companies and their Subsidiaries
shall be determined without regard to (x) the September 30 NOLs,
(y) the Post-September 30 Special Items (as defined in Section
8.7(e) hereof) and (z) any additions to reserves claimed with
respect to the Post-September 30 Tax Period which satisfy the
requirement for reserves relating to a Permitted Capital
Contribution, calculated as if such entities were not filing a
consolidated return with any other member of the Seller Group.
At least five days prior to the Closing Date, Seller shall
provide Buyer with a schedule setting forth Seller's good faith
estimate of the amount of NOLs which will not be reattributed to
Seller and the years in which such NOLs expire.
(b) On or prior to the date on which Seller files
its consolidated Federal Tax Return for the Tax period which
includes the Closing Date, Seller shall provide Buyer with a
schedule of the actual NOLs that were reattributed to Seller on
such Return pursuant to Treasury regulation section 1.1502-20(g)
(the "Reattributed NOLs"). Buyer agrees to cause each of the
Companies and their Subsidiaries with respect to which NOLs are
reattributed under this Section 8.7 to execute such statements
or other documents as may be required to comply with the
provisions of the Code and the regulations.
(c) If there is a Final Determination that (i)
reduces the amount of the Reattributed NOLs or (ii) relates to a
Return for, or with respect to, a Pre-September
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30 Tax Period of any member of the Seller Group which, in either
case, entitles (x) the Companies or any of their Subsidiaries to
claim Tax Benefits in their Post-September 30 Tax Period Returns
solely as a result of such Final Determination or (y) Buyer and
its Affiliates to claim Tax Benefits in their Post-Closing Tax
Period Returns solely as a result of such Final Determination,
to the extent permitted by law, the relevant party shall claim
such Tax Benefits in its earliest available Post-September 30
Tax Period Returns or Post-Closing Tax Period Returns, as the
case may be. With respect to each such Post-September 30 Tax
Period or Post-Closing Tax Period in which a Federal Tax Savings
(as defined below) is realized, the relevant party shall pay to
Seller the Federal Tax Savings within 90 days of filing the
applicable Federal Tax Return for such period. The Federal Tax
Savings for the Post-September 30 Tax Period or the Post-Closing
Tax Period in question shall be an amount equal to the excess,
if any, of (i) the amount of Federal Taxes which would have been
payable by the Companies and their Subsidiaries or Buyer and its
Affiliates, as the case may be, for such Tax period had such Tax
Benefit not been claimed in their Federal Tax Return for such
period over (ii) the amount of Federal Taxes actually payable by
the Companies and their Subsidiaries or Buyer and its
Affiliates, as the case may be, with respect to such period.
If, subsequent to the payment to Seller of any such amount,
there shall be a reduction in the amount of the Federal Tax
Savings as a result of the utilization by Buyer, the Companies
or any of their Subsidiaries or Affiliates of any other Tax
Benefits that arise in a Post-September 30 Tax Period or Post-
Closing Tax Period, Seller shall repay to Buyer, within 90 days
of such event (an "Event"), any amount which would not have been
payable to Seller pursuant to this Section 8.7(c) had the
Federal Tax Savings originally been determined in light
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of the Event. The principles of the foregoing provisions shall
continue to apply with respect to any utilization of a Federal
Tax Savings subsequent to an Event, as well as to any Event
subsequent thereto.
(d) If there is a Final Determination that relates
to a Return for, or with respect to, a Pre-September 30 Tax
Period of any member of the Seller Group which results in an
increase in the liability for Federal Taxes of (x) the Companies
or any of their Subsidiaries for any Post-September 30 Tax
Period solely as a result of such Final Determination or (y)
Buyer and its Affiliates for any Post-Closing Tax Period solely
as a result of such Final Determination, Seller shall pay the
relevant party the Federal Tax Detriment (as defined below)
within 90 days of such party's filing of the applicable Federal
Tax Return for the Post-September 30 Tax Period or Post-Closing
Tax Period in which such party incurs the Federal Tax Detriment.
The Federal Tax Detriment for the Post-September 30 Tax Period
or the Post-Closing Tax Period in question shall be the excess,
if any, of (i) the aggregate amount of Federal Taxes payable by
the Companies and their Subsidiaries or Buyer and its
Affiliates, as the case may be, with respect to such period
after giving effect to any adjustments required to be reported
on their Federal Tax Return for such period by reason of such
Final Determination over (ii) the aggregate amount of Federal
Taxes that would have been payable by the Companies and their
Subsidiaries or Buyer and its Affiliates, as the case may be,
for such period had such adjustments not been reported in their
Federal Tax Return for such period. If the Companies or any of
their Subsidiaries or Buyer and its Affiliates realize any
reduction in a Federal Tax Detriment for which they have
received a payment pursuant to this subsection (d), other than
by reason of an Event, Buyer shall pay Seller the amount of any
such reduction. The principles
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of this Section 8.7(d) shall continue to apply upon the
recurrence of a Federal Tax Detriment subject to reversal
pursuant to the preceding sentence, as well as any subsequent
reduction of such reversal.
(e) To the extent that the Companies and their
Subsidiaries realize a Federal Tax Savings on their Federal Tax
Returns for a Post-September 30 Tax Period as a result of the
use in any such Return of any Tax Benefit attributable to (i)
deductions arising in respect of Transferred Employee stock
options which are exercised for Seller common stock after
September 30, 1995 and on or prior to the Closing Date, (ii)
alternative minimum tax credits available by reason of
alternative minimum tax paid by the Seller Group, and (iii)
other deductions relating to Benefit Arrangements, the costs of
which are borne by the Seller Group (excluding the Companies and
their Subsidiaries) (hereafter (i), (ii) and (iii) are referred
to as "Post-September 30 Special Items"), Seller or Buyer, as
the case may be, shall cause the Companies and their
Subsidiaries to pay Seller the amount of such Federal Tax
Savings within 90 days of filing the applicable Federal Tax
Return for the Post-September 30 Tax Period in which the
relevant party realizes such Federal Tax Savings; provided,
________
however, that such Federal Tax Savings shall be payable to
_______
Seller only to the extent that the value of any such Post-
September 30 Special Item is not reflected on the September
Adjusted GAAP Balance Sheet; provided, further, that the amount
________ _______
of Federal Tax Savings to be paid to Seller shall be reduced by
any costs or expenses (including Taxes) incurred by the
Companies and their Subsidiaries solely as a result of claiming
the Tax Benefits relating to such Post-September 30 Special
Items. If, subsequent to the payment to Seller of such Federal
Tax Savings, there shall be a reduction in the amount of such
Federal Tax Savings as a result of the
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utilization by the Companies and their Subsidiaries of any other
Tax Benefits that arise in (i) a Post-September 30 Tax Period or
(ii) a Post-Closing Tax Period due to a Final Determination,
Seller shall repay to the Companies and their Subsidiaries
within 90 days of such Event, any amount which would not have
been payable to Seller pursuant to this Section 8.7(e) had such
Federal Tax Savings originally been determined in light of the
Event. The principles of the last sentence of Section 8.7(c)
hereof shall apply here mutatis mutandis. Solely for purposes
_______ ________
of determining whether the Companies and their Subsidiaries
realize such Federal Tax Savings, the taxable income of the
Companies and their Subsidiaries for such Post-September 30 Tax
Period (determined in accordance with the principles of Section
8.5(i) and without regard to any Post-September 30 Special Item)
and then the taxable income of the members of the Seller Group
(excluding the Companies and their Subsidiaries) shall be offset
by the NOLs and any Tax Benefit attributable to a Post-September
30 Special Item in the following order; first, by the September
30 NOLs; second, by any NOLs generated by the Companies and
their Subsidiaries in any Post-September 30 Tax Period; and
third, by any Tax Benefit relating to a Post-September 30
Special Item. To the extent that a Post-September 30 Special
Item generates a Tax Benefit that is not utilized by the
Companies and their Subsidiaries in a Post-September 30 Tax
Period, such amount will be included in the amount of NOLs to be
reattributed to Seller as described in Section 8.7(a) hereof.
