EXHIBIT 2.1
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STOCK PURCHASE AGREEMENT
among
COMMONWEALTH GENERAL CORPORATION,
X. X. XXXXXX COMPANY, INC.
and
X. X. PENNEY DIRECT MARKETING SERVICES, INC.
dated as of March 7, 2001
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TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF THE SHARES........................................................ 2
Section 1.1 Purchase and Sale of the Shares.................................................... 2
Section 1.2 Unadjusted Purchase Price.......................................................... 2
Section 1.3 Estimated Purchase Price........................................................... 2
Section 1.4 Final Purchase Price............................................................... 3
Section 1.5 Closing............................................................................ 6
Section 1.6 Deliveries at the Closing.......................................................... 6
Section 1.7 Settlement of Intercompany Obligations............................................. 8
Section 1.8 Retained Assets.................................................................... 9
Section 1.9 Nonassignable Contracts............................................................ 10
Section 1.10 Assumed Liabilities and JCPIIG Liabilities......................................... 11
Section 1.11 Delivery of Other Assets and JCPIIG Assets......................................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER............................ 11
Section 2.1 Representations and Warranties Regarding the Parent and the Seller................. 11
Section 2.2 Representations and Warranties Regarding the DMS Companies and the DMS Subsidiaries 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER........................................ 30
Section 3.1 Organization, Standing and Corporate Power......................................... 30
Section 3.2 Authority; Noncontravention........................................................ 30
Section 3.3 Consents and Approvals............................................................. 31
Section 3.4 Investment Intent.................................................................. 31
Section 3.5 Sophistication of the Purchaser.................................................... 31
Section 3.6 Brokers............................................................................ 31
ARTICLE IV COVENANTS.............................................................................. 32
Section 4.1 Conduct of Business................................................................ 32
Section 4.2 Acquisition Proposals; Inconsistent Activities..................................... 34
Section 4.3 Access to Information; Confidentiality............................................. 35
Section 4.4 Commercially Reasonable Efforts; Regulatory Matters................................ 35
Section 4.5 Public Announcements; Communications with Business Partners........................ 36
Section 4.6 Tax Matters........................................................................ 36
Section 4.7 Employee Benefit Matters........................................................... 47
Section 4.8 Use of X. X. Xxxxxx Name........................................................... 50
Section 4.9 Internet-Related Matters........................................................... 51
Section 4.10 Non-Competition.................................................................... 51
Section 4.11 Further Assurances................................................................. 52
Section 4.12 Notices; Efforts to Remedy......................................................... 52
Section 4.13 Conseco Reinsurance................................................................ 53
Section 4.14 Transition Services................................................................ 53
Section 4.15 Monogram Bank...................................................................... 53
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TABLE OF CONTENTS
(Continued)
Page
Section 4.16 Direct Monogram Agreement.......................................................... 54
ARTICLE V CONDITIONS PRECEDENT................................................................... 54
Section 5.1 Conditions to Each Party's Obligation.............................................. 54
Section 5.2 Conditions to Obligations of the Parent and the Seller............................. 54
Section 5.3 Conditions to Obligations of the Purchaser......................................... 55
ARTICLE VI TERMINATION, AMENDMENT AND WAIVER...................................................... 55
Section 6.1 Termination........................................................................ 55
Section 6.2 Effect of Termination.............................................................. 56
Section 6.3 Amendment.......................................................................... 56
Section 6.4 Extension; Waiver.................................................................. 56
ARTICLE VII INDEMNIFICATION........................................................................ 56
Section 7.1 Indemnification by the Parent and the Seller....................................... 56
Section 7.2 Indemnification by the Purchaser................................................... 57
Section 7.3 Notice and Resolution of Claims.................................................... 57
Section 7.4 Limits on Indemnification.......................................................... 58
Section 7.5 Indemnity Payments................................................................. 59
Section 7.6 Coordination With Tax Covenant..................................................... 59
ARTICLE VIII MISCELLANEOUS.......................................................................... 59
Section 8.1 Reliance........................................................................... 59
Section 8.2 Fees and Expenses.................................................................. 60
Section 8.3 Certain Definitions................................................................ 60
Section 8.4 Notices............................................................................ 65
Section 8.5 Interpretation..................................................................... 66
Section 8.6 Entire Agreement; Third-Party Beneficiaries........................................ 66
Section 8.7 Governing Law; Venue............................................................... 66
Section 8.8 Assignment......................................................................... 66
Section 8.9 Enforcement........................................................................ 67
Section 8.10 Severability....................................................................... 67
Section 8.11 Counterparts....................................................................... 67
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EXHIBITS
Exhibits
Exhibit A List of Companies Shares of Which are Being Sold
Exhibit B-1 Marketing Services Agreement
Exhibit B-2 License Agreement
Exhibit B-3 SAP Companies
Exhibit B-4 Calculation of Estimated Net Book Value
Exhibit C Assignment and Assumption Agreement
Exhibit D JCPIIG Assignment and Assumption Agreement
Exhibit E Opinion of LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P.
Exhibit F Release
Exhibit G Xxxx of Sale
Exhibit H JCPIIG Xxxx of Sale
Exhibit I-1 Opinion of the General Counsel of the Parent
Exhibit I-2 Opinion of Xxxxx, Day, Xxxxxx & Xxxxx
Exhibit I-3 Opinion of Xxxxxxxx, Xxxxxx & Finger
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of March 7, 2001 (this
"Agreement"), is made and entered into among COMMONWEALTH GENERAL CORPORATION, a
Delaware corporation (the "Purchaser"), X. X. XXXXXX COMPANY, INC., a Delaware
corporation (the "Parent"), and X. X. PENNEY DIRECT MARKETING SERVICES, INC., a
Delaware corporation (the "Seller").
RECITALS:
A. The Seller owns all of the issued and outstanding shares (the "Seller
Shares") of the capital stock of the companies listed in Part I of Exhibit A
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hereto (the "DMS Shares Companies") and the Seller and X.X. Xxxxxx International
Insurance Group, Inc., a Delaware Corporation ("JCPIIG"), own all of the issued
and outstanding shares (the "JCPIIG Sub Shares") of the capital stock of the
companies listed in Part II of Exhibit A hereto (the "JCPIIG Subsidiary
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Companies").
B. The Seller, through the DMS Companies (as defined in Section 8.3(a)(v))
and the DMS Subsidiaries (as defined in Section 8.3(a)(vi)), is engaged in the
business of direct marketing insurance and membership services (the "Business").
C. The Purchaser and/or its designee pursuant to Section 8.8 desires to
purchase from the Seller and JCPIIG, and the Seller desires to sell and to cause
JCPIIG to sell to the Purchaser and/or such designee, all of the Seller Shares
and the JCPIIG Sub Shares (collectively, the "Shares") and all of the Other
Assets (as defined in Section 8.3(a)(xiii)) and the JCPIIG Assets (as defined in
Section 8.3(a)(ix)).
D. The Seller desires to assign to the Purchaser and to cause JCPIIG to
assign to the Purchaser, and the Purchaser is willing to assume, the Assumed
Liabilities (as defined in Section 1.10) and the JCPIIG Liabilities (as defined
in Section 1.10).
E. Concurrently with the execution and delivery of this Agreement, the
Seller has delivered to the Purchaser a Disclosure Schedule (the "Disclosure
Schedule") and the Purchaser has delivered to the Parent and the Seller a
Disclosure Schedule (the "Purchaser Disclosure Schedule").
F. At the Closing (as defined in Section 1.5), the Parent, the Seller and
the Purchaser will execute and deliver to each other a Marketing Services
Agreement in the form attached hereto as Exhibit B-1 (the "Marketing Services
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Agreement").
G. At the Closing, the Parent and the Purchaser will execute and deliver
to each other a License Agreement in the form attached hereto as Exhibit B-2
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(the "License Agreement").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.1 Purchase and Sale of the Shares. Upon the terms and subject to
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the conditions set forth in this Agreement, the Purchaser agrees to purchase
from the Seller at the Closing, and the Seller agrees to sell, assign, transfer
and deliver, and to cause JCPIIG to sell, assign, transfer and deliver, to the
Purchaser at the Closing, all interests in and title to the Shares, the Other
Assets and the JCPIIG Assets, free and clear of any lien, pledge, claim,
restriction or other encumbrance (including any restriction on the right to
vote, sell or otherwise dispose of the Shares) ("Liens or Encumbrances"), other
than any Liens or Encumbrances created by the Purchaser and any restrictions on
transferability under applicable securities Laws (as defined in Section
8.3(a)(xi)).
Section 1.2 Unadjusted Purchase Price. The unadjusted purchase price for
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the Shares, the JCPIIG Assets and the Other Assets shall be $1,230,000,000 (the
"Unadjusted Purchase Price").
Section 1.3 Estimated Purchase Price.
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(a) Not later than the fifth Business Day prior to the Closing Date, the
Seller shall deliver to the Purchaser (i) balance sheets (the "Estimated SAP
Balance Sheets") of the companies listed on Exhibit B-3 (the "SAP Companies") as
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of the end of the calendar month immediately preceding the Closing Date (as
defined in Section 1.5), prepared in accordance with SAP (as defined in Section
2.2(f)) using the same accounting principles, policies and practices that were
used in the preparation of the SAP Balance Sheets (as defined in Section
1.4(h)), except as otherwise set forth in Section 1.3(a) of the Disclosure
Schedule, and (ii) statements (the "Estimated SAP Net Book Value Statement")
setting forth the Seller's estimate of the sum of the SAP Net Book Values (as
defined in Section 1.4(h)) as of the end of the calendar month immediately
preceding the Closing Date of the SAP Companies and the Seller's calculation
thereof in reasonable detail and calculated in accordance with Exhibit B-4. The
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Estimated SAP Balance Sheets and the Estimated SAP Net Book Value Statement
shall be prepared in good faith based upon the Seller's review of financial
information then available to it and inquiries of personnel responsible for the
preparation of financial information relating to the Seller in the ordinary
course of business.
(b) Not later than the fifth Business Day prior to the Closing Date, the
Seller shall deliver to the Purchaser (i) a consolidated balance sheet (the
"Estimated GAAP Balance Sheet") of the Seller as of the end of the calendar
month immediately preceding the Closing Date (as defined in Section 1.5),
prepared in accordance with GAAP (as defined in Section 2.2(f)) using the same
accounting principles, policies and practices that were used in the preparation
of the GAAP Balance Sheet (as defined in Section 1.4(h)), except as otherwise
set forth in Section 1.3(a) of the Disclosure Schedule, and (ii) a statement
(the "Estimated GAAP Net Book Value Statement") setting forth the Seller's
estimate of the GAAP Net Book Value (as defined in Section 1.4(h)) as of the end
of the calendar month immediately preceding the Closing Date (the "Estimated
GAAP Net Book Value") and the Seller's calculation thereof in reasonable detail
and calculated in accordance with Exhibit B-4. The Estimated GAAP Balance Sheet
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and the
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Estimated GAAP Net Book Value Statement shall be prepared in good faith based
upon the Seller's review of financial information then available to it and
inquiries of personnel responsible for the preparation of financial information
relating to the Seller in the ordinary course of business.
(c) The Estimated Purchase Price shall be equal to the Unadjusted Purchase
Price plus or minus an amount which is equal to the net amount of (i) the
positive or negative amount by which estimated SAP Net Book Value plus any
amounts accrued for under the MVP Plan, the Parent MSRP and the DMS MSRP (as
defined in Section 4.7(c)) is greater or less than $277,317,373 plus (ii) the
positive or negative amount by which the estimated GAAP Net Book Value is
greater or less than $173,805,753, both as calculated in accordance with Exhibit
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B-4.
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Section 1.4 Final Purchase Price.
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(a) Closing Date SAP Balance Sheet. As promptly as practicable, and in any
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event within 45 calendar days after the Closing Date, the Seller, at its cost,
shall prepare and deliver to the Purchaser (i) balance sheets (the "Closing Date
SAP Balance Sheets") of the SAP Companies as of the Closing Date if the Closing
Date is the last day of a calendar quarter (or the previous calendar quarter end
if the Closing Date is not the last day of a calendar quarter), accompanied by a
report of KPMG LLP ("Seller's Auditor") to the effect that such Closing Date SAP
Balance Sheets present fairly in all material respects the admitted assets,
liabilities and surplus of the SAP Companies as of the date of the Closing Date
SAP Balance Sheets and, except as otherwise set forth in Section 1.3(a) of the
Disclosure Schedule, were prepared in accordance with SAP using the same
accounting principles, policies and practices that were used in the preparation
of the SAP Balance Sheets and (ii) a statement (the "Closing Date SAP Net Book
Value Statement") setting forth the Seller's calculation in reasonable detail of
the SAP Net Book Value as of the date of the Closing Date SAP Balance Sheets
(the "Closing Date SAP Net Book Value") and computed in accordance with Exhibit
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B-4.
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(b) Closing Date GAAP Balance Sheet. As promptly as practicable, and in
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any event within 45 calendar days after the Closing Date, the Seller, at its
cost, shall prepare and deliver to the Purchaser (i) a consolidated balance
sheet (the "Closing Date GAAP Balance Sheet") of the Seller as of the Closing
Date if the Closing Date is the last day of a calendar quarter (or the previous
calendar quarter end if the Closing Date is not the last day of a calendar
quarter), accompanied by a report of Seller's Auditor to the effect that such
Closing Date GAAP Balance Sheet presents fairly in all material respects the
financial position of the Seller as of the date of the Closing Date SAP Balance
Sheet and, except as otherwise set forth in Section 1.3(a) of the Disclosure
Schedule, was prepared in accordance with GAAP using the same accounting
principles, policies and practices that were used in the preparation of the GAAP
Balance Sheet and (ii) a statement (the "Closing Date GAAP Net Book Value
Statement") setting forth the Seller's calculation of the GAAP Net Book Value as
of the date of the Closing Date GAAP Balance Sheets in reasonable detail (the
"Closing Date GAAP Net Book Value"), and computed in accordance with Exhibit B-
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4.
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(c) Review of Closing Date Balance Sheets. Within 45 calendar days (the
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"Purchaser Review Period") after the date on which the Purchaser has received
the last of the Closing Date SAP Balance Sheet, the Closing Date GAAP Balance
Sheet, the Closing Date SAP Net Book
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Value Statement and the Closing Date GAAP Net Book Value Statement
(collectively, the "Closing Date Balance Sheets and Net Book Value Statements"),
the Purchaser shall notify the Seller of its agreement or disagreement with the
Closing Date Balance Sheets and Net Book Value Statements. If the Purchaser
disagrees with the Closing Date Balance Sheets and Net Book Value Statements,
the Purchaser may deliver to the Seller, prior to the expiration of the
Purchaser Review Period, a notice (the "Objection Notice") setting forth in
reasonable detail (i) the items or amounts with which the Purchaser disagrees
and the basis for such disagreement and (ii) the Purchaser's proposed
corrections thereto. The Purchaser shall be deemed to have agreed with all items
and amounts contained in the Closing Date Balance Sheets and Net Book Value
Statements to which no specific objection has been made, except such items and
amounts as may reasonably be affected by the items as to which the Purchaser has
so disagreed. If the Purchaser does not deliver an Objection Notice prior to the
end of the Purchaser Review Period, the Purchaser shall be deemed to agree in
all respects with the Closing Date Balance Sheets and Net Book Value Statements
, and the Seller's calculation of the Closing Date SAP Net Book Value, the
Closing Date GAAP Net Book Value set forth in the Closing Date SAP Net Book
Value Statement and the Closing Date GAAP Net Book Value Statement shall be
final and binding upon the Purchaser, the Parent and the Seller.
(d) Review by Accountants. If an Objection Notice is properly and timely
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delivered, the Purchaser and the Seller shall negotiate in good faith to resolve
all disagreements as promptly as practicable. If the Purchaser and the Seller
are unable to resolve all disagreements within 30 days after delivery by the
Purchaser of an Objection Notice, the Purchaser and the Seller shall cause
Xxxxxx Xxxxxxxx LLP (or, if they are unable or unwilling to serve, a firm of
independent accountants of nationally recognized standing reasonably
satisfactory to the Purchaser and the Seller (which shall not have any material
relationship with the Purchaser or the Seller or any of their respective
Affiliates (as defined in Section 8.3(a)(ii))) (the "Accountants") to promptly
review this Agreement and the disputed items or amounts in the Closing Date
Balance Sheets and Net Book Value Statements for the purpose of calculating the
Closing Date SAP Net Book Value and the Closing Date GAAP Net Book Value. In
making such calculation, the Accountants shall consider only those items or
amounts in such Balance Sheets and such Net Book Value Statements as to which
the Purchaser has, in the Objection Notice, disagreed and such other issues as
may reasonably be affected by the items as to which the Purchaser has so
disagreed. The Accountants shall deliver to the Purchaser and the Seller, as
promptly as reasonably practicable, but no later than 90 calendar days after the
Accountants are engaged, a written report setting forth their calculation of the
disputed items and the Closing Date SAP Net Book Value and Closing Date GAAP Net
Book Value. Upon such delivery, such report and the calculations set forth
therein shall be final and binding upon the Purchaser, the Parent and the
Seller. The cost of such review and report shall be paid by (i) the Purchaser if
such review and report results in a net decrease in Closing Date SAP Net Book
Value and Closing Date GAAP Net Book Value of less than 2.5% or a net increase
in Closing Date SAP Net Book Value and Closing Date GAAP Net Book Value, (ii)
the Seller if such review and report results in a net decrease in Closing Date
SAP Net Book Value and Closing Date GAAP Net Book Value of more than 5.0%, and
(iii) 50% by the Seller and 50% by the Purchaser if such review and report
results in a net decrease in Closing Date SAP Net Book Value and Closing Date
GAAP Net Book Value between 2.5% and 5.0%.
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(e) Cooperation. Each of the Purchaser and the Seller shall cooperate and
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assist each other in the preparation of the Closing Date SAP Balance Sheets, the
Closing Date GAAP Balance Sheet, the Closing Date SAP Net Book Value Statement
and the Closing Date GAAP Net Book Value Statement and in the conduct of the
reviews referred to in this Section 1.4, including without limitation (i) the
Purchaser making available to the extent reasonably requested books, records,
work papers and personnel of the DMS Companies and the DMS Subsidiaries and (ii)
the Seller making available to the extent reasonably requested books and records
of the Seller and the work papers and other documents of Seller's Auditor
relating to its audit of the Closing Date SAP Balance Sheets and the Closing
Date GAAP Balance Sheet.
(f) Final SAP Payment. Within five Business Days after the calculation of
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the Closing Date SAP Net Book Value becoming final pursuant to Section 1.4(c) or
Section 1.4(d), as applicable, (i) the Purchaser shall pay to the Seller by wire
transfer of immediately available funds to an account designated by the Seller
in writing at least two Business Days before the date of such payment, an amount
equal to the amount, if any, by which the final Closing Date SAP Net Book Value
exceeds the estimated SAP Net Book Value, together with interest thereon at the
Applicable Rate (as defined in Section 1.4(h)) from and including the Closing
Date, if the Closing Date is the last day of a calendar quarter, otherwise from
and including the date of the Closing Date SAP Balance Sheets, to, but
excluding, the date of such payment, or (ii) the Seller shall pay to the
Purchaser, by wire transfer of immediately available funds to an account
designated by the Purchaser in writing at least two Business Days before the
date of such payment, an amount equal to the amount, if any, by which the
estimated SAP Net Book Value exceeds the final Closing Date SAP Net Book Value,
together with interest thereon at the Applicable Rate from and including the
Closing Date, if the Closing Date is the last day of a calendar quarter,
otherwise from and including the date of the Closing Date SAP Balance Sheets,
to, but excluding, the date of such payment.
(g) Final GAAP Payment. Within five Business Days after the calculation
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of the Closing Date Net GAAP Book Value becoming final pursuant to Section
1.4(c) or Section 1.4(d), as applicable, (i) the Purchaser shall pay to the
Seller by wire transfer of immediately available funds to an account designated
by the Seller in writing at least two Business Days before the date of such
payment, an amount equal to the amount, if any, by which the final Closing Date
GAAP Net Book Value exceeds the estimated GAAP Net Book Value, together with
interest thereon at the Applicable Rate (as defined in Section 1.4(h)) from and
including the Closing Date, if the Closing Date is the last day of a calendar
quarter, otherwise from and including the date of the Closing Date GAAP Balance
Sheets, to, but excluding, the date of such payment, or (ii) the Seller shall
pay to the Purchaser, by wire transfer of immediately available funds to an
account designated by the Purchaser in writing at least two Business Days before
the date of such payment, an amount equal to the amount, if any, by which the
estimated GAAP Net Book Value exceeds the final Closing Date GAAP Net Book Value
by more than $10,000,000, together with interest thereon at the Applicable Rate
from and including the Closing Date, if the Closing Date is the last day of a
calendar quarter, otherwise from and including the date of the Closing Date GAAP
Balance Sheets, to, but excluding, the date of such payment.
(h) Certain Defined Terms. For purposes of this Agreement, (i) the term
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"Applicable Rate" means a rate per annum equal to the "prime rate" as set forth
from time to time in The Wall Street Journal "Money Rates" column, (ii) the term
"SAP Balance Sheets" means the balance
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sheets as of September 30, 2000 of the SAP Companies, prepared in conformity
with the statutory accounting practices prescribed or permitted by the insurance
regulatory authority of the jurisdiction of domicile of each such company,
applied on a consistent basis, except as set forth in Section 2.2(f) of the
Disclosure Schedule or in the notes to the year-end SAP Statements, (iii) the
term "SAP Net Book Value" means an amount equal to (A) the amount that would be
reflected as "admitted assets" on a balance sheet of a SAP Company prepared in
conformity with SAP using the same accounting principles, policies and practices
that were used in the preparation of the SAP Balance Sheet, except as otherwise
set forth in Section 1.3(a) of the Disclosure Schedule, minus (B) the amount
that would be reflected as "total liabilities" on a balance sheet of a SAP
Company prepared in accordance with SAP using the same accounting principles,
policies and practices that were used in the preparation of the SAP Balance
Sheet, except as otherwise set forth in Section 1.3(a) of the Disclosure
Schedule, and (iv) the term "GAAP Balance Sheet" means the consolidated balance
sheet as of September 30, 2000 of the Seller included in the Financial
Statements (as defined in Section 2.2(f)), (v) the term "GAAP Net Book Value"
means an amount equal to the consolidated GAAP equity of the Seller prepared in
accordance with GAAP using the same accounting principles, policies and
practices that were used in the preparation of the GAAP Balance Sheet, except as
otherwise set forth in Section 1.3(a) of the Disclosure Schedule, less the GAAP
equity of the SAP Companies listed on Exhibit B-3, and (vi) the term "Purchase
Price" means an amount equal to (A) the Estimated Purchase Price plus or minus
(B) any additional amount payable by or to, respectively, the Purchaser pursuant
to Sections 1.4(f) and 1.4(g), other than any portion of any such additional
amount that constitutes interest.
Section 1.5 Closing. Unless this Agreement shall have been terminated and
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the transactions contemplated hereby shall have been abandoned pursuant to
Article VI, and subject to the satisfaction or waiver of all of the conditions
set forth in Article V, the closing of the purchase and sale of the Shares, the
Other Assets and the JCPIIG Assets hereunder (the "Closing") will take place as
soon as practicable, but in no event later than 10:00 a.m., Dallas time, on the
fifth Business Day following satisfaction or waiver of all of the conditions set
forth in Article V, other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions, at the offices of Xxxxx, Day, Xxxxxx & Xxxxx, Dallas, Texas, unless
another date, time or place is agreed to in writing by the parties hereto. The
date on which the Closing occurs is referred to in this Agreement as the
"Closing Date." The Closing will be effective as of 11:59 p.m. on the Closing
Date.
Section 1.6 Deliveries at the Closing.