(f)(A) To the extent that Buyer and its Affiliates
realize a Federal Tax Savings on their Federal Tax Returns for a
Post-Closing Tax Period, as a result of the use in any such
Return of any Tax Benefit attributable to (i) deductions arising
in respect of Transferred Employee stock options which are
exercised for
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Seller common stock after the Closing Date, (ii) alternative
minimum tax credits available by reason of alternative minimum
tax paid by the Seller Group, and (iii) other deductions
relating to retiree life and health and the 1996 payout on the
Aetna employee incentive program, subject to the receipt of a
private letter ruling from the Internal Revenue Service which
concludes that such deductions are allowable to the Companies
and their Subsidiaries without any inclusion in the income of
Buyer or any of its Affiliates in a Post-Closing Tax Period
((hereafter (i), (ii) and (iii) are referred to as "Post-Closing
Special Items," and together with the Post-September 30 Special
Items, the "Special Items"), Buyer shall pay Seller such Federal
Tax Savings within 90 days of filing the applicable Federal Tax
Return for the Post-Closing Tax Period in which Buyer and its
Affiliates realize such Federal Tax Savings; provided, however,
________ _______
that such Federal Tax Savings shall be payable to Seller only to
the extent that the value of such Post-Closing Special Item is
not reflected on the September Adjusted GAAP Balance Sheet;
provided, further, that the amount of Federal Tax Savings to be
________ _______
paid to Seller shall be reduced by any costs or expenses
(including Taxes) incurred by Buyer and its Affiliates solely as
a result of claiming the Tax Benefits relating to the Post-
Closing Special Items which resulted in the Federal Tax Savings.
If, subsequent to the payment to Seller of such Federal Tax
Savings, there shall be a reduction in the amount of such
Federal Tax Savings as a result of the utilization by Buyer and
its Affiliates of any other Tax Benefits that arise in a Post-
Closing Tax Period, Seller shall repay to Buyer within 90 days
of such Event, any amount which would not have been payable to
Seller pursuant to this Section 8.7(f) had such Federal Tax
Savings originally been determined in light of the Event. The
principles of the foregoing
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provisions shall continue to apply with respect to any
utilization of a Federal Tax Savings subsequent to an Event, as
well as to any Event subsequent thereto.
(B) If the private letter ruling described in
Section 8.7(f)(A)(iii) above is not obtained, Buyer and its
Affiliates may, in their sole discretion, claim the deductions
referred to in such subsection (iii). In any case, if Buyer and
its Affiliates claim such deductions, such deductions shall be
treated as if they were Post-Closing Special Items for purposes
of Sections 8.7(f)(A), (g), (h) and (i).
(g) To the extent that, with respect to a Post-
Closing Tax Period, Buyer and its Affiliates, incur a Special
Item Federal Tax Detriment (as defined below) as a result of any
adjustment (including, but not limited to, any adjustment
resulting from an audit by any Taxing Authority, filing an
amended Return or the use by the Companies or their Subsidiaries
or Buyer and its Affiliates of a carryforward or carryback) to
the taxable income of the relevant party in any Post-Closing Tax
Period Return caused by the use of any Tax Benefit attributable
to a Special Item, Seller shall pay the relevant party, and
indemnify the relevant party against, the Special Item Federal
Tax Detriment within 15 days of the incurrence of such
detriment. The Special Item Federal Tax Detriment for the Post-
Closing Tax Period in question shall be the excess, if any, of
(i) the aggregate amount of Federal Taxes payable by the
Companies and their Subsidiaries or Buyer and its Affiliates, as
the case may be, with respect to such period after giving effect
to any adjustments required to be made by reason of claiming
such Tax Benefit over (ii) the aggregate amount of Federal Taxes
that would have been payable by the Companies and their
Subsidiaries or Buyer and its Affiliates, as the case may be,
for such period had such adjustments not been made.
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(h) With respect to subsections (e), (f) and (g) of
this Section 8.7, (i) any conflicts arising between such
subsections and any other provision of this Article 8 shall be
resolved by applying first the provisions of subsections (e),
(f) and (g) of Section 8.7 and then, to the extent such other
provision is not in conflict, such other provision of this
Article 8, and (ii) in determining whether a Tax Benefit
relating to a Special Item is utilized by the Companies and
their Subsidiaries or Buyer and its Affiliates, as the case may
be, (including, but not limited to, as a result of any audit by
any Taxing Authority, filing an amended Return or as a result of
the use by the Companies and their Subsidiaries or Buyer and its
Affiliates, as the case may be, of any carryforward or
carryback), any Tax Benefit relating to a Special Item shall be
presumed to be used by the Companies and their Subsidiaries or
Buyer and its Affiliates, as the case may be, only after all
other available Tax Benefits have been utilized by the Companies
and their Subsidiaries or Buyer and its Affiliates, as the case
may be, to reduce their taxable income.
(i) To the extent permitted by law, as determined by
Buyer in good faith, Buyer agrees to claim or cause the
Companies or their Subsidiaries to claim in a proper and timely
fashion in the earliest Post-Closing Tax Period all or any Tax
Benefits attributable to the Special Items. Buyer shall
promptly notify Seller of any proposed disallowance of any such
Tax Benefit and shall give Seller such information with respect
thereto as Seller may reasonably request. Seller may, at its
own expense, assist Buyer in the defense of any Tax Claim with
respect to any Tax Benefit described in Sections 8.7(e) and (f);
provided, however, that such assistance shall be limited solely
________ _______
to communications with Buyer and its Affiliates. Neither
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Buyer nor any of its Affiliates shall settle, compromise or
otherwise dispose of any such Tax Claim without providing prior
written notice to Seller.
(j) Notwithstanding anything contained in this
Agreement, to the extent that any NOLs or other Tax Benefits
that are reflected on the September Adjusted GAAP Balance Sheet
or were generated by the Companies and the Subsidiaries in any
Post-September 30 Tax Period (determined without regard to the
Post-September 30 Special Items) are absorbed or otherwise
utilized by the Seller Group (other than the Companies and their
Subsidiaries) to offset its taxable income in any Tax period
ending on or prior to December 31 of the calendar year that
includes the Closing Date, Seller shall pay to the party or
parties which generated such NOLs or Tax Benefits, within 15
days of the end of the quarter in which such reduction or
elimination occurred, an amount equal to 35% of such NOLs or Tax
Benefits (other than credits) or the amount of any such credit,
as the case may be.
(k) Notwithstanding anything in this Section 8.7 to
the contrary, it is the intent of the parties that the Buyer
receive a value relating to the NOLs equal to the amount of the
NOL deferred tax asset (i) stated on the September Adjusted GAAP
Balance Sheet, and (ii) generated by the Companies and their
Subsidiaries in any Post-September 30 Tax Period (including the
portion of calendar year 1995 beginning after September 30) or
Post-Closing Tax Period, in each case computed pursuant to the
principles established in Section 8.5(i) and excluding any
Special Items. The parties agree to take all actions necessary
(including, without limitation, adjusting the amount of NOLs to
be reattributed pursuant to Section 8.7(a) hereof and/or
intercompany settlements) in order to ensure that Buyer and its
Affiliates
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receive only the value (but no less than such value)
attributable to the NOLs which it is entitled pursuant to the
preceding sentence.