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(a) Deliveries by the Purchaser. At the Closing, the Purchaser shall
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deliver to the Parent or the Seller, as the case may be:
(i) the Estimated Purchase Price, by wire transfer of immediately
available funds to an account designated by the Seller in writing no later than
two Business Days before the Closing Date;
(ii) the Marketing Services Agreement, duly executed by the
Purchaser;
(iii) the License Agreement, duly executed by the Purchaser;
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(iv) a certificate of the Purchaser, dated the Closing Date and
signed by an authorized officer of the Purchaser, certifying that the conditions
set forth in Section 5.2(a) have been satisfied;
(v) an Assignment and Assumption Agreement, substantially in the
form of Exhibit C hereto (the "Assignment Agreement"), duly executed by the
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Purchaser;
(vi) an Assignment and Assumption Agreement, substantially in the
form of Exhibit D hereto (the "JCPIIG Assignment Agreement"), duly executed by
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the Purchaser;
(vii) an opinion of LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P., counsel
to the Purchaser, dated the Closing Date, in the form attached as Exhibit E;
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(viii) a Release, substantially in the form of Exhibit F hereto (the
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"Release"), duly executed by the Purchaser; and
(ix) such other documents, instruments or certificates as the Parent
or the Seller may reasonably request.
(b) Deliveries by the Parent and the Seller. At the Closing, the Parent or
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Seller, as the case may be, shall deliver or cause JCPIIG to deliver to the
Purchaser:
(i) one or more certificates representing the Shares, free and
clear of any Lien or Encumbrance (other than any Lien or Encumbrances created by
the Purchaser and any restrictions on transferability under applicable
securities Laws), duly endorsed in blank by an appropriate person for transfer
or accompanied by stock powers duly endorsed in blank;
(ii) the Marketing Services Agreement, duly executed by the Parent
and the Seller;
(iii) the License Agreement, duly executed by the Parent;
(iv) a certificate of the Parent and the Seller, dated the Closing
Date and signed by an authorized officer of the Parent and the Seller,
respectively, certifying that the conditions set forth in Section 5.3(a) have
been satisfied;
(v) a Xxxx of Sale, substantially in the form of Exhibit G hereto
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(the "Xxxx of Sale"), duly executed by the Seller;
(vi) a Xxxx of Sale, substantially in the form of Exhibit H hereto
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(the "JCPIIG Xxxx of Sale"), duly executed by JCPIIG;
(vii) the Assignment Agreement, duly executed by the Seller;
(viii) the JCPIIG Assignment Agreement, duly executed by JCPIIG;
(ix) the Release, duly executed by the Parent and the Seller;
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(x) written resignation, effective as of the Closing, of Xxxxxx
Xxxxxxx from his position as an officer and/or director of the Parent and of the
Seller;
(xi) opinions of counsel to the Parent and the Seller, dated the
Closing Date, in the forms attached hereto as Exhibit I-1, I-2 and I-3;
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(xii) written resignations, effective as of the Closing, of the
individuals listed in Section 1.6(b) of the Disclosure Schedule from all of
their positions as directors and/or officers of the DMS Companies and the DMS
Subsidiaries; and
(xiii) such other documents, instruments or certificates as the
Purchaser may reasonably request.
Section 1.7 Settlement of Intercompany Obligations.
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(a) All intercompany loans, advances, payables and receivables (including
any payable accounts with negative balances) between any DMS Company or DMS
Subsidiary, on the one hand, and the Parent, the Seller and their Affiliates
(other than the DMS Companies and the DMS Subsidiaries), on the other hand
(collectively, the "Intercompany Obligations"), shall be settled in full as of
the Closing Date in accordance with past practices and this Section 1.7;
provided, however, that any receivables or negative payables relating to any Tax
(as defined in Section 2.2(o)) sharing or Tax allocation agreement or
arrangement between the Seller or the Parent and any DMS Company or DMS
Subsidiary shall be paid in an amount equal to the amount reflected on the
balance sheet of the Seller in the respect thereto less $2,000,000 regardless of
whether such amounts are currently due and payable under such agreements or
arrangements and regardless of past practices. The amount of the Intercompany
Obligations shall be determined in accordance with GAAP using the same
accounting principles, policies and practices that were used in the preparation
of the GAAP Balance Sheet, except as otherwise set forth in Section 1.7 of the
Disclosure Schedule. Not later than the fifth Business Day prior to the Closing
Date, the Parent shall deliver to the Purchaser a schedule of its estimate of
all Intercompany Obligations as of the Closing Date. If the Purchaser disputes
any such amounts, the Parent and the Purchaser will negotiate in good faith to
resolve such disputes. The Parent shall cause all undisputed Intercompany
Obligations to be settled on the Closing Date; provided, however, to the extent
that any DMS Company or DMS Subsidiary owes any amount to the Parent pursuant to
an undisputed Intercompany Obligation but does not have cash available to pay
such amount, the Purchaser shall pay such amount to the Parent at the Closing.
(The net payment to the Parent, the Seller and their Affiliates (other than the
DMS Companies and the DMS Subsidiaries) upon the settlement of such undisputed
Intercompany Obligations is referred to herein as the "Estimated Intercompany
Amount"). At the time that the Parent delivers the Closing Date SAP and GAAP
Balance Sheets to the Purchaser, the Parent shall also deliver to the Purchaser
a schedule of its final determination of all Intercompany Obligations as of the
Closing Date. By the end of the Purchaser Review Period and, if the Purchaser
delivers an Objection Notice, at the same time it delivers such Objection
Notice, the Purchaser shall notify the Parent if its disagrees with such
schedule, setting forth in reasonable detail (i) the items or amounts with which
the Purchaser disagrees and the basis for such disagreement and (ii) the
Purchaser's proposed corrections to such schedule. The Purchaser shall be deemed
to have agreed with all items and amounts contained in the Parent's schedule to
which no specific
8
objection has been made. If the Purchaser does not timely notify the Parent of
any disagreement, the Purchaser shall be deemed to agree in all respects with
the schedule delivered by the Parent and such schedule shall be final and
binding upon the Purchaser, the Parent and the Seller. If the Purchaser properly
and timely notifies the Parent of its disagreement with the Parent's schedule,
the Purchaser and the Parent shall negotiate in good faith to resolve all
disagreements as promptly as practicable. If the Purchaser and the Parent are
unable to resolve all disagreements within 30 days after delivery by the
Purchaser of its notice of disagreement, the Purchaser and the Parent shall
cause the Accountants to promptly review this Agreement and the disputed items
or amounts of Intercompany Obligations. The Accountants shall consider only
those items or amounts of Intercompany Obligations to which the Purchaser has,
in its notice to the Parent, disagreed. The Accountants shall deliver a written
report setting forth their determination at the time they deliver the report
referred to in Section 1.4(d). The Accountants' determination shall be final and
binding upon the Parent, the Seller and the Purchaser. The cost of such report
shall be paid (i) in accordance with Section 1.4(d) if the Purchaser and the
Seller have caused the Accountants to undertake the review provided for in
Section 1.4(d) or (ii) 50% by the Seller and 50% by the Purchaser if the
Purchaser and the Seller have not caused the Accountants to undertake such
review. If the net amount owed by the DMS Companies and the DMS Subsidiaries to
the Parent and the Seller and their Affiliates (other than the DMS Companies and
the DMS Subsidiaries) upon settlement of the Intercompany Obligations (the "Net
Settlement Amount") exceeds the Estimated Intercompany Amount, then the
Purchaser shall pay such difference to the Seller at the time of the payment
referred to in Section 1.4(g) with interest on such difference calculated in
accordance with Section 1.4(g). If the Estimated Intercompany Amount exceeds the
Net Settlement Amount, then the Seller shall pay such difference to the
Purchaser at the time of the payment referred to in Section 1.4(g) with interest
on such difference calculated in accordance with Section 1.4(g).
(b) Except as otherwise contemplated by this Agreement, the Transition
Services Agreement, the License Agreement and the Marketing Services Agreement,
the Parent and the Seller shall, and shall cause their Affiliates (other than
the DMS Companies and the DMS Subsidiaries) to, cancel any Contracts (as such
term is defined in Section 2.2(m)), (whether written or oral) between any of
them, on the one hand, and any of the DMS Companies or DMS Subsidiaries, on the
other hand, effective as of the Closing Date.
Section 1.8 Retained Assets. Notwithstanding anything to the contrary
---------------
contained in this Agreement, (a) it is the intent of the parties hereto that,
from and after the Closing, none of the Purchaser, any DMS Company or any DMS
Subsidiary shall have any right, title or interest in, to or under any of the
rights, properties or assets listed or described in Section 1.8 of the
Disclosure Schedule (collectively, the "Retained Assets"), other than such
rights as are specifically provided for in the License Agreement and the
Marketing Services Agreement, (b) the Seller may cause any DMS Company or any
DMS Subsidiary to assign, convey and deliver to the Seller or its designee prior
to the Closing any right, title or interest in, to or under the Retained Assets
that the applicable DMS Company or DMS Subsidiary may have, other than such
rights as are specifically provided for in the License Agreement and the
Marketing Services Agreement, (c) the Purchaser shall, upon the Seller's
reasonable request and at its expense, cause the DMS Companies and the DMS
Subsidiaries to assign, convey and deliver to the Seller or its designee at any
time after the Closing any right, title or interest in, to or under the Retained
Assets that any DMS Company or any DMS Subsidiary may have, other than such
rights as are
9
specifically provided for in the License Agreement and the Marketing Services
Agreement, and (d) the Purchaser shall not, and from and after the Closing shall
cause the DMS Companies and the DMS Subsidiaries not to, claim, use, exploit or
otherwise treat the Retained Assets in any manner that is inconsistent with the
intent expressed in this Section 1.8. At the Closing, Seller shall ensure that
there shall be no more than $100.00 in each of the bank accounts listed on
Section 1.8 of the Disclosure Schedule.
Section 1.9 Nonassignable Contracts.
-----------------------
(a) Nonassignability. To the extent that any contract, lease, license,
----------------
purchase order or other agreement of the Seller or JCPIIG that is an Other Asset
or a JCPIIG Asset is not capable of being assigned to the Purchaser without the
consent, approval or waiver of a third person or entity, including a
Governmental Entity (as defined in Section 2.1(d)), or if such assignment or
attempted assignment would constitute a breach thereof or a violation of any Law
(each, a "Nonassignable Contract"), nothing in this Agreement shall constitute
an assignment or require the assignment thereof prior to the time at which all
consents, approvals and waivers necessary for such assignment shall have been
obtained.
(b) Seller to Use Commercially Reasonable Efforts. Notwithstanding
---------------------------------------------
anything to the contrary contained herein, the Seller or JCPIIG, as applicable,
shall not be obligated or entitled to assign to the Purchaser any rights or
obligations in, to or under any Nonassignable Contract without first having
obtained all consents, approvals and waivers necessary for such assignment. The
Seller shall use commercially reasonable efforts to obtain all such consents,
approvals and waivers prior to the Closing and, if the Closing occurs first,
shall use commercially reasonable efforts after the Closing Date to obtain all
such consents, approvals and waivers. The Purchaser shall cooperate with the
Seller in the Seller's efforts to obtain all required consents, approvals and
waivers; provided, however, that neither the Purchaser nor the Seller shall be
required to incur any liability or pay any consideration in connection therewith
(provided that, with respect to any particular Nonassignable Contract following
the Closing, the Seller is providing to the Purchaser the financial and business
benefits thereof in accordance with Section 1.9(c)).
(c) If Waivers or Consents Cannot Be Obtained. To the extent and for so
-----------------------------------------
long as all consents, approvals and waivers required for the assignment of any
Nonassignable Contract shall not have been obtained by the Seller, JCPIIG or the
Parent after the Closing, the Seller shall use commercially reasonable efforts
to (i) provide to the Purchaser the financial and business benefits of such
Nonassignable Contract; (ii) cooperate in any arrangement, reasonable and lawful
as to the Seller, JCPIIG and the Purchaser and each of their respective
Affiliates, designed to provide such benefits to the Purchaser; and (iii)
enforce, at the request of the Purchaser, for the account of the Purchaser, any
rights of the Seller or JCPIIG, as applicable, arising from any such
Nonassignable Contract (including the right to elect to terminate in accordance
with the terms thereof upon the advice of the Purchaser). The Purchaser shall
use commercially reasonable efforts to perform any portion of a Nonassignable
Contract to the extent that the Purchaser is receiving the financial and
business benefits thereof in accordance with clause (i) of the preceding
sentence to the same extent required of the Seller or JCPIIG, as applicable,
under the terms of such Nonassignable Contract (i.e., in the same (or as similar
as practicable) manner and time, and with the same quality, so required of the
Seller or JCPIIG, as applicable). Following
10
the Closing, the Seller shall not and shall not permit JCPIIG to terminate,
modify or amend any Nonassignable Contract without the Purchaser's prior written
consent.
(d) The provisions of this Section 1.9 shall not affect any representation
or warranty of the Parent or the Seller contained herein or any obligation of
the Parent or the Seller with respect to any breach thereof, or any condition to
the obligations of the Purchaser to consummate the transactions contemplated
hereby to be consummated at the Closing.
Section 1.10 Assumed Liabilities and JCPIIG Liabilities. At the Closing,
------------------------------------------
the Purchaser shall assume and thereafter pay, perform or otherwise discharge,
as and when the same shall become due and payable: (a)(i) all liabilities of the
Seller expressly set forth, and in the amount indicated on, the Closing Date
GAAP Balance Sheet and the Closing Date SAP Balance Sheet, (ii) all of the
liabilities and obligations of the Seller arising out of or incurred in
connection with those Other Assets that are listed on Section 8.3(a)(xi) to the
Disclosure Schedule, and (iii) all of the liabilities described in Section 1.10
of the Disclosure Schedule, but excluding the Excluded Liabilities (the "Assumed
Liabilities") and (b) any direct or indirect indebtedness, liability, claim,
loss, damage, deficiency, obligation or responsibility whether now known or
unknown, fixed or unfixed, xxxxxx or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise of JCPIIG (the
"JCPIIG Liabilities").
Section 1.11 Delivery of Other Assets and JCPIIG Assets. Title to the
------------------------------------------
Other Assets and the JCPIIG Assets shall pass to the Purchaser as of the Closing
at the place of business of the Seller. Concurrently with the Closing, the
Seller shall, and shall cause JCPIIG to, deliver to the Purchaser full
possession and control of the Other Assets and the JCPIIG Assets in accordance
with Section 1.1.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER
Each of the Parent and the Seller hereby represents and warrants to the
Purchaser as follows:
Section 2.1 Representations and Warranties Regarding the Parent and the
-----------------------------------------------------------
Seller.
------
(a) Organization, Standing and Corporate Power. Each of the Parent and
------------------------------------------
the Seller is duly organized, validly existing and in good standing as a
corporation under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each of the Parent and the Seller
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed or to be in
good standing would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect (as defined in Section 8.3(a)(xii)).
(b) Authority of Seller; Noncontravention. The Seller has the requisite
-------------------------------------
corporate power and authority to enter into this Agreement and the Transaction
Agreements to which the Seller is a party and to consummate the transactions
contemplated hereby and thereby. The
11
execution and delivery by the Seller of this Agreement and the Transaction
Agreements to which the Seller is a party and the consummation by the Seller of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Seller. This Agreement has
been duly executed and delivered by the Seller and, assuming that this Agreement
constitutes a valid and binding obligation of the Purchaser, constitutes a valid
and binding obligation of the Seller, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors' rights and
remedies generally and to general principles of equity. When the Transaction
Agreements to which the Seller is a party are duly executed and delivered by the
Seller and, assuming that such Transaction Agreements constitute valid and
binding obligations of the Purchaser (if it is a party thereto), such
Transaction Agreements will constitute valid and binding obligations of the
Seller, enforceable against it in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors' rights and
remedies generally and to general principles of equity. Except as set forth in
Section 2.1(b) of the Disclosure Schedule, the execution and delivery by the
Seller of this Agreement and the Transaction Agreements to which the Seller is a
party do not, and the consummation of the transactions contemplated hereby and
thereby and compliance with the provisions hereof and thereof will not, (i)
conflict with any of the provisions of the certificate of incorporation or
bylaws of the Seller, (ii) violate, conflict with, result in a breach of or
default under (with or without notice or lapse of time, or both), result in the
termination of, accelerate the performance required, or result in a right of
termination or acceleration, loss of any benefit, or the creation of any Lien or
Encumbrance upon any of the properties or assets of the Seller under the terms,
conditions, or provisions of any note, bond, indenture, mortgage, deed of trust,
license, lease, contract, agreement or other instrument or obligation to which
the Seller is a party or by which the Seller or any of its assets is bound or
subject, or (iii) subject to the governmental approvals, consents, filings and
other matters referred to in Section 2.1(d), contravene any federal, state,
local or foreign Law or any order, writ, judgment, injunction, decree,
determination or award currently in effect, which, in the case of clauses (ii)
and (iii) above would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(c) Authority of Parent; Noncontravention. The Parent has the requisite
-------------------------------------
corporate power and authority to enter into this Agreement and the Transaction
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Parent of
this Agreement and the Transaction Agreements to which it is a party and the
consummation by the Parent of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Parent. This Agreement has been duly executed and delivered by the Parent and,
assuming that this Agreement constitutes a valid and binding obligation of the
Purchaser, constitutes a valid and binding obligation of the Parent, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization,
12
moratorium and similar Laws affecting creditors' rights and remedies generally
and to general principles of equity. When the Transaction Agreements to which
the Parent is a party are duly executed and delivered by the Parent and,
assuming that such Transaction Agreements constitute valid and binding
obligations of the Purchaser (if it is a party thereto), such Transaction
Agreements will constitute valid and binding obligations of the Parent,
enforceable against it in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar Laws affecting creditors' rights and remedies generally
and to general principles of equity. The execution and delivery by the Parent of
this Agreement and the Transaction Agreements to which the Parent is a party do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions hereof and thereof will not, (i) conflict
with any of the provisions of the certificate of incorporation or bylaws of the
Parent, (ii) violate, conflict with, result in a breach of or default under
(with or without notice or lapse of time, or both) any indenture, mortgage, deed
of trust, license, lease, contract, agreement, or other instrument or obligation
to which the Parent is a party or by which the Parent or any of its assets is
bound or subject, or (iii) subject to the governmental approvals, consents,
filings and other matters referred to in Section 2.1(d), contravene any federal,
state, local or foreign Law or any order, writ, judgment, injunction, decree,
determination or award currently in effect, which, in the case of clauses (ii)
and (iii) above would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(d) Consents and Approvals. Except as set forth in Section 2.1(d) of the
----------------------
Disclosure Schedule, no consent, approval or authorization of, or declaration or
filing with, or notice to, any federal, state, local or foreign court or
governmental or regulatory authority (a "Governmental Entity") which has not
been received or made, is required by or with respect to the Seller or the
Parent in connection with the execution and delivery of this Agreement or the
Transaction Agreements by the Parent or the Seller or the consummation by the
Parent and the Seller of the transactions contemplated hereby and thereby,
except for (i) the filing of appropriate documents with, and approval of,
insurance regulatory authorities, or the expiration of applicable waiting
periods, in the jurisdictions set forth in Section 2.1(d) of the Disclosure
Schedule, (ii) compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), (iii) any reports required to be filed with
the Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (iv) any other consents,
approvals, authorizations, filings or notices which, if not made or obtained,
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(e) Title to Shares; Other Assets and JCPIIG Assets. The sale and
-----------------------------------------------
delivery of the Shares as contemplated by this Agreement are not subject to any
preemptive right, right of first refusal or other right or restriction (other
than restrictions on transferability under applicable securities Laws). Upon the
delivery of the Shares as provided in Section 1.6(b)(i), the Purchaser (or its
designee contemplated by Section 8.8) will acquire record and beneficial
ownership of each of the Shares, free and clear of any Lien or Encumbrance
(other than any Liens or Encumbrances created by the Purchaser or such designee
and any restrictions on transferability under applicable securities Law), and
will be entitled to all the rights of a holder of such Shares. At the Closing,
the Purchaser will receive all the Seller's right, title and interest in and to
the Other Assets and all of JCPIIG's right, title and interest in and to the
JCPIIG Assets.
(f) Litigation. There are no lawsuits, claims, actions or administrative
----------
or other legal proceedings or investigations before any Governmental Entity
("Legal Proceedings") pending or, to the knowledge of the Seller and the Parent,
threatened against the Parent or the Seller, except for Legal Proceedings which
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. Neither the Parent nor the Seller is subject to or
bound by any judgment, order, writ, injunction, decree, award or other decision
of any Governmental Entity, except for those which would not (i) materially
restrict the ability of the Purchaser,
13
through the DMS Companies and the DMS Subsidiaries, to conduct the Business in
the ordinary course of business consistent with past practices or (ii)
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
Section 2.2 Representations and Warranties Regarding the DMS Companies and
--------------------------------------------------------------
the DMS Subsidiaries.
--------------------
(a) Organization, Standing and Corporate Power.
------------------------------------------
(i) Each of the DMS Companies and each of the DMS Subsidiaries is
duly organized, validly existing and in good standing as a corporation under the
laws of the jurisdiction in which it was incorporated and has the requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now being conducted. Each of the DMS Companies and each
of the DMS Subsidiaries is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The Seller has made available to the
Purchaser complete and correct copies of the certificates of incorporation and
bylaws (or other organizational documents) of each of the DMS Companies and each
of the DMS Subsidiaries, each as in effect as of the date hereof.
(ii) The Seller conducts its insurance operations through the
Subsidiaries set forth in Section 2.2(a) of the Disclosure Schedule
(collectively the "Insurance Subsidiaries"). Section 2.2(a) of the Disclosure
Schedule sets forth a list of (i) all jurisdictions in which each Insurance
Subsidiary is licensed to transact the business of insurance (ii) the lines of
business which each Insurance Subsidiary is authorized to transact in each such
jurisdiction, and (iii) the jurisdictions in which the Insurance Subsidiaries
are, or are deemed to be, domiciled. Except as set forth in Section 2.2(a) of
the Disclosure Schedule (i) to the knowledge of the Seller and the Parent,
neither the Seller nor any Insurance Subsidiary has engaged in any activity
which would cause revocation or suspension of any license to transact the
business of insurance and (ii) no action or proceeding looking to or
contemplating the revocation or suspension of any license to transact the
business of insurance is pending or, to the knowledge of the Seller and the
Parent, threatened. None of the Insurance Subsidiaries is currently the subject
of any supervision, conservation, rehabilitation, liquidation, receivership,
insolvency or other similar proceeding.
(b) Authority of JCPIIG; Noncontravention. At the Closing: (i) JCPIIG
-------------------------------------
will have the requisite corporate power and authority to consummate the
transactions contemplated hereby; and (ii) the consummation by JCPIIG of the
transactions contemplated hereby will have been authorized by all necessary
corporate action on the part of JCPIIG. The execution and delivery of this
Agreement and the Transaction Agreements do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof and
thereof will not, (i) conflict with any of the provisions of the certificate of
incorporation or bylaws (or other organizational documents) of any of the DMS
Companies or the DMS Subsidiaries, (ii) violate, conflict with, result in a
breach of or default under (with or without notice or lapse of time, or both),
result in the termination of, accelerate the performance required, or result in
a right of termination or acceleration, loss of any benefit, or the creation of
any Lien or Encumbrance upon
14
any of the properties or assets of any of the DMS Companies or the DMS
Subsidiaries under the terms, conditions or provisions of any note, bond,
indenture, mortgage, deed of trust, license, lease, contract, agreement or other
instrument or obligation to which any of the DMS Companies or the DMS
Subsidiaries is a party, or by which any of the DMS Companies or the DMS
Subsidiaries is a party or by which any of their respective assets is bound, or
(iii) subject to the governmental filings, approvals and consents and other
matters referred to in Section 2.2(c), contravene any federal, state, local or
foreign Law or any order, writ, judgment, injunction, decree, determination or
award currently in effect, which, in the case of clauses (ii) and (iii) above,
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(c) Consents and Approvals. Except as set forth in Section 2.2(c) of the
----------------------
Disclosure Schedule, no consent, approval or authorization of, or declaration or
filing with, or notice to, any Governmental Entity which has not been received
or made is required by or with respect to the DMS Companies or the DMS
Subsidiaries in connection with the execution and delivery of this Agreement by
the Seller or the consummation by the Seller of the transactions contemplated
hereby, except for (i) the filing of appropriate documents with, and approval
of, the respective insurance regulatory authorities, or the expiration of
applicable waiting periods, in the jurisdictions set forth in Section 2.2(c) of
the Disclosure Schedule, (ii) compliance with the HSR Act, and (iii) any other
consents, approvals, authorizations, filings or notices which, if not made or
obtained, would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(d) Capitalization. Section 2.2(d) of the Disclosure Schedule sets forth
--------------
the designations and numbers of authorized, issued and outstanding shares of
capital stock of each of the DMS Companies and each of the DMS Subsidiaries,
together with the name of the holder of record of such shares. Except for the
securities set forth in Section 2.2(d) of the Disclosure Schedule, none of the
DMS Companies or DMS Subsidiaries has issued any capital stock or other equity
securities. The Seller Shares constitute all of the issued and outstanding
capital stock of the DMS Shares Companies. The JCPIIG Sub Shares constitute all
of the issued and outstanding capital stock of the JCPIIG Subsidiary Companies.