8.8 Indemnification by Seller. (a) Seller hereby
_________________________
indemnifies Buyer and its Affiliates against and agrees to hold
them harmless from any (i) Tax of the Companies and their
Subsidiaries for any Pre-September 30 Tax Period, (ii) liability
of the Companies and their Subsidiaries for any Tax of the
Seller Group under Treasury regulation section 1.1502-6 or any
similar provision of state or local law as a result of the
Companies or any of their Subsidiaries being a member of the
Seller Group, (iii) penalties, interest or other costs and
expenses with respect to Taxes for a Post-September 30 Tax
Period attributable to the failure of any member of the Seller
Group to prepare or timely file any Returns or pay any Taxes
shown to be due on such Returns of the Companies and their
Subsidiaries in a manner consistent with past practice, and (iv)
liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and reasonable attorneys'
fees and expenses), arising out of or incident to the
imposition, assessment or assertion of any Tax (including those
incurred in the contest in good faith in appropriate proceedings
relating to the imposition, assessment or assertion of any Tax)
described in clause (i) through (iv) of this paragraph (the sum
of (i) through (iv) being referred to as a "Buyer Loss");
provided, however, that Seller shall not indemnify Buyer and its
________ _______
Affiliates for (i) any Taxes that are measured on a
retrospective base (e.g., superfund taxes) that includes any
Pre-September 30 Tax Period and that are imposed with respect to
any Post-September 30 Tax Period (including, without limitation,
only that portion of calendar year 1995 beginning after
September 30) or Post-Closing Tax Period of the Companies and
their Subsidiaries by reason of any change in law
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enacted after September 30, 1995, (ii) any Taxes reflected on
the September Adjusted GAAP Balance Sheet, (iii) any Loss
attributable to or resulting from any action described in
Section 8.3(a) hereof, or (iv) any guaranty fund assessment,
second injury fund assessment, special insurance assessment or
similar assessment or tax that was not actually assessed on or
prior to September 30, 1995 or for which there is not a
specified legal liability in existence on September 30, 1995
("Excluded Taxes"); provided, further, that such Excluded Taxes
________ _______
shall not include assessments made on or prior to September 30,
1995 (including any correction in the amount of any assessments
made after such date to take account of a computational error,
such as using the wrong base or wrong rate or a mathematical
error, in light of the facts and law at the time such
computation was made) or assessments for which there is a legal
liability in existence on such date; provided, further, that
________ _______
Seller shall have no obligation to make any payment to Buyer
pursuant to this Section 8.8 until the amount of all claims
arising pursuant hereto in the aggregate which are treated as
adjustments to the Purchase Price (minus the actual reduction in
the liability for Taxes of Buyer and its Affiliates as a result
of realizing any Tax Benefit attributable thereto) exceeds the
cushion for Taxes, if any, with respect to the Companies and
their Subsidiaries reflected on the September Adjusted GAAP
Balance Sheet (the "Cushion"), as adjusted for any payments made
by Buyer or the Companies and any of their Subsidiaries to
Seller pursuant to subsection (z) of Section 8.5(d) or otherwise
pursuant to this Article 8 after September 30, 1995 and prior to
Buyer's request for payment pursuant to this Section 8.8(a). On
or prior to the date hereof, Seller shall provide Buyer with a
schedule setting forth a good faith estimate of the Cushion,
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which shall be adjusted (and promptly provided to Buyer) to
reflect assets and liabilities on the September Adjusted GAAP
Balance Sheet.
(b) Any payment required of Seller pursuant to
Section 8.8(a) shall be made not later than 30 days after
receipt by Seller of written notice from Buyer stating that a
Buyer Loss has been paid by Buyer or any of its Affiliates and
the amount thereof and of the indemnity payment requested.
Failure to give Seller such written notice shall not relieve
Seller of its indemnification obligation pursuant to Section
8.8(a) unless and to the extent that Seller is materially
prejudiced as a result thereof.
(c) Each party shall notify the other, within ten
days of receipt thereof, of any claim for Taxes made in writing
to such party or its Affiliates by a Taxing Authority (a "Tax
Claim") which, if successful, could affect the other party's
liability for Taxes. Seller may discharge, at any time, its
indemnification obligation under this Section 8.8 by paying to
Buyer the amount of the applicable Buyer Loss, calculated on the
date of such payment; provided, however, that if the amount of
________ _______
such Buyer Loss, at the time of a Final Determination with
respect thereto, exceeds the amount paid by Seller to Buyer
pursuant to the preceding clause, Seller shall pay such excess
to Buyer within ten days of such Final Determination. Seller
may, at its own expense, participate in and, upon notice to
Buyer, assume the defense of any Tax Claim for which Seller has
agreed to indemnify Buyer pursuant to Section 8.8(a). If Seller
assumes such defense, Buyer shall have the right (but not the
duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed
by Seller; provided, however, that to the extent such action
________ _______
reasonably could be expected adversely to affect any Tax
liability of Buyer and
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its Affiliates for any Post-September 30 Tax Period or Post-
Closing Tax Period Seller shall not settle, compromise, or
otherwise dispose of any such Tax Claim without Buyer's prior
written consent, which shall not be unreasonably withheld.
Buyer shall indemnify Seller from and against any (i) increase
in the amount of Buyer Loss and (ii) increase in the liability
for Taxes of the Seller Group incurred by reason of Buyer
unreasonably withholding its consent to the matters described in
this Section 8.8(c).
(d) Seller shall not be liable under Section 8.8(a)
for (i) any Tax the payment of which by Buyer was made without
Seller's prior written consent, which shall not be unreasonably
withheld, or (ii) any settlements relating to a Tax of the
Companies or any of their Subsidiaries for a Pre-September 30
Tax Period effected without the consent of Seller, which shall
not be unreasonably withheld, or resulting from any Tax Claim in
which Seller was not permitted an opportunity to participate,
but only to the extent (in the case of both clause (i) and (ii)
herein) that Buyer's failure to obtain Seller's consent or
provide Seller with such an opportunity to participate
materially prejudiced Seller. Seller shall indemnify Buyer from
and against any Buyer Loss incurred by Buyer or any of its
Affiliates by reason of Seller unreasonably withholding its
consent to the matters described in clause (i) or (ii) of this
Section 8.8(d).
8.9 Indemnification by Buyer. (a) After the Closing
________________________
Date, Buyer shall indemnify the Seller Group against and agrees
to hold it harmless from any (i) Tax of the Companies and their
Subsidiaries for any Post-September 30 Tax Period, (ii) any Tax
with respect to a Return described in Section 8.5(b) and (iii)
liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and reasonable attorneys'
fees and expenses), arising out of or incident to the
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imposition, assessment or assertion of any Tax (including those
incurred in the contest in good faith in appropriate proceedings
relating to the imposition, assessment or assertion of any Tax)
described in clause (i) of this paragraph (the sum of (i), (ii)
and (iii) being referred to as a "Seller Loss"); provided,
________
however, that Buyer shall not indemnify the Seller Group against
_______
any (x) liability described in subsections (ii) or (iii) of
Section 8.8(a), and (y) liability for Taxes and other costs and
expenses attributable to claiming the Post-September 30 Special
Items described in Section 8.7(e).
(b) Any payment required of Buyer pursuant to
Section 8.9(a) shall be made not later than 30 days after
receipt by Buyer of written notice from Seller stating that a
Seller Loss has been paid by any member of the Seller Group and
the amount thereof and of the indemnity payment requested.
Failure to give Buyer such written notice shall not relieve
Buyer of its indemnification obligation pursuant to Section
8.9(a) unless and to the extent that Buyer is materially
prejudiced as a result thereof.