All of the outstanding capital stock of each of the DMS Companies and each of
the DMS Subsidiaries was duly authorized and validly issued and is fully paid
and nonassessable. There are no subscriptions, options, warrants, preemptive
rights or other rights of any kind to purchase or otherwise receive (upon
conversion, exchange or otherwise) any capital stock or other equity securities
of any of the DMS Companies or the DMS Subsidiaries, and there are no
convertible securities or other contracts, commitments, agreements,
understandings, arrangements or restrictions by which any DMS Company or DMS
Subsidiary is bound to issue any additional shares of its capital stock. There
are no (i) voting trusts or other agreements with respect to the voting of
capital stock of any DMS Company or DMS Subsidiary or (ii) bonds, debentures,
notes or other indebtedness of any DMS Company or DMS Subsidiary having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which the stockholders of such DMS Company or
DMS Subsidiary may vote. All of the outstanding capital stock of the DMS Shares
Companies is owned beneficially and of record by the Seller, all of the
outstanding capital stock of JCPIIG Subsidiary Companies is owned beneficially
and of record by the Seller or JCPIIG, as the case may be, and all of the
outstanding capital stock of each DMS Subsidiary is owned beneficially and of
record by the Seller, one of the DMS Companies or another DMS Subsidiary, in
each case
15
free and clear of any Lien or Encumbrance (other than Liens created by the
Purchaser and any restrictions on transferability under applicable securities
Laws).
(e) Ownership of Other Entities. Except as set forth on Section 2.2(e) of
---------------------------
the Disclosure Schedule and except for the DMS Subsidiaries and securities held
by the Insurance Subsidiaries in their respective investment portfolios, none of
the DMS Companies or the DMS Subsidiaries owns, directly or indirectly, any
capital stock or other equity securities of any corporation, partnership,
limited liability company or other organized business entity.
(f) Financial Statements.
--------------------
(i) The Seller has made available to the Purchaser the audited
consolidated balance sheets of the Seller as of December 31, 1998 and December
31, 1999 and the related audited consolidated statements of operations and cash
flows of the Seller for the periods then ended and the unaudited balance sheet
of the Seller as of September 30, 2000 and the related unaudited statements of
operations and cash flow of the Seller for the periods then ended and will
furnish to the Purchaser, promptly after the same are prepared in the ordinary
course of the Seller's business, (A) the audited consolidated balance sheet of
the Seller as of December 31, 2000 and the related audited consolidated
statements of operations and cash flows of the Seller for the period then ended
and (B) the unaudited consolidated balance sheet of the Seller as of the last
day of each quarterly period ending after December 31, 2000 but prior to the
Closing Date and the related unaudited consolidated statements of operations and
cash flows of the Seller for the periods then ended, in each case to the extent
the same are prepared by the Seller in the ordinary course of its business prior
to the Closing Date (collectively, with the related notes, the "Financial
Statements"). The Financial Statements present or will present fairly in all
material respects the consolidated financial position of the Seller as of the
dates thereof and the consolidated results of operations, changes in
stockholders' equity and cash flows of the Seller for the periods then ended
(subject, in the case of unaudited quarterly statements, to normal year-end
adjustments) in conformity with United States generally accepted accounting
principles, consistently applied ("GAAP"), except as set forth in Section 2.2(f)
of the Disclosure Schedule or in the notes to the Financial Statements.
(ii) The Seller has made available to the Purchaser true and complete
copies of the annual and quarterly statements of each of the Insurance
Subsidiaries as filed with the insurance regulatory authority of the
jurisdictions of domicile of such Insurance Subsidiaries for the years ended
December 31, 1998 and December 31, 1999 and the quarterly periods ended March
31, 2000, June 30, 2000 and September 30, 2000, and the Seller will promptly
furnish to the Purchaser all reports filed with such insurance regulatory
authority after the date hereof but prior to the Closing Date (collectively, the
"SAP Statements"). The SAP Statements present or will present fairly in all
material respects the admitted assets, liabilities and surplus of each Insurance
Subsidiary at the end of each of the periods then ended, and the results of
operations and changes in its surplus for each period then ended in conformity
with the statutory accounting practices prescribed or permitted by the insurance
regulatory authority of the jurisdictions of domicile of such Insurance
Subsidiaries ("SAP"), applied on a consistent basis, except as set forth in
Section 2.2(f) of the Disclosure Schedule or in the notes to the year-end SAP
Statements.
16
(g) Absence of Certain Changes or Events. Except as set forth on Section
------------------------------------
2.2(g) to the Disclosure Schedule and for matters arising out of or relating to
this Agreement and the transactions contemplated hereby, since December 31, 1999
(i) each of Seller, the DMS Companies and the DMS Subsidiaries has conducted its
respective business in the ordinary course consistent with past practice and
none of the Seller, DMS Companies or the DMS Subsidiaries has taken any action
which would have constituted a violation of Section 4.1, if Section 4.1 had
applied, since December 31, 1999, and (iii) there has not been any change, event
or occurrence that has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; provided, however, that this
representation shall not extend to a termination or threatened termination after
the date of this Agreement by a business partner of the Seller of its
relationship with the Seller, and for purposes solely of this Section 2.2(g) any
such termination or threatened termination shall not constitute a Material
Adverse Effect.
(h) Compliance with Laws. Except as set forth on Section 2.2(h) to the
--------------------
Disclosure Schedule, the business and operations of the Seller and the DMS
Companies and the DMS Subsidiaries have been conducted in compliance with all
applicable Laws, except where such noncompliance, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Notwithstanding the generality of the foregoing, except as set forth in Section
2.2(h) to the Disclosure Schedule and except where the failure to do so would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, each Insurance Subsidiary has marketed, sold and issued
insurance products in compliance with all applicable Laws and all applicable
orders and directives of insurance regulatory authorities and market conduct
recommendations resulting from market conduct examinations of insurance
regulatory authorities in the respective jurisdictions in which such products
have been sold, including, without limitation, in compliance with all applicable
requirements relating to (A) the disclosure of the nature of insurance products
as policies of insurance, (B) insurance product projections, and (C) the
underwriting, marketing, sale and issuance of, or the refusal to sell, any
insurance product, including industrial life insurance and other small face
amount insurance policies, to insureds or potential insureds of any race, color,
creed or national origin. The DMS Companies and the DMS Subsidiaries have filed
all reports required to be filed with any Governmental Entity (including self-
regulatory organizations) as to which the failure to file such reports would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, and no material deficiencies have been asserted by, nor have any
material comments been received from, nor any material penalties imposed by, any
Governmental Entity with respect to such filings. The DMS Companies and the DMS
Subsidiaries have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of the business of the
DMS Companies and the DMS Subsidiaries, except for permits, certificates,
licenses, approvals and other authorizations the failure of which to have would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect and except for such permits, certificates, licenses, approvals
and other authorizations required to be obtained in connection with the
consummation of the transactions contemplated hereby.
(i) Litigation. Except as set forth in Section 2.2(i) of the Disclosure
----------
Schedule, there are no Legal Proceedings pending or, to the knowledge of the
Seller and the Parent, threatened to which any of the DMS Companies or the DMS
Subsidiaries is or may be a party, except for Legal Proceedings which would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. None of the DMS Companies or the DMS Subsidiaries is
17
subject to or bound by any judgment, order, writ, injunction, decree, award or
other decision of any Governmental Entity, except for those which would not (i)
materially restrict its ability to conduct its business in the ordinary course
of business consistent with past practice or (ii) reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
(j) Tangible Personal Property.
--------------------------
(i) Except (A) with respect to the Owned Real Property and the Leased
Real Property (which are the subject of Section 2.2(k)) and (B) for assets sold
in the ordinary course of business since the most recent consolidated balance
sheet of the Seller included in the Financial Statements, the Seller, a DMS
Company or a DMS Subsidiary owns all material tangible assets, including without
limitation any bonds, stocks, mortgage loans or other investments that are
carried on the books and records of the Insurance Subsidiaries (the "Investment
Assets"), reflected on the most recent consolidated balance sheet of the Seller
included in the Financial Statements as being owned by the Seller or any of its
Subsidiaries, and all material tangible assets thereafter purchased or acquired
by the Seller, a DMS Company or a DMS Subsidiary, free and clear of any Lien or
Encumbrance, except for (v) Liens or Encumbrances that are listed or described
in Section 2.2(j) of the Disclosure Schedule, (w) mechanics', carriers',
workers', repairmen's liens or other Liens or Encumbrances arising or incurred
in the ordinary course of business which do not materially detract from the
value of such property or materially impair the use of the property subject
thereto as presently used, (x) Liens or Encumbrances for Taxes, assessments and
other similar governmental charges which are not due and payable or which may
thereafter be paid without penalty, and (y) other Liens or Encumbrances arising
as a matter of Law, if any, which do not materially detract from the value of
such property and do not materially impair the use of the property subject
thereto as presently used. (The items referred to in clauses (v) through (y) of
the immediately preceding sentence are referred to as "Permitted Liens.") At the
Closing, the Purchaser will acquire title to any tangible assets included in the
Other Assets and the JCPIIG Assets, free and clear of any Lien or Encumbrance
other than any Lien or Encumbrance created by the Purchaser and Permitted Liens.
(ii) The annual statements of each Insurance Subsidiary for the years
ended December 31, 1999 and 2000 set forth, or will set forth, accurate and
complete lists of all Investment Assets owned by such Insurance Subsidiary as of
December 31, 1999 and 2000, respectively, together with the cost basis book or
amortized value, as the case may be, of such Investment Assets as of December
31, 1999 and 2000, respectively to the extent that such annual statements
include such lists of Investment Assets.
(k) Real Property. Section 2.2(k) of the Disclosure Schedule lists all
-------------
real property owned in fee by any DMS Company or any DMS Subsidiary (the "Owned
Real Property") or leased by any DMS Company or any DMS Subsidiary as lessee
(the "Leased Real Property"). A DMS Company or a DMS Subsidiary owns the Owned
Real Property and title to the leasehold interests in the Leased Real Property
(subject to the terms of the applicable leases, subleases and related
instruments governing its interests therein), free and clear of all Liens or
Encumbrances other than (i) Liens or Encumbrances listed or described in Section
2.2(k) of the Disclosure Schedule, (ii) Permitted Liens, (iii) Liens or
Encumbrances that arise under zoning, land use and other similar Laws and other
imperfections of title or encumbrances, if any, which do not
18
materially detract from the value of such property or materially impair the use
of the property subject thereto as presently used, and (iv) easements,
covenants, rights-of-way and other encumbrances or restrictions, whether
recorded or referred to in an applicable lease or unrecorded, which do not
materially detract from the value of such property or materially impair the use
of the property subject thereto as currently used. The Seller does not own any
Owned Real Property or have title to the leasehold interests in any Leased Real
Property.
(l) Intellectual Property.
---------------------
(i) Section 2.2(l) of the Disclosure Schedule sets forth a true and
complete list of all material trade names, trademarks, service marks, logos,
registered copyrights, and patents (including registrations and applications to
register or renew the registration of any of the foregoing) and computer
software currently used by the Seller, the DMS Companies and the DMS
Subsidiaries in connection with the conduct of the Business (excluding computer
software that is (A) licensed directly to a DMS Company or a DMS Subsidiary by a
Person other than the Parent and (B) commercially available to the general
public and readily replaceable) (the "Listed Intellectual Property"). The
Seller, a DMS Company or a DMS Subsidiary owns, or has valid rights to use, free
and clear of any Lien or Encumbrance (other than Permitted Liens), all
Transferred Intellectual Property and Website Materials, except where the
failure to own, or have valid rights to use, such Transferred Intellectual
Property or Website Materials would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. None of the Parent,
the Seller, any DMS Company or any DMS Subsidiary has received written notice
(other than notices that have been resolved, withdrawn or abandoned) that the
Seller, any DMS Company or any DMS Subsidiary is, and, to the knowledge of the
Seller and the Parent, none of the Seller, any DMS Company or any DMS Subsidiary
is, infringing or otherwise acting in conflict with the rights of any other
person in respect of the Transferred Intellectual Property or the Website
Materials. Except to the extent specified in Section 2.2(l) of the Disclosure
Schedule, upon the Closing the Purchaser will own or have valid rights to use
all of the Listed Intellectual Property that is not a Retained Asset and all
other Transferred Intellectual Property and the Website Materials free and clear
of any Lien or Encumbrance other than any Lien or Encumbrance created by the
Purchaser and Permitted Liens.
(ii) Section 2.2(l) of the Disclosure Schedule sets forth a list of
(A) all licenses and other agreements to which the Seller, a DMS Company or DMS
Subsidiary is a party and pursuant to which the Seller, a DMS Company or a DMS
Subsidiary has granted to any other Person the right to use any Transferred
Intellectual Property and (B) all licenses and other agreements to which the
Seller, a DMS Company or DMS Subsidiary is a party and pursuant to which the
Seller or a DMS Company or a DMS Subsidiary is authorized to use any Transferred
Intellectual Property. To the knowledge of the Seller and the Parent, there is
no unauthorized use, infringement or misappropriation by any third party of any
Transferred Intellectual Property. To the knowledge of the Seller and the
Parent, all registered trademarks and service marks, registered copyrights, and
patents included in the Transferred Intellectual Property and listed in Section
2.2(l) of the Disclosure Schedule are valid and subsisting and, except as set
forth in Section 2.2(l) of the Disclosure Schedule, there are no actions that
must be taken within 180 days following the Closing that, if not taken, will
result in the loss of rights of registration or applications to register any of
the Transferred Intellectual Property. Except as set forth in Section 2.2(l) of
the Disclosure Schedule, all of the rights and interests possessed by the
Seller,
19
the DMS Companies or DMS Subsidiaries in the Transferred Intellectual Property
are fully and completely transferable to the Purchaser in connection with the
transactions contemplated hereby, without the consent or approval of any third
party. The DMS Companies and the DMS Subsidiaries are in compliance with their
respective privacy policies. The JC Penney Customer Information (as defined in
the License Agreement) used by the DMS Companies and the DMS Subsidiaries in
connection with the conduct of the Business was provided to the DMS Companies
and the DMS Subsidiaries in compliance with Law. The information the Seller has
received under the Program Agreement from Monogram Bank was received in
compliance with Law.
(m) Contracts. Section 2.2(m) of the Disclosure Schedule lists or
---------
describes each legally binding contract, agreement, lease, commitment,
arrangement or license (collectively, "Contracts") to which the Seller, a DMS
Company or a DMS Subsidiary is a party or by which it is bound as of the date
hereof that is of a type described below:
(i) Any employment, severance or consulting Contract with an
employee or former employee that is not terminable at will by the Seller, the
DMS Company or the DMS Subsidiary party thereto, and which will require the
payment of amounts by the Seller, the DMS Company or the DMS Subsidiary, as
applicable, after the date hereof in excess of $250,000 per annum;
(ii) Any collective bargaining Contract with any labor union
(collectively, "Collective Bargaining Agreements");
(iii) Any Contract for capital expenditures or the acquisition or
construction of fixed assets which requires aggregate future payments in excess
of $500,000;
(iv) Any Contract requiring aggregate future payments or
expenditures in excess of $500,000 and relating to cleanup, abatement,
remediation or similar actions in connection with environmental liabilities;
(v) Any license, royalty Contract or other Contract with respect to
Intellectual Property which, pursuant to the terms thereof, requires future
payments by a DMS Company or a DMS Subsidiary in excess of $500,000 per annum;
(vi) Any indenture, mortgage, loan or credit Contract under which a
DMS Company or a DMS Subsidiary has outstanding indebtedness or any outstanding
note, bond, indenture or other evidence of indebtedness for borrowed money, or
guaranteed indebtedness for money borrowed by others in an amount greater than
$500,000;
(vii) Any Contract under which a DMS Company or a DMS Subsidiary is
(A) a lessee of real property, (B) a lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by any other
Person, (C) a lessor of real property, or (D) a lessor of any tangible personal
property owned by the applicable DMS Company or a DMS Subsidiary, in any case
referred to in clauses (B) or (D) only which requires annual payments in excess
of $500,000;
20
(viii) Any Contracts for the sale of any of its assets or properties
or for the grant to any Person of any preferential rights to purchase or use any
of its assets or properties in each case involving assets or properties with a
book value in excess of $1,000,000 other than Contracts for the sale of
Investment Assets in the ordinary course consistent with past practice;
(ix) Any joint venture, partnership or joint marketing agreements
involving the commitment or contribution of funds in an amount in excess of
$500,000 per annum;
(x) Any Contract between any Insurance Subsidiary and any agent or
other distributor of Insurance Policies under which the service fees paid by
such Insurance Subsidiary during the last twelve months exceeded $500,000;
(xi) Any Contracts and other agreements containing provisions or
covenants (A) limiting the ability of any DMS Company or DMS Subsidiary to (x)
sell any products or services, (y) engage in any line of business, or (z)
compete with or obtain products or services from any Persons, or (B) limiting
the ability of any Person to compete with or provide products or services to any
DMS Company or DMS Subsidiary; and
(xii) Any Contract (other than Contracts of the type described in
subclauses (i) through (xi) above) that involves aggregate future payments by or
to a DMS Company or a DMS Subsidiary in excess of $500,000 per annum, other than
a purchase or sales order or other Contract entered into in the ordinary course
of business consistent with past practice.
Except as identified in Section 2.2(m) of the Disclosure Schedule, the Seller
has made available to the Purchaser a true and complete copy of each Contract
listed in Section 2.2(m) of the Seller Disclosure Schedule. To the knowledge of
the Seller and the Parent, each Contract listed in Section 2.2(m) of the
Disclosure Schedule is a valid and binding obligation of each other Person that
is a party thereto. Assuming each such Contract is a valid and binding
obligation of each other Person that is a party thereto, each such Contract is a
valid and binding obligation of the Seller or the DMS Company or DMS Subsidiary
party thereto and is in full force and effect. The Seller, the DMS Company or
the DMS Subsidiary party thereto, has performed in all material respects the
obligations required to be performed by it under each of such Contracts and is
not (with or without the lapse of time or the giving of notice or both) in
breach or default, in any material respect, thereunder. To the knowledge of the
Seller and the Parent, no other Person that is a party to such a Contract is in
or has been claimed by Seller, Parent, a DMS Company or a DMS Subsidiary to be
in breach or default in any material respect thereunder.
(n) Benefit Plans. As used in this Agreement, (i) the term "Benefit Plan"
-------------
means each employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and each other
material benefit or compensation plan, program or arrangement, other than any
plan, program or arrangement mandated by Law, which is maintained or contributed
to by the Parent, the Seller, any DMS Company or any DMS Subsidiary (or to which
a DMS Company or a DMS Subsidiary is obligated to contribute) for the benefit of
any current or former employee, officer or director of any DMS Company or any
DMS Subsidiary. Section 2.2(n) of the Disclosure Schedule lists or describes
each material Benefit Plan. The Seller has furnished or made available to the
Purchaser an accurate copy of the plan document and summary plan description of
each Benefit Plan. With respect to any Benefit Plan
21
that is sponsored solely by the Seller, a DMS Company and/or a DMS Subsidiary (a
"Company Plan") and any other Benefit Plan which is a defined benefit plan, the
Seller has furnished the Purchaser the most recent annual report, financial
statement and actuarial valuation, if any, with respect to such Company Plan. In
addition, with respect to any Company Plan, the Seller has furnished to
Purchaser the trust agreement, the insurance contract or other funding
arrangement or agreement, or material employee communications and, where
applicable, the IRS determination letter. Except as specified in Section 2.2(n)
of the Disclosure Schedule, or as would not reasonably be expected to have a
Material Adverse Effect:
(i) neither the Parent nor any member of the Parent's "controlled
group", within the meaning of Sections 414(b) and (c) of the Code, has incurred
any direct or indirect liability under ERISA or the Code in connection with the
termination of, withdrawal from or failure to fund any Benefit Plan that could
result in liability to a DMS Company or a DMS Subsidiary, and no event has
occurred that could reasonably be expected to give rise to such liability;
(ii) none of the Company Plans provides for payment of a benefit,
the increase of a benefit amount, the payment of a contingent benefit or the
acceleration of the payment or vesting of a benefit by reason of the execution
of this Agreement or the consummation of the transactions contemplated by this
Agreement;
(iii) no acceleration of the vesting schedule for any property that
is substantially unvested within the meaning of the regulations under Section 83
of the Internal Revenue Code of 1986, as amended (the "Code"), will occur in
connection with the transactions contemplated by this Agreement;
(iv) there are no pending, threatened, or to the knowledge of the
Seller, anticipated claims relating to any Company Plan, other than routine
claims for benefits;
(v) each of the Company Plans has been operated and maintained in
accordance with its terms and with the requirements of applicable Law;
(vi) none of the Company Plans is a multiemployer plan within the
meaning of Section 3(37) of ERISA;
(vii) each Benefit Plan which is intended to be "qualified" within
the meaning of Section 401(a) of the Code is so qualified and has received a
determination letter from the Internal Revenue Service to such effect, and
neither the Parent nor the Seller is aware of any circumstances likely to result
in the revocation of such determination letter;
(viii) all contributions required to be made by any DMS Company or
DMS Subsidiary to each Benefit Plan have been timely made, and all contributions
that have accrued but are not yet due are reflected on the Closing Date Balance
Sheet;
(ix) no Benefit Plan has any "amount of unfunded benefit liability"
within the meaning of Section 4001(a)(18) of ERISA;
22
(x) neither the Seller nor any DMS Company, DMS Subsidiary, or any
Affiliate of the Seller is a party to any agreement or arrangement that would
result separately or in the aggregate in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code;
(xi) none of the DMS Companies nor the DMS Subsidiaries has any
obligations for, or any liabilities with respect to, post-employment medical,
life, or similar welfare benefits except for benefits required to be provided
under Section 4980B of the Code; and
(xii) no payments or benefits under any Benefit Plan will be subject
to the deduction limits of Section 162(m) of the Code.
(o) Taxes. Except as specified in Section 2.2(o) of the Disclosure
-----
Schedule:
(i) the Seller, each DMS Tax Company (as defined in Section
4.6(o)(iv)) and each DMS Subsidiary has timely filed (or the Parent has timely
filed or caused to be filed on behalf of the Seller, each DMS Tax Company, each
DMS Subsidiary or with respect to the JCPIIG Assets or the Other Assets) all
material Tax Returns required (taking into account for this purpose any
extensions) to be filed by such party or that relate to, include or could affect
the JCPIIG Assets or the Other Assets (including the consolidated federal income
tax return of the Seller and all state Tax Returns that are filed on a
consolidated, combined or unitary basis and that include the Seller, any DMS Tax
Company, any DMS Subsidiary or that relate to, include or could affect the
JCPIIG Assets or the Other Assets ) all such Tax Returns are correct and
complete in all material respects, and a DMS Tax Company or a DMS Subsidiary has
timely paid or withheld all material Taxes (including estimated Taxes) shown to
be due and payable on such Tax Return or otherwise payable by or on behalf of
any DMS Tax Company, any DMS Subsidiary or with respect to the JCPIIG Assets or
the Other Assets to the appropriate Taxing Authority;
(ii) none of the Parent or any Affiliate thereof has received
written notice of any threatened Tax audit, examination, refund litigation or
adjustment in controversy with respect to the Seller, any DMS Tax Company, any
DMS Subsidiary or the JCPIIG Assets or the Other Assets;
(iii) no adjustment relating to any DMS Tax Company or DMS
Subsidiary Tax Return or that relates to, includes or could affect the JCPIIG
Assets or the Other Assets has been proposed formally by any Taxing Authority
(insofar as either relates to the activities or income of any DMS Tax Company,
any DMS Subsidiary, the JCPIIG Assets or the Other Assets or could result in
liability of any DMS Tax Company, any DMS Subsidiary or with respect to the
JCPIIG Assets or the Other Assets) and, to the knowledge of the Seller and the
Parent, no such proposed adjustment relating to any material Tax liability has
been otherwise communicated;
(iv) all material Taxes which the Seller, any DMS Tax Company or
any DMS Subsidiary has been required to collect or withhold with respect to the
Seller, any DMS Tax Company, any DMS Subsidiary or with respect to the JCPIIG
Assets or the Other Assets have
23
been duly collected or withheld and, to the extent required when due, have been
or will be duly and timely paid to the proper Taxing Authority;
(v) the Seller has delivered to the Purchaser a correct and
complete copy of any Tax sharing or Tax allocation agreement or arrangement
involving any DMS Tax Company or any DMS Subsidiary and a correct and complete
description of any such unwritten agreement or arrangement;
(vi) no consent under Section 341(f) of the Code has been filed
with respect to any DMS Tax Company or any DMS Subsidiary;
(vii) there are no material Tax liens on any assets of any DMS Tax
Company, any DMS Subsidiary, the JCPIIG Assets or the Other Assets;
(viii) each DMS Tax Company and each DMS Subsidiary that is a U.S.