(c) Each party shall notify the other, within ten
days of receipt thereof, of any Tax Claim which, if successful,
could affect the other party's liability for Taxes. Buyer may
discharge, at any time, its indemnification obligation under
this Section 8.9 by paying to Seller the amount of the
applicable Seller Loss, calculated on the date of such payment;
provided, however, that if the amount of such Seller Loss, at
________ _______
the time of a Final Determination with respect thereto, exceeds
the amount paid by Buyer to Seller pursuant to the preceding
clause, Buyer shall pay such excess to Seller with interest
within ten days of such Final Determination. Buyer may, at its
own expense, participate in and, upon notice to Seller, assume
the
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defense (other than with respect to the Seller Group
consolidated Federal Tax Returns or Combined State Tax Returns)
of any Tax Claim for which Buyer has agreed to indemnify Seller
pursuant to this Section 8.9. If Buyer assumes such defense
(including, for this purpose, as provided in the penultimate
sentence of this Section 8.9(c)), Seller shall have the right
(but not the duty) to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel
employed by Buyer; provided, however, that to the extent such
________ _______
action reasonably could be expected to adversely affect any Tax
liability of the Seller Group for any Post-September 30 Tax
Period or any Post-Closing Tax Period Buyer shall not settle,
compromise, or otherwise dispose of any such Tax Claim without
Seller's prior written consent, which shall not be unreasonably
withheld. With respect to a Tax Claim relating to a Seller
Group consolidated Federal Tax Return or a Combined State Tax
Return, (i) to the extent possible, Buyer shall have the right
to litigate (at its own expense) such Tax Claim upon resolution
of the Tax audit with the Taxing Authority for which such Tax
Claim relates in a court determined by Seller, and (ii) Seller
shall use good faith in defending and maintaining Buyer's
position with respect to such Tax Claim and shall not
discriminate against such claim due to its indemnified nature.
Seller shall indemnify Buyer from and against any (i) increase
in the amount of Seller Loss and (ii) increase in the liability
for Taxes of Buyer and its Affiliates incurred by reason of
Seller unreasonably withholding its consent to the matters
described in this Section 8.9(c).
(d) Buyer shall not be liable under Section 8.9(a)
for (i) any Tax the payment of which by Seller was made without
Buyer's prior written consent, which shall not be unreasonably
withheld, or (ii) any settlements relating to a Tax of the
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Companies or any of their Subsidiaries for a Post-September 30
Tax Period or Post-Closing Tax Period effected without the
consent of Buyer, which shall not be unreasonably withheld, or
resulting from any Tax Claim in which Buyer was not permitted an
opportunity to participate, but only to the extent (in the case
of both clause (i) and (ii) herein) that Seller's failure to
obtain Buyer's consent or provide Buyer with such an opportunity
to participate caused Buyer to incur a loss. Buyer shall
indemnify Seller from and against any Seller Loss incurred by
any member of the Seller Group by reason of Buyer unreasonably
withholding its consent to the matters described in clause (i)
or (ii) of this Section 8.9(d).
8.10 Survival; Exclusivity. Notwithstanding anything
_____________________
in this Agreement to the contrary, (i) this Article 8 shall
govern the procedure for all indemnification claims relating to
Taxes and (ii) the provisions of this Article 8 shall survive
for the full period of all statutes of limitations (giving
effect to any waiver, mitigation or extension thereof) for the
assessment of Taxes for the Tax period in question, and any
claim to be brought under this Article 8 must be brought prior
to the expiration of such period.
8.11 Purchase Price Adjustment. Any amount paid to or
_________________________
by Seller under this Article 8 will be treated as an adjustment
to the Purchase Price unless a Final Determination causes any
such amount to not constitute an adjustment to the Purchase
Price for Federal Tax purposes.
8.12 Late Payments. Any payment required to be made
_____________
by Buyer or Seller pursuant to this Article 8 that is not made
when due shall bear interest from and including the due date of
payment to but excluding the date of payment at a rate
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per annum equal to the three-month London Interbank Offered Rate
(as published in the Wall Street Journal on such due date) plus
40 basis points.
8.13 No Duplicative Payments; Offsets. The provisions
________________________________
of this Article 8 shall be interpreted in a manner such that no
payment shall be made by any party with respect to the same item
more than once. To the extent that any item causes parties to
make reciprocal payments in any Tax period, such parties shall
be entitled to offset such payments and the party which is
obligated to make the greater payment shall pay only the
difference between the amount of its original obligation and the
amount it would have received had the reciprocal payments been
made.
8.14 Rule of Construction. For purposes of this
____________________
Article 8, the term "Buyer and its Affiliates" shall include the
Companies and their Subsidiaries for all Post-Closing Tax
Periods.
8.15 Notices. All notices required to be provided to
_______
any party under this Article 8 shall be sent by both registered
mail and facsimile to, in the case of Buyer, the Vice-President
of Taxes (with a copy to Chief Counsel) or, in the case of
Seller, the Corporate Controller at the addresses provided in
Section 13.1 hereof.
8.16 Allocation of Purchase Price. Prior to the
____________________________
Closing Date, Buyer and Seller shall negotiate in good faith to
agree on an allocation of the Purchase Price to the Shares of
the Companies.
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ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees. Effective December 31, 1995, Seller
_________
shall cause all employees of Seller or any of its Subsidiaries
who perform substantially all of their services in Seller's
property and casualty business units ("P&C Employees") to become
employees of one of the Companies or one of their Subsidiaries
(as directed by Buyer). Schedule 9.1 sets forth the complete
description of the P&C Employees and the employers of such P&C
Employees as of the date hereof. With respect to each P&C
Employee who, as of the Closing Date, is employed by any Company
or any Subsidiary of any Company (including any P&C Employee
absent as of such date from active service for any reason,
including but not limited to disability or leave of absence but
excluding any terminated P&C Employees receiving severance)
("Transferred Employees"), Buyer shall cause each Transferred
Employee's employer to continue to employ such Transferred
Employee at the same rate of base salary per annum as is in
effect on the day prior to the Closing Date, provided, however,
________ _______
that nothing herein is intended to, or shall require, such
employer to employ any such employee on a basis other than as an
employee at will; and, provided, further, that the individuals
listed on Schedule 9.6(c)(ii) (Affected Employees) shall not be
Transferred Employees except as provided in Section 9.6(c)(ii).
Seller agrees that, as of the date hereof, employees expected
to become Transferred Employees consist of 11,350 active
employees and 275 employees absent from active service (of whom
250 are on disability and 25 are on a leave of absence).
9.2 Pension Plan. (a) Transferred Employees shall
____________
cease to participate in the Pension Plan as of the Closing Date.
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Effective as of the day immediately prior to the Closing Date,
each Transferred Employee shall be granted service for all
purposes (including benefit accrual) under the Pension Plan for
the period commencing on the Closing Date and ending on December
31, 1997 (the "Advance Accrual Period"). Buyer shall cause the
Companies to reimburse Seller for the grant of service for the
Advance Accrual Period within 30 days following the Closing Date
(but in no event earlier than 15 days after receipt of relevant
information from Seller). Such reimbursement shall be made in
accordance with the formula set forth in Schedule 9.2(a) but in
no event will such amount exceed the after-tax equivalent of the
present value (based upon an 8% discount factor) of $15 million
per year (pre-tax) for two years. Seller shall provide Buyer
with all documentation reasonably requested by Buyer to
substantiate the amount of such charge.
(b) After the Closing Date, Seller and its
Affiliates shall retain all liabilities and obligations in
respect of benefits accrued by Transferred Employees under the
Pension Plan. Accrued benefits of Transferred Employees under
the Pension Plan shall be fully vested as of the Closing Date.
Benefit accruals in respect of Transferred Employees under the
Pension Plan shall cease as of the Closing Date and Transferred
Employees participating therein shall be considered terminated
vested participants in such Pension Plan. No Pension Plan
assets shall be transferred to Buyer or any of its Affiliates or
to the Companies or their Subsidiaries or to any plan of Buyer
or its Affiliates or of the Companies or their Subsidiaries.
(c) Effective as of January 1, 1998, the Transferred
Employees who are then eligible to participate in the Travelers
Group Pension Plan ("Travelers Plan") shall become participants
in the Travelers Plan and in a defined contribution profit
sharing plan to be established by Buyer for the benefit of the
Transferred Employees
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("New Plan"). Under the Travelers Plan, each Transferred
Employee shall be granted credit for service, to the extent
recognized by the Pension Plan, for the purpose of eligibility
and vesting (but not benefit accrual). The New Plan shall be
designed to supplement the benefits under the Travelers Plan.
The amount available to satisfy obligations under the New Plan
shall be initially $4,000,000 per year, reduced each year after
1996 to reflect Transferred Employees who have terminated
employment with the Companies and their Subsidiaries, whether
voluntarily, involuntarily, by retirement or otherwise (such
amount in effect from time to time, the "Maximum Annual
Contribution"). Buyer will in good faith, calculate the Maximum
Annual Contribution for each year. Buyer and Seller shall bear
the Maximum Annual Contribution in the proportions set forth
below to meet the obligations to employees under the New Plan.
In respect of its obligations, at the Closing, Seller shall pay
to Buyer $10,000,000 in cash, which shall be treated as an
adjustment to the Purchase Price ("Initial Contribution"). The
Initial Contribution shall be credited interest at the rate of
6.0% per annum simple interest on the unused balance. From time
to time such amount shall be debited by 32.5%, until such time
as the Initial Contribution (and all interest credited thereto)
is exhausted, of all amounts paid to Transferred Employees under
the New Plan as and when such amounts are paid, up to an
aggregate amount of 32.5%, until such time as the Initial
Contribution (and all interest credited thereto) is exhausted,
of the Maximum Annual Contribution. The remaining obligations
to Transferred Employees, up to 67.5%, until such time as the
Initial Contribution (and all interest credited thereto) is
exhausted, of the Maximum Annual Contribution shall be funded by
Buyer. As promptly as practicable after the close of each year
of the New Plan, Buyer will
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provide Seller an accounting in reasonable detail of the
remaining Initial Contribution and the aggregate interest
credited thereon. As soon as practicable after December 31,
2002, Buyer and Seller will negotiate in good faith to settle
and liquidate Seller's remaining obligations under the New Plan.
If they are unable to agree on such a settlement, Buyer shall
continue to apply any remaining Initial Contribution (and
interest credited thereto) to Seller's obligations as set forth
above. If such funds are exhausted during the term of the New
Plan, Buyer shall so notify Seller, and Seller shall promptly
deposit with Buyer an additional amount (the "Subsequent
Contribution") reasonably estimated to fund any remaining
liabilities of Seller under the New Plan. The Subsequent
Contribution shall be credited with interest and otherwise
treated as the Initial Contribution described above is treated,
except that the Subsequent Contribution shall be debited at the
rate of 50% of amounts contributed in lieu of 32.5%, up to an
amount equal to 50% of the Maximum Annual Contribution, and
Buyer shall fund the remaining obligations to Transferred
Employees up to 50% of the Maximum Annual Contribution. At the
time when no additional obligations are due under the New Plan,
Buyer will repay to Seller an amount equal to any remaining
unused Initial Contribution or Subsequent Contribution and the
amount of interest credited thereon. If at any time the funds
held by Buyer are not sufficient to satisfy Seller's obligations
hereunder, Buyer shall assess Seller for its obligations under
the New Plan, up to an aggregate of 50% of the Maximum Annual
Contribution, and Seller shall promptly pay to Buyer the amount
of each such assessment. As of the Closing, each Transferred
Employee will be assigned points, based upon the participant's
age, length of service and compensation level, by such
reasonable method of allocation as Seller determines and Buyer
shall
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not unreasonably withhold its consent thereto. The number of
points held by each employee shall be fixed until such time as
such employee's employment is terminated for any reason, at
which time they will be forfeited. For each calendar year of
the New Plan, an amount equal to the Maximum Annual Contribution
shall be allocated to Transferred Employees entitled to
participate in the New Plan in accordance with each such
participant's Points.
9.3 Individual Account Plan. (a) Seller shall retain
_______________________
all liabilities and obligations in respect to benefits accrued
by Transferred Employees under the Individual Account Plan. On
the Closing Date, Seller shall take such action as may be
necessary, if any, to permit each Transferred Employee to
exercise such Transferred Employee's rights under the Individual
Account Plan to effect an immediate distribution of such
Transferred Employee's vested account balances under the
Individual Account Plan or to effect a tax-free rollover of the
taxable portion of the account balances into an eligible
retirement plan (within the meaning of Section 401(a)(31) of the
Code, a "Direct Rollover") maintained by Buyer or an Affiliate
of Buyer (the "Buyer Plan") or to an individual retirement
account. Seller and Buyer shall work together in order to
facilitate any such distribution or rollover and to effect a
Direct Rollover for those participants who elect to roll over
their account balances directly into Buyer Plan; provided,
________
however, that nothing contained herein shall obligate Buyer Plan
_______
to accept a Direct Rollover in a form other than cash. No
contributions to the Individual Account Plan in respect of
Transferred Employees shall be made after the Closing Date and
Transferred Employees shall be considered terminated as of the
Closing Date. To the extent reasonably practicable, Seller and
Buyer shall work together to develop a process whereby
Transferred Employees who
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have loans outstanding under the Individual Account Plan will be
permitted to continue to make periodic (at least monthly)
repayments on such loans through a reduction of salary paid by
Buyer (it being understood that such loans are to be retained by
the Individual Account Plan). Except as required by law, no
communication shall be sent to the Transferred Employees
relating to the treatment or status of their loans outstanding
under the Individual Account Plan without the consent of both
Buyer and Seller.
(b) On the Closing Date, or as soon as practicable
thereafter, Buyer shall establish or designate Buyer Plan in
order to accommodate the Direct Rollovers described above and
shall take all action necessary, if any, to qualify Buyer Plan
under the applicable provisions of the Code and shall make any
and all filings and submissions to the appropriate governmental
authorities required to be made by it in connection with any
Direct Rollover. Under Buyer Plan, each Transferred Employee
will be given credit for service, to the extent recognized by
the Individual Account Plan, for the purpose of eligibility and
vesting.
(c) From the Closing Date and until December 31,
1996, under the Buyer Plan and Buyer's supplemental plan, each
Transferred Employee shall be entitled to (i) make salary
deferral contributions (which contributions shall be fully
vested as of the time they are made) and (ii) receive employer
matching contributions (which contributions shall be fully
vested as of the time they are made) in accordance with the
terms of the Individual Account Plan and the Supplemental
Incentive Savings Plan identified on Schedule 9.3(c) (the
"Supplemental Plan") relating to salary deferral and employer
matching contributions.
9.4 Certain Welfare Benefit Plans. As of the Closing
_____________________________
Date, the Transferred Employees shall cease to participate in
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the welfare benefit plans listed in Schedule 9.4(a) ("Prior
Welfare Plans") and shall commence to participate (without any
break in service for purpose of any eligibility, pre-existing
condition, deductible or co-payment provisions) in welfare
benefit plans of Buyer or the Companies ("Replacement Welfare
Plans"), which Replacement Welfare Plans shall provide for
identical benefits at identical cost to the employee and on
substantially identical terms and conditions as those provided
by Prior Welfare Plans immediately prior to the Closing Date.
Such Replacement Welfare Plans may not be amended or terminated,
except as may be required by law or to preserve intended tax
results, before December 31, 1996. Notwithstanding the above,
nothing herein shall prohibit, or be construed to prohibit,
Buyer or the Companies from terminating or amending the
Replacement Welfare Plans at any time after December 31, 1996
("Welfare Transfer Date"). Unless Buyer otherwise elects by no
later than 60 days prior to the Closing Date, from the Closing
Date until the Welfare Transfer Date Seller shall administer the
Replacement Welfare Plans on behalf of Buyer under terms
substantially similar to those applicable to welfare benefit
plans then maintained by Seller; provided, however, that the
________ _______
Companies or Buyer may terminate such administration at any
time. After the Closing Date, Buyer shall be responsible for
any claims by Transferred Employees for medical benefits
relating to claims incurred but not reported prior to the
Closing Date, but only to the extent the liability relating to
any such claim is fully reflected on the September Adjusted GAAP
Balance Sheet.
9.5 Other Employee Benefit Plans and Benefit
_________________________________________
Arrangements.
____________
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(a) Except to the extent otherwise provided in this
Agreement, Seller shall retain all obligations and liabilities
under the Employee Plans and Benefit Arrangements in respect of
any employee or former employee or any independent contractor or
former independent contractor or other participant (in each case
including any beneficiary or dependent thereof) who is not a
Transferred Employee.