corporation for U.S. federal income tax purposes has been and continues to be a
member of the affiliated group (within the meaning of Section 1504(a)(1) of the
Code) for which the Parent files a consolidated return as the common parent, and
has not been includible in any other consolidated return for any Tax period for
which the statute of limitations has not expired;
(ix) no DMS Tax Company nor any DMS Subsidiary has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code;
(x) there are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any material Tax to which
any DMS Tax Company, any DMS Subsidiary, the JCPIIG Assets or the Other Assets
may be subject;
(xi) no DMS Tax Company nor any DMS Subsidiary (A) has or is
projected to have an amount includible in its income for the most recent Tax
year or portion thereof ending on or before the Closing Date under Section 951
of the Code, (B) has been a passive foreign investment company within the
meaning of Section 1296 of the Code, (C) has an unrecaptured overall foreign
loss within the meaning of Section 904(f) of the Code or (D) has participated in
or cooperated with an international boycott within the meaning of Section 999 of
the Code;
(xii) no power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes that could affect any DMS
Tax Company, any DMS Subsidiary, the JCPIIG Assets or the Other Assets;
(xiii) the Seller will have delivered to the Purchaser (A) correct
and complete copies of all material federal, state and foreign income, franchise
and similar Tax Returns for the three-year period prior to the Closing Date and
(B) correct and complete copies of all examination reports and statements of
deficiencies assessed against or agreed to by any DMS Tax Company or any DMS
Subsidiary (or by the Parent or the Seller with respect to any DMS Tax Company,
DMS Subsidiary, the JCPIIG Assets or the Other Assets) for the three-year period
prior to the Closing Date;
24
(xiv) reserves and allowances (other than those with respect to
deferred Taxes) will be provided on the Estimated Balance Sheets and on the
Closing Date Balance Sheets, in each case adequate to satisfy all material
liabilities for Taxes relating to each DMS Tax Company, each DMS Subsidiary, the
JCPIIG Assets and the Other Assets for periods through the Closing Date;
(xv) no DMS Tax Company nor any DMS Subsidiary has any (A) income
reportable for a period ending after the Closing Date but attributable to a
transaction (e.g., an installment sale) occurring in or a change in accounting
method made for a period ending on or prior to the Closing Date which resulted
in a deferred reporting of income from such transaction or from such change in
accounting method or (B) gain or loss arising out of any intercompany
transaction that has not been taken into account pursuant to Treasury Regulation
Section 1.1502-13;
(xvi) there are no requests for information currently outstanding
that could materially and directly affect the Taxes of any DMS Tax Company, any
DMS Subsidiary, the JCPIIG Assets or the Other Assets;
(xvii) there are no proposed reassessments of any property owned by
any DMS Tax Company or any DMS Subsidiary or other proposals that could increase
the amount of any material Tax to which any DMS Tax Company, any DMS Subsidiary,
the JCPIIG Assets or the Other Assets would be subject;
(xviii) no DMS Tax Company nor any DMS Subsidiary is obligated under
any agreement with respect to industrial development bonds, with respect to
which the excludability of interest from gross income of the holder for federal
income tax purposes could be adversely affected by the transactions contemplated
hereunder.
As used in the foregoing clauses, (A) "Taxes" shall mean (i) all taxes
(including estimated taxes), fees, levies or other assessments, imposed by the
United States, or any state, country, local or foreign government or subdivision
or agency thereof including, without limitation, income, gross receipts, excise,
real and personal property, withholding, premiums, municipal, capital, value-
added, goods and services, consumption, sales, transfer, license, payroll and
franchise taxes, and such term shall include any interest, penalties or
additions to tax attributable to such taxes, fees, levies or other assessments
and (ii) any liability of any DMS Tax Company, any DMS Subsidiary (or, in each
case, any predecessor or successor in interest thereto by merger or otherwise)
or that could affect the JCPIIG Assets or the Other Assets, as the case may be,
for the payment of any amounts of the type described in the preceding clause (i)
for any tax period resulting from the application of Treasury Regulation Section
1.1502-6 or, in the case of any similar provision applicable under state, local
or foreign Law; notwithstanding the foregoing, "Taxes" shall not include (x)
guarantee fund or similar assessments or (y) fees or assessments prescribed by
any insurance regulatory agency; (B) "Tax Returns" shall mean any report, return
or other information required to be supplied to any Taxing Authority in
connection with Taxes; and (C) "Taxing Authority" shall mean the Internal
Revenue Service and any other domestic or foreign Governmental Entity
responsible for the administration of any Tax.
25
(p) Insurance Business.
------------------
(i) Section 2.2(p) of the Disclosure Schedule contains a list of
all material Contracts to which any Insurance Subsidiary is a party with respect
to reinsurance applicable to insurance in force on the date of this Agreement
and all material Contracts under which any Insurance Subsidiary has any
obligation to cede insurance. To the knowledge of the Seller and the Parent,
each Contract listed in Section 2.2(p) of the Disclosure Schedule is a valid and
binding obligation of each other Person that is a party thereto. Assuming all of
such Contracts are valid and binding obligations of each other Person that is a
party thereto, each such Contract is a valid and binding obligation of the
Insurance Subsidiary party thereto and is in full force and effect. Except as
disclosed in the SAP Statements, each Insurance Subsidiary is entitled to take
full credit on its SAP Statements under applicable Law for all reinsurance ceded
pursuant to any such Contract. No Insurance Subsidiary is in material default of
any provision thereof and, except as set forth in Section 2.2(p) of the
Disclosure Schedule, no such Contract contains any provision providing that the
other party thereto may terminate the same by reason of the transactions
contemplated in this Agreement or any other provision which would be altered or
otherwise become applicable by reason of such transaction. True and complete
copies of each Contract identified in Section 2.2(p) of the Disclosure Schedule
have been made available to the Purchaser. To the knowledge of the Seller and
the Parent, no other Person that is a party to any such Contract is in or has
been claimed by Seller, Parent, a DMS Company or a DMS Subsidiary to be in
breach or default of any material respect thereunder.
(ii) Except as set forth in Section 2.2(p) of the Disclosure
Schedule and as would not reasonably be expected to have a Material Adverse
Effect, all policies, binders, slips, certificates, contracts and participation
agreements and other agreements of insurance, whether individual or group, in
effect as of the date hereof (including all supplements, endorsements, riders
and ancillary agreements in connection therewith) that have been issued by the
Insurance Subsidiaries (the "Insurance Contracts"), are, to the extent required
under applicable Law, on forms approved by applicable insurance regulatory
authorities or which have been filed and not objected to by such authorities
within the period provided for objection, and such forms comply with the
Insurance Laws applicable thereto. Premium rates established by the Insurance
Subsidiaries that are required to be filed with or approved by insurance
regulatory authorities have been so filed or approved, the premiums charged
conform thereto in all material respects, and such premiums comply in all
material respects with the Insurance Laws applicable thereto.
(iii) To the knowledge of the Seller and the Parent, except as set
forth in Section 2.2(p) of the Disclosure Schedule, all Insurance Contracts
including annuity contracts, life insurance contracts and variable contracts,
issued, assumed, modified, exchanged or sold by any DMS Company or DMS
Subsidiary comply in all material respects (and have complied in all material
respects since the time of issuance, assumption, modification, exchange or sale)
with all requirements of the Code, and the rules and regulations thereunder,
relating to the qualifications and/or Tax treatment for which the Insurance
Products were intended to qualify or for which any of DMS Company or DMS
Subsidiary represented any or all of the Insurance Contracts qualified,
including Code Sections 72, 79, 101, 104, 105, 106, 125, 130, 264, 401, 402,
403, 412, 415, 419, 419A, 501, 505, 817, 1035, 7702, 7702A, and 7702B. To the
knowledge of the Seller and the Parent, except as specified in Section 2.2(p) of
the Disclosure Schedule, no life insurance contract issued, assumed, modified,
exchanged or sold by any DMS Company or any DMS
26
Subsidiary is a "modified endowment contract" within the meaning of Section
7702A of the Code, except for a life insurance contract that was issued and
administered as such.
(iv) Except as set forth in Section 2.2(p) of the Disclosure Schedule
and as would not reasonably be expected to have a Material Adverse Effect, in
providing record keeping and administrative services with respect to customers'
Insurance Contracts, whether individual or group retirement or deferred
compensation plans or arrangements, and with respect to any life insurance or
annuity contracts issued, assumed, modified, exchanged or sold by any DMS
Company or DMS Subsidiary as of the Closing Date, each DMS Company and each DMS
Subsidiary is in compliance with the applicable administrative requirements of
the Code, including Sections 72, 401(a), 401(k), 403(b), 408(k), 408(p), 457(b),
7702 and 7702A of the Code and the rules and regulations thereunder, and, to the
extent applicable, the requirements of Parts 2, 3 and 4 of Title I of ERISA.
(q) Threats of Cancellation. Except as disclosed in Section 2.2(q) of the
-----------------------
Disclosure Schedule and except for terminations at maturity or in the ordinary
course of business, from December 31, 1999 to the date of this Agreement, no
individual policyholder (or individual party to a joint agreement), or
telemarketing firm, agent or other distributor of the Insurance Contracts,
which, in any case, individually or in the aggregate, accounted for $10,000,000
or more of the total revenue of all the Insurance Subsidiaries for the year
ended December 31, 1999 has terminated or, to the knowledge of the Seller and
the Parent, has given notice of or otherwise threatened termination of, its
relationship with the Seller, any DMS Company or any DMS Subsidiary, as
applicable.
(r) Insurance Liabilities and Reserves.
----------------------------------
(i) The reserves carried on the SAP Statements of each Insurance
Subsidiary for future insurance policy benefits, losses, claims, expenses and
similar purposes were, as of the date of such SAP Statements, in compliance in
all material respects with the requirements for reserves established by the
insurance department or insurance regulatory statutes of the jurisdiction of
domicile of such Insurance Subsidiary, were determined in all material respects
in accordance with statutory accounting principles consistently applied, and
were fairly stated in accordance with sound actuarial principles. Such reserves
were in the aggregate adequate to cover the total amount of all reasonably
anticipated liabilities of each Insurance Subsidiary under all outstanding
insurance and reinsurance agreements or contracts as of the respective dates of
such SAP Statements. The admitted assets of each Insurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the minimum
amounts required by applicable Laws. The Seller has delivered to the Purchaser
true, correct and complete copies of any actuarial valuation opinions and
reports delivered to the insurance department of the domiciliary jurisdiction of
each Insurance Subsidiary for the periods covered by the SAP Statements.
(ii) The Seller has made available to the Purchaser true, complete and
correct copies of all analyses, reports and other data prepared or submitted by
any Insurance Subsidiary to insurance regulatory authorities relating to risk
based capital calculations or IRIS ratios for the years ended December 31, 1999
and 1998.
27
(iii) Except for regular periodic assessments in the ordinary course
of business or except as set forth in Section 2.2(r) of the Disclosure Schedule,
no material claim or assessment is pending or, to the knowledge of the Seller
and the Parent, threatened against any Insurance Subsidiary by any state
insurance guaranty association in connection with such association's fund
relating to insolvent insurers.
(iv) The Seller has made available to the Purchaser true and
complete copies of all reports rendered by any consulting actuary (or any other
Person advising the Seller as to the adequacy of the claim reserves) undertaken
by the Seller or any of the Insurance Subsidiaries with respect to the insurance
business conducted by any of such companies during the past two years for the
purpose of evaluating claims reserves. The Insurance Subsidiaries provided to
any such consulting actuary materially true and accurate data for use in
preparing any such report.