(b) Except to the extent otherwise provided in this
Article 9, with respect to Transferred Employees, Seller shall
retain all obligations and liabilities relating to or arising
under the Employee Plans or Benefit Arrangements which (i) are
attributable to service performed, or benefits accrued or
payable, on or prior to the Closing Date or (ii) arise out of
actions, events or omissions that occurred (or, in the case of
omissions, failed to occur) prior to the Closing Date.
(c) As of the Closing Date, Buyer shall cause the
Company to assume all the assets, if any, and liabilities of the
plans listed on Schedule 9.5(c) that are included on the
September Adjusted GAAP Balance Sheet estimated as of the
Closing Date. Each such plan constitutes a plan under Section
401(a)(1) of ERISA.
(d) Unless otherwise notified in writing by Seller on
or prior to the Closing Date, Buyer shall cause the applicable
Company to assume all obligations in respect of any Transferred
Employee for the final performance payment, if any, in
connection with the first cycle of ACE Shares and APEX Unit
Awards described in Schedule 9.5(d); provided that if Buyer or
________
either Company is obligated to make any payments hereunder,
Seller shall promptly pay Buyer for any such payments in excess
of the accrual for such obligation included on the September
Adjusted GAAP Balance Sheet prior to Buyer or a Company making
such payments. To the extent the accrual for such obligation as
of the Closing Date exceeds the aggregate of such payments made
by Buyer and the Companies, Buyer shall promptly reimburse
Seller in the amount of such excess accrual. Communications
with Transferred Employees and any other administrative
activities required to be performed in connection with such
Shares and Awards shall be handled by Seller.
9.6 Plans Following the Closing. (a) With respect to
___________________________
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the Transferred Employees who would have been eligible for
benefits under Seller's Retiree Medical and Life Program
("Retiree Benefit Program") had they remained employed by Seller
or an Affiliate of Seller until December 31, 1997, each such
Transferred Employee shall continue to participate in the
Retiree Benefit Program at the sole cost of Seller or its
Affiliates and shall be credited for service with any Company or
any Subsidiary of any Company on and after the Closing Date
until December 31, 1997 for all purposes thereunder provided
such Transferred Employee is a participant in Seller's
Medical/Dental Plan or Seller's Life Insurance Plan on the day
prior to the Closing Date.
(b) Except to the extent otherwise provided in
Section 9.2, Buyer will cause the Companies to give Transferred
Employees full credit for such Transferred Employees' service
with Seller or any Subsidiary of Seller to the same extent
recognized by Seller for purposes of eligibility, vesting and
benefit accrual under any employee benefit plans or arrangements
maintained by Buyer or any Subsidiary of Buyer in which such
Transferred Employees are entitled to participate.
(c)(i) Buyer shall cause the Companies to pay
severance and other job elimination benefits to the Transferred
Employees (other than those who are parties to the Employment
Agreements and letter
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agreements entered into upon hiring identified on Schedule
9.6(c)(iii) for so long as those Agreements and letter
agreements are in effect and to the extent such Agreements and
letter agreements enhance severance) whose employment is
terminated after the Closing Date and prior to December 31, 1997
to the extent required by Seller's severance plans and programs
identified on Schedule 9.6(c)(i) ("Severance Plans"); provided,
________
however, that, consistent with the interpretation of the
_______
Severance Plans by the plan administrator, no reduction or
change in benefits (excluding reductions in base salary) shall
constitute failure to offer (i) an "equivalent or alternate
position" or (ii) "job with comparable compensation" under the
Severance Plans; and, provided, further, that if any period of
________ _______
severance provided under the Severance Plans constitutes service
for purpose of eligibility, vesting or benefit accrual under any
pension plan, then any such service shall be reduced by any
Advance Accrual Period remaining from the date of termination of
employment. In no case will Buyer or any Company pay severance
under the Severance Plans to any Transferred Employee unless
such Transferred Employee's employment is terminated after the
Closing Date and prior to December 31, 1997. Seller covenants
that in no case will Buyer or any Company pay severance under
the Severance Plans to any Transferred Employee solely by reason
of the consummation of the transactions contemplated by this
Agreement. Severance will be paid to a Transferred Employee who
is a party to an Employment Agreement or letter agreements
identified on Schedule 9.6(c)(iii) to the extent provided in
such employee's Employment Agreement or letter agreements.
(ii) Buyer shall cause one or more of the Companies
and their Subsidiaries to reimburse Seller for 50% of any
severance payments under the Severance Plans made by Seller to
individuals identified on Schedule 9.6(c)(ii) ("Affected
Employees"); provided, however, that if Buyer, any of its
________ _______
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Subsidiaries (including, after the Closing Date, the Companies
and their Subsidiaries) or any of its Affiliates offers to any
of the Affected Employees as of the Closing Date (but prior to
the termination of such Affected Employee's employment by
Seller; provided, however, that prior to the Closing Date no
________ _______
Affected Employee may be terminated by Seller or the Companies
without prior consent of Buyer) continued employment with Buyer,
any of its Subsidiaries (including, after the Closing, the
Companies and their Subsidiaries) or any of its Affiliates with
a base salary substantially equal to the base salary such
Affected Employee received immediately prior to the Closing Date
(such employment, "Continued Employment"), the amount of
reimbursement owed hereunder shall be tax-effected and shall
equal (A) the amount of reimbursement that would have been owed
in absence of such offers of employment, multiplied by (B) one
minus a fraction the numerator of which is the number of
Affected Employees offered Continued Employment and the
denominator of which is one-half of the total number of Affected
Employees; provided, further, that in no case may the amount of
________ _______
reimbursement owed hereunder be less than zero. Any Affected
Employee who accepts Continued Employment shall be treated as a
Transferred Employee for all purposes under this Agreement.
(iii) Buyer shall cause the Employment Agreements
and letter agreements identified on Schedule 9.6(c)(iii) to be
assumed by a Company or a Subsidiary of a Company, which shall
become a successor with respect thereto. Seller shall
indemnify and hold harmless Buyer and its Affiliates (including,
after the Closing, the Companies and their Subsidiaries) with
respect to (i) any liabilities or obligations under the
Employment Agreements to make payments to any Transferred
Employees with respect to any tax liability under Section 4999
of the Code on
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"excess parachute payments" as defined in Section 280G of the
Code and (ii) for any loss of a tax benefit resulting from the
treatment of any payment under the Employment Agreement as an
excess parachute payment.
(iv) Seller shall indemnify and hold harmless Buyer
and its Affiliates (including, after the Closing, the Companies
and their Subsidiaries) with respect to any liabilities or
obligations to make retention bonus payments to the Transferred
Employees listed on Schedule 9.6(c)(iv) except to the extent any
such liabilities relating to retention bonus payments are
reflected on the September Adjusted GAAP Balance Sheet.
(d) To the extent any vacation days earned by any
Transferred Employee during the period from July 1, 1995 through
December 31, 1995 are not projected to be used as of the Closing
Date, Seller will accrue the liability for such vacation days as
of the September Adjusted GAAP Balance Sheet. Buyer shall be
responsible for any vacation days earned after December 31,
1995, which shall be calculated in accordance with Schedule
9.6(d)(i) hereto (less any vacation days taken by such
Transferred Employee in 1996 prior to the Closing Date);
provided, however, that such vacation entitlement shall be
________ _______
calculated on the same calendar year basis as under current
Buyer plan. Vacation days earned during the period commencing
on July 1, 1995 and ending on December 31, 1995 that are used by
the Closing Date shall be credited to Seller's obligation as
accrued on September Adjusted GAAP Balance Sheet. Any vacation
days earned since July 1, 1995 that are used after December 31,
1995 and before the Closing Date will reduce Buyer's obligation
after the Closing Date. Any vacation days or required payments
related thereto earned prior to July 1, 1995 (i) will not affect
Buyer's obligation after the
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Closing Date, (ii) will be used prior to any days earned after
July 1, 1995, and (iii) shall in no event become responsibility
of Buyer. After December 31, 1996 each Transferred Employee
shall be entitled to the number of vacation days calculated in
accordance with Buyer's current plan as modified by Schedule
9.6(d)(ii). Seller covenants that, notwithstanding the above,
no Transferred Employee may take a number of vacation days
during the 1996 calendar year in excess of the number of
vacation days earned by such Transferred Employee during the
1996 calendar year and the July 1 - December 31 period during
1995, all determined as of the Closing Date.
(e) Nothing in this Article 9 shall be construed to
impair in any way the application of Buyer's Arbitration Policy
with respect to Transferred Employees.
(f) Prior to the Closing Date, no communications
shall be made by either party to any Transferred Employee
relating to any of the provisions of this Article 9 without the
approval of the other party, which approval shall not be
unreasonably delayed or withheld. Seller shall provide Buyer
with copies of any other communications directed at Transferred
Employees generally which relate to an employee benefit plan in
which Transferred Employees participate. Buyer and Seller agree
to cooperate in connection with employee benefit plans and
arrangements covering Transferred Employees.
(g) Buyer agrees that it will cooperate fully with
Seller's investigation of, response to, and defense of, any
claims made by Seller's employees or former employees, or their
legal representatives, with respect to employment-related
matters or decisions, including employee benefit plan
determinations, made or alleged to have been made by Seller or
its directors, officers, employees, or agents. Such
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cooperation shall include, but not be limited to, making Buyer's
officers, employees and agents reasonably available (upon
reasonable notice but at no cost (other than reasonable out of
pocket expenses) to Seller) to Seller or Seller's
representatives for interviews and the giving of testimony in
legal proceedings, making available to Seller any documents in
Buyer's care, custody or control which are, or may be, relevant
to such claims, unless prohibited by law and designating an
attorney employed by Buyer to manage the cooperation
contemplated by this paragraph and seek to ensure compliance by
Buyer's employees.
9.7 Indemnification. (a) Seller hereby agrees to
_______________
indemnify Buyer and its Affiliates (including, after the
Closing, the Companies and their Subsidiaries) against and
agrees to hold them harmless from any and all Damages incurred
or suffered as a result of any failure by Seller to satisfy and
discharge its obligations under this Article 9. Buyer hereby
agrees to indemnify Seller and its Affiliates against and agrees
to hold Seller and its Affiliates harmless from any and all
Damages incurred or suffered as a result of any failure by Buyer
to satisfy and discharge its obligations under this Article 9.
(b) Seller hereby agrees to indemnify Buyer and its
Affiliates (including, after the Closing, the Companies and
their Subsidiaries) against, and agrees to hold them harmless
from any and all Damages incurred or suffered as a result of any
claim by any present or former employee of Seller or any of its
Subsidiaries who performed or performs services in Seller's
property and casualty business units, including, without
limitation, the Transferred Employees which arises under
federal, state or local statute (including, without limitation,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Age Discrimination in
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Employment Act of 1990, the Equal Pay Act, the Americans with
Disabilities Act of 1990, the Employee Retirement Income
Security Act of 1974 and all other statutes regulating the terms
and conditions of employment), regulation or ordinance, under
the common law or in equity (including any claims for wrongful
discharge or otherwise), or under any policy, agreement,
understanding or promise, written or oral, formal or informal,
between the Company and the Transferred Employee, which arose
out of actions, events or omissions that occurred (or, in the
case of omissions, failed to occur) prior to the Closing Date.
(c) The indemnification provided for in this Section
9.7 shall be subject to the provisions of Section 11.3(a).
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller.
_____________________________________________
The obligations of Buyer and Seller to consummate the Closing
are subject to the satisfaction of the following conditions:
(i) Any applicable waiting period under the
HSR Act relating to the transactions contemplated hereby
shall have expired or been terminated.
(ii) All other regulatory consents, approvals
or clearances necessary for the consummation of the
Closing shall have been obtained, and no provision of any
applicable law or regulation shall prohibit the
consummation of the Closing.
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(iii) All material consents, approvals or
waivers of all non-governmental Persons necessary for the
consummation of the Closing shall have been obtained.
(iv) There shall not be in effect any
temporary restraining order, preliminary injunction or
permanent injunction or other order issued by any court of
competent jurisdiction preventing the consummation of the
transactions contemplated hereby; provided that the party
invoking this condition shall have used its reasonable
best efforts to have such order or injunction vacated.
(v) The Ancillary Agreements, other than the
agreement referenced in Section 10.2(ii), shall have been
executed and delivered by the parties thereto.
10.2 Conditions to Obligation of Buyer. The
_________________________________
obligation of Buyer to consummate the Closing is subject to the
satisfaction of the following further conditions:
(i)(A) Seller shall have performed in all
material respects all of its obligations hereunder
required to be performed by it on or prior to the Closing
Date, (B) the representations and warranties of Seller
contained in this Agreement shall be true at and as of the
Closing Date, as if made at and as of such date (without
giving effect to any materiality qualifications or
materiality exceptions contained therein); provided that
this condition (B) shall be deemed satisfied if any
inaccuracies in any such representations and warranties at
and as of the Closing Date (without giving effect to any
materiality qualifications or materiality exceptions
contained therein) would
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not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on the Companies, and
(C) Buyer shall have received a certificate signed by the Chief
Financial Officer of Seller to the effect that the foregoing
conditions have been satisfied.
(ii) Seller shall have executed a reinsurance
contract, in form and substance satisfactory to Buyer,
relating to certain matters previously discussed by the
parties.
(iii) Buyer shall have received all documents
it may reasonably request relating to the existence of
Seller, the Companies and their Subsidiaries and the
authority of Seller for this Agreement, all in form and
substance reasonably satisfactory to Buyer.
(iv) Except as disclosed in Schedule 3.9,
since the Balance Sheet Date, there shall not have been
any event, occurrence, development or state of
circumstances or facts which has had or would reasonably
be expected to have a Material Adverse Effect on the
Companies, other than those resulting from changes in
general economic conditions.
(v) No governmental or regulatory authority shall
have commenced any proceeding seeking a temporary restraining
order, preliminary or permanent injunction or other order
preventing the consummation of the transactions contemplated
hereby, other than any such proceeding which, in the reasonable
judgment of Buyer, would not be reasonably likely, assuming such
consummation occurs, to have a material adverse effect on the
Companies and their Subsidiaries, taken as a whole; provided
that Buyer shall
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have used its reasonable best efforts to have such
proceeding dismissed or terminated.
10.3 Conditions to Obligation of Seller. The
__________________________________
obligation of Seller to consummate the Closing is subject
to the satisfaction of the following further conditions:
(i)(A) Buyer shall have performed in all
material respects all of its obligations hereunder
required to be performed by it at or prior to the Closing
Date, (B) the representations and warranties of Buyer
contained in this Agreement shall be true at and as of the
Closing Date, as if made at and
as of such date (without giving effect to any materiality
qualifications or materiality exceptions contained
therein); provided that this condition (B) shall be deemed
satisfied if any inaccuracies in any such representations
and warranties at and as of the Closing Date (without
giving effect to any materiality qualifications or
materiality exceptions contained therein) would not,
individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on Buyer, and
(C) Seller shall have received a certificate signed by the
Chief Financial Officer of Buyer to the effect that the
foregoing conditions have been satisfied.
(ii) Seller shall have received all documents
it may reasonably request relating to the existence of
Buyer and the authority of Buyer for this Agreement, all
in form and substance reasonably satisfactory to Seller.
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ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement
shall not survive the Closing; provided that (i) the covenants
________
and agreements which, by their terms, are to have effect or be
performed after the Closing shall survive in accordance with
their terms; (ii) the representations and warranties contained
in Sections 3.2, 3.4(v), 3.5, 3.6, 3.7, 3.10(c), 4.2 and 4.6
shall survive for two years after the Closing, (iii) the
covenants, agreements, representations and warranties contained
in Article 8 shall survive to the extent provided in Article 8
and (iv) the covenants and agreements contained in Article 9
shall survive indefinitely. No covenant, agreement,
representation or warranty contained in this Agreement shall
survive after the time at which it would otherwise terminate
pursuant to the preceding sentence unless notice of the
inaccuracy or breach thereof shall have been given to the party
against whom indemnity for such breach or inaccuracy may be
sought prior to such time, in which case such covenant,
agreement, representation or warranty shall survive until such
claim for indemnity is finally resolved.
11.2 Indemnification. (a) Effective at the Closing,
_______________
Seller hereby indemnifies Buyer and, effective at the Closing,
without duplication, the Companies and their Subsidiaries
against and agrees to hold them harmless from any and all
damage, loss, liability and expense (including, without
limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit
or proceeding) ("Damages") incurred or suffered by Buyer, any
Company or any Subsidiary of any Company arising out of the
breach of any representation or
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warranty which survives the Closing for such period as provided
in Section 11.1 or the breach of any covenant or agreement made
or to be performed by Seller pursuant to this Agreement which
covenant or agreement survives the Closing for such period as
provided in Section 11.1 (other than pursuant to Articles 8 and
9).
(b) Effective at the Closing, Buyer hereby
indemnifies Seller against and agrees to hold it harmless from
any and all Damages incurred or suffered by Seller arising out
of the breach of any representation or warranty which survives
the Closing for such period as provided in Section 11.1 or the
breach of any covenant or agreement made or to be performed by
Buyer pursuant to this Agreement which covenant or agreement
survives the Closing for such period as provided in Section 11.1
(other than pursuant to Articles 8 and 9).
(c) Any amount of Damages paid by Seller or Buyer
under this Section 11.2 will be treated as an adjustment to the
Purchase Price unless and to the extent that a Final
Determination causes any such amount not to constitute an
adjustment to the Purchase Price for Federal Tax purposes.
11.3 Procedures; Exclusivity. (a) The party seeking
_______________________
indemnification under Section 11.2 (the "Indemnified Party")
agrees to give prompt notice to the party against whom indemnity
is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section,
provided, however, that the failure to give any such notice
________ _______
shall not prejudice the right of such party to receive
indemnification hereunder unless the Indemnifying Party is
actually prejudiced by such failure. The Indemnifying Party may,
and at the request of the Indemnified Party shall, participate
in or control the defense of any such suit, action or
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proceeding at its own expense. If the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right
(but not the duty) to participate in the defense thereof and to
employ counsel, at its own expense, separate from counsel
employed by the Indemnifying Party. Whether or not Indemnifying
Party chooses to defend or prosecute any claim, all of the
parties hereto shall cooperate in the defense or prosecution
thereof. The Indemnifying Party shall not be liable under
Section 11.2 for any settlement effected without its consent of
any claim, litigation or proceeding in respect of which
indemnity may be sought hereunder, which consent shall not be
unreasonably withheld or delayed.
(b) After the Closing, Article 8, and Sections 9.7
and 11.2 will provide the exclusive remedy for any
misrepresentation, breach of warranty, covenant or other
agreement (other than those contained in Sections 2.3, 2.4, 2.5,
5.5, 5.7, 5.8, 5.9(d), 6.2, 6.3, 7.4, 7.5, 7.6, 7.9, 7.12 and
9.6) or other claim arising out of this Agreement or the
transactions contemplated hereby.
ARTICLE 12
TERMINATION
12.1 Grounds for Termination. This Agreement may be
_______________________
terminated at any time prior to the Closing:
(i) by mutual written agreement of Seller and Buyer;
or
(ii) by either Seller or Buyer if the Closing shall
not have been consummated on or before September 30, 1996.
The party desiring to terminate this Agreement shall
give notice of such termination to the other party.
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12.2 Effect of Termination. If this Agreement is
_____________________
terminated as permitted by Section 12.1, termination shall be
without liability of either party (or any stockholder, director,
officer, employee, agent, consultant or representative of such
party) to the other party to this Agreement, except as provided
in Section 13.3 and except that no such termination shall
relieve Buyer of its obligations under Section 6.1; and provided
________
that if such termination shall result from the willful failure
of either party to fulfill a condition to the performance of the
obligations of the other party or to perform a covenant of this
Agreement or from a willful breach by either party to this
Agreement, such party shall be fully liable for any and all
Damages incurred or suffered by the other party as a result of
such failure or breach. The provisions of Section 7.6, this
Section 12.2, Section 13.3 and Section 13.5 shall survive any
termination hereof pursuant to Section 12.1.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. All notices, requests and other
_______
communications to any party hereunder shall be in writing
(including facsimile transmission) and shall be given:
if to Buyer, to:
The Travelers Insurance Group Inc.
Xxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
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with copies to:
Travelers Group Inc.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
Fax: (000) 000-0000
Skadden, Arps, Slate, Xxxxxxx & Xxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
if to Seller, to:
Aetna Life and Casualty Company
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
with a copy to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
or at such other address to the attention of such other person
as Buyer or Seller may designate by written notice to the other
party hereto. All such notices, requests and other
communications shall be deemed received on the date of receipt
by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication
shall be deemed not to have been received until the next
succeeding business day in the place of receipt.
13.2 Amendments and Waivers. (a) Any provision of
______________________
this Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing
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and is signed, in the case of an amendment, by each party to
this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(b) No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. Other than as provided
herein, the rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided
by law.
13.3 Expenses. Except as otherwise expressly provided
________
herein, all costs and expenses incurred in connection with this
Agreement, including all brokers', finders', investment advisory
or similar fees, shall be paid by the party incurring or
responsible for incurring such cost or expense.
13.4 Successors and Assigns. The provisions of this
______________________
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns;
provided that no party may assign, delegate or otherwise
________
transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto. Notwithstanding
the foregoing, Buyer may assign any of its rights and
obligations under this Agreement to a wholly owned Subsidiary
without Seller's consent; provided that no such assignment shall
relieve Buyer of any of its obligations under this Agreement.
13.5 Governing Law. This Agreement shall be governed
_____________
by and construed in accordance with the law of the State of New
York, without regard to the conflict of laws rules of such
state.
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13.6 Jurisdiction. Except as otherwise expressly
____________
provided in this Agreement, any suit, action or proceeding
seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the
transactions contemplated hereby shall be brought only in the
United States District Court for the Southern District of New
York or any New York State court sitting in New York City, and
each of the parties hereby consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in
any such suit, action or proceeding and irrevocably waives, to
the fullest extent permitted by law, any objection which it may
now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court
has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere
in the world, whether within or without the jurisdiction of any
such court. Without limiting the foregoing, each party agrees
that service of process on such party as provided in this
Section 13.6 shall be deemed effective service of process on
such party.
13.7 Counterparts; No Third Party Beneficiaries. This
__________________________________________
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. No
provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies
hereunder.
13.8 Entire Agreement. Except for the
________________
Confidentiality Agreement and the Ancillary Agreements, this
Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and
supersedes all
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prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has
been made or relied upon by either party hereto.
13.9 Construction. This Agreement is the result of
____________
arms-length negotiations between the parties hereto and has been
prepared jointly by the parties. In applying and interpreting
the provisions of this Agreement, there shall be no presumption
that the Agreement was prepared by any one party or that the
Agreement shall be construed in favor of or against any one
party.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
THE TRAVELERS INSURANCE GROUP INC.
By: /s/ Xxx X. Xxxxxxx
_______________________________
Name: Xxx X. Xxxxxxx
Title: Vice Chairman and Chief
Financial Officer
AETNA LIFE AND CASUALTY COMPANY
By: /s/ Xxxxxx X. Xxxxxxx
________________________
Name: Xxxxxx X. Xxxxxxx
Title: Chairman and President
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