(v) The reinsurance trust (the "Reinsurance Trust") established
pursuant to the reinsurance agreement (the "Conseco Agreement") between X. X.
Xxxxxx Life Insurance Company (the "Cedent") and Conseco Senior Health Insurance
Company (the "Reinsurer") relating to the Cedent's block of long-term care
insurance policies is a "secured claim" or a "special deposit claim" under
Section 11-103 of the insurance Laws of the Commonwealth of Pennsylvania for
purposes of any insolvency proceedings commenced against the Reinsurer during
the period in which amounts may be owed to Cedent under the Conseco Agreement.
(s) Insurance. The insurance maintained by the Parent and the Seller with
---------
respect to each of the DMS Companies and the DMS Subsidiaries insures against
risks and liabilities to the extent and in the manner reasonably deemed
appropriate and sufficient by the Parent. Section 2.2(s) of the Disclosure
Schedule sets forth a list of the title insurance policies covering the Owned
Real Property assets, including the named insured, date and amount of insurance.
(t) Environmental Matters. Except as would not reasonably be expected to
---------------------
have, individually or in the aggregate, a Material Adverse Effect and except as
set forth in Section 2.2(t) of the Disclosure Schedule:
(i) the Seller, each DMS Company, DMS Subsidiary and, as
applicable, each of the Owned Real Property assets is in compliance with all
applicable Environmental Laws;
(ii) the properties formerly owned or operated by the Seller, any
DMS Company, and any DMS Subsidiary, to the knowledge of the Seller and the
Parent, do not contain any Hazardous Materials which would reasonably be
expected to require remediation or otherwise give rise to liabilities under any
Environmental Law;
(iii) to the knowledge of the Seller and the Parent, none of the
Seller, any DMS Company, any DMS Subsidiary and, as applicable, any of the Owned
Real Property assets are subject to liability arising from the release of any
Hazardous Materials at any other location;
(iv) none of the Seller, any DMS Company, DMS Subsidiary and, as
applicable, any of the Owned Real Property assets are subject to any existing or
pending claims, suits, settlement agreements, consent orders, or notices, from
any Governmental Entities, alleging responsibility or liability under any
Environmental Law; and
28
(v) to the knowledge of the Seller and the Parent, there are no
Hazardous Materials present on, under, in or from any of the Owned Real Property
assets that would require remediation or otherwise give rise to liabilities
under any Environmental Law.
As used in this Section 2.2(t), the term "Environmental Law" means any and all
federal, state, local or foreign statutes, laws (including common law),
regulations, ordinances, rules, judgments, orders, decrees, codes and any
binding administrative or judicial interpretation thereof relating to the
protection of the environment (including indoor or outdoor ambient air, surface
water, groundwater, drinking water, soils and subsurface strata, biota and
natural resources) and health and safety, including without limitation those
pertaining to the use, generation, emission, discharge, handling, storage,
processing, transportation, treatment or disposal of Hazardous Materials. As
used in this Section 2.2(t), the term "Hazardous Materials" means pollutants,
contaminants, petroleum or petroleum products, asbestos, polychlorinated
biphenyls or flammable, corrosive, radioactive, reactive, hazardous or toxic
substances, materials, products, compounds, chemicals or wastes or any other
substances, materials or wastes that are defined or characterized under
Environmental Law as "hazardous" or "toxic."
(u) Collective Bargaining; Labor Disputes; Compliance. The employees of
-------------------------------------------------
the DMS Companies and the DMS Subsidiaries are not represented by any unions.
Except as set forth in Section 2.2(u) of the Disclosure Schedule, none of the
DMS Companies or DMS Subsidiaries is currently, nor has been during the past
three years, the subject of any certification or decertification organization
drive. None of the DMS Companies or DMS Subsidiaries is currently, nor has been
during the past three years, the subject of any strike relating to any of the
DMS Companies or DMS Subsidiaries nor, to the knowledge of the Seller and the
Parent, is any such activity threatened. Each of the DMS Companies has complied
with all Laws relating to the employment and safety labor, including provisions
relating to wages, hours, benefits, collective bargaining and all applicable
occupational safety and health Laws except, in each case, where the failure to
be in compliance would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
(v) Ratings. To the knowledge of the Seller and the Parent, no rating
-------
agency has imposed any conditions on retaining any rating assigned to the Seller
or any Insurance Subsidiary or as of the date hereof is reviewing any such
rating for a potential downgrade.
(w) No Undisclosed Liabilities. Except for (i) liabilities set forth in
--------------------------
Section 2.2(w) of the Disclosure Schedule, (ii) liabilities that are reflected,
or for which reserves were established, on the consolidated balance sheet of the
Seller as of December 31, 1999 included in the Financial Statements, (iii)
liabilities incurred in the ordinary course of business consistent with past
practice since December 31, 1999 and (iv) liabilities arising under this
Agreement, neither the Seller nor any DMS Company nor any DMS Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), other than liabilities or obligations which would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
(x) Investment Company. Except as specified in Section 2.2(x) of the
------------------
Disclosure Schedule, no DMS Company nor any DMS Subsidiary has issued any
annuity contract or life insurance policy that is intended to qualify as a
"variable contract" within the meaning of Code
29
Section 817 or as a "modified guaranteed contract" within the meaning of Code
Section 817A. None of the Insurance Subsidiaries maintains any separate
accounts. None of the DMS Companies or the DMS Subsidiaries conducts activities
of or is otherwise deemed under applicable Law to control an "investment
company" as such term is defined in Section 2(a)(20) of the Investment Company
Act of 1940 (the "1940 Act"). None of the DMS Companies or the DMS Subsidiaries
is an "investment company" as defined under the 1940 Act.
(y) Nonassignable Contracts. All Nonassignable Contracts referred to in
-----------------------
Section 1.9(a) of this Agreement and that constitute Other Assets are listed or
described in Section 2.2(y) of the Disclosure Schedule.
(z) Brokers. No broker, finder or investment banker is entitled to any
-------
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement or any of the Transaction Agreements
based upon arrangements made by or on behalf of the Parent, or its Affiliates,
other than Credit Suisse First Boston Corporation, all the fees and expenses of
which will be paid by the Seller (and will constitute an Excluded Liability).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Parent and the
Seller as follows:
Section 3.1 Organization, Standing and Corporate Power. The Purchaser is duly
------------------------------------------
organized, validly existing and in good standing as a corporation under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Purchaser is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed or to be in good standing would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Purchaser's
ability to timely perform its obligations under this Agreement or any
Transaction Agreement to which it is a party or to consummate the transactions
contemplated hereby or thereby (a "Purchaser Effect").
Section 3.2 Authority; Noncontravention. The Purchaser has the requisite
---------------------------
corporate power and authority to enter into this Agreement and the Transaction
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Purchaser of
this Agreement and the Transaction Agreements to which it is a party and the
consummation by the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Purchaser. This Agreement has been duly executed and delivered by the
Purchaser and, assuming that this Agreement constitutes a valid and binding
obligation of the Parent and the Seller, constitutes a valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors' rights and
remedies generally and to general principles of
30
equity. When the Transaction Agreements to which it is a party are duly executed
and delivered by the Purchaser and, assuming that such Transaction Agreements
constitute valid and binding obligations of the Parent and/or the Seller, as the
case may be, such Transaction Agreements will constitute valid and binding
obligations of the Purchaser, enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar Laws affecting creditors'
rights and remedies generally and to general principles of equity. The execution
and delivery by the Purchaser of this Agreement and the Transaction Agreements
to which it is a party do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, (a) conflict with any of the provisions of the certificate or
articles of incorporation or bylaws of the Purchaser, (b) violate, conflict
with, result in a breach of or default under (with or without notice or lapse of
time, or both) any contract, agreement, indenture, mortgage, deed of trust,
lease or other instrument to which the Purchaser is a party or by which the
Purchaser or any of its assets is bound or subject, or (c) subject to the
governmental approvals, consents, filings and other matters referred to in
Section 3.3, contravene any federal, state, local or foreign Law or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
which, in the case of clauses (b) and (c) above would reasonably be expected to
have, individually or in the aggregate, a Purchaser Effect.
Section 3.3 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration or filing with, or notice to, any Governmental Entity which
has not been received or made, is required by or with respect to the Purchaser
in connection with the execution and delivery of this Agreement or the
Transaction Agreements by the Purchaser or the consummation by the Purchaser of
the transactions contemplated hereby and thereby, except for (a) the filing of
appropriate documents with, and approval of, insurance regulatory authorities,
or the expiration of applicable waiting periods, in the jurisdictions set forth
in Section 3.3 of the Purchaser Disclosure Schedule, (b) compliance with the HSR
Act, and (c) any other consents, approvals, authorizations, filings or notices
which, if not made or obtained, would not reasonably be expected to have,
individually or in the aggregate, a Purchaser Effect.
Section 3.4 Investment Intent. The Shares will be acquired by the
-----------------
Purchaser for its own account without a view to a distribution or resale
thereof. The Shares will only be sold or otherwise disposed of by the Purchaser
pursuant to a registration or an exemption therefrom under the Securities Act of
1933 and any other applicable securities Laws.
Section 3.5 Sophistication of the Purchaser. The Purchaser is an
-------------------------------
"accredited investor" within the meaning of Rule 501 under the Securities Act,
has knowledge and experience in financial and business matters and is capable of
evaluating the merits and risks of the purchase of the Shares. The Seller has
provided to the Purchaser the opportunity to ask questions of the officers and
management of the Parent, the Seller and the DMS Companies with respect to the
business conducted by the DMS Companies and the DMS Subsidiaries and the
Financial Statements and the Purchaser has received all information with respect
to such matters it has requested.
Section 3.6 Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated
31
by this Agreement or any of the Transaction Agreements based upon arrangements
made by or on behalf of the Purchaser.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business. Except as expressly provided for herein,
-------------------
during the period from the date of this Agreement to the Closing, the Seller
shall, and the Parent and the Seller shall cause the DMS Companies and the DMS
Subsidiaries to, conduct the Business only in the ordinary course consistent
with past practice and, to the extent consistent therewith, to use commercially
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current key officers and employees and preserve
the goodwill of their agents, third party administrators, borrowers, business
partners, customer base, policyholder base and Persons with whom the Seller, a
DMS Company or a DMS Subsidiary has a material business relationship. The
Purchaser acknowledges that officers and employees of the DMS Companies and DMS
Subsidiaries may voluntarily terminate employment with such entities and the DMS
Companies and the DMS Subsidiaries have no control over such voluntary
terminations. The Seller will notify the Purchaser of any employment by any of
the DMS Companies or DMS Subsidiaries of any new senior sales executives or
executive officers prior to such employment. Without limiting the generality of
the foregoing, except as expressly provided for in this Agreement or as set
forth in Section 4.1 of the Disclosure Schedule, the Seller shall not, and the
Parent and the Seller shall not permit any of the DMS Companies or the DMS
Subsidiaries, without the prior consent of the Purchaser, to:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect of, any
of its outstanding capital stock (other than, in the case of a Subsidiary of a
DMS Company, to its corporate parent, (ii) split, combine or reclassify any of
its outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, or (iii) purchase, redeem or otherwise acquire any
shares of outstanding capital stock or any rights, warrants or options to
acquire any such shares;
(b) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible or exchangeable securities;
(c) amend its certificate of incorporation or bylaws (or comparable
governing documents);
(d) acquire or make any investment in any Person in an amount in
excess of $500,000 other than in the ordinary course of business consistent with
past practice or as may be required by applicable Law;
32
(e) sell, lease or otherwise dispose of any of its properties or
assets having a fair market value in excess of $100,000, except Investment
Assets in the ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money, other than
borrowings under existing credit facilities described in the Disclosure Schedule
and the incurrence of indebtedness owing to the Seller, another DMS Company or a
DMS Subsidiary in the ordinary course of business consistent with past practice,
(ii) assume, guarantee, endorse or otherwise become responsible for the
obligations of any other individual, firm or corporation (except for a guarantee
of the obligation of a DMS Company or a DMS Subsidiary), or (iii) make any loans
or advances to any other Person other than a DMS Company or a DMS Subsidiary in
the ordinary course of business consistent with past practice;
(g) enter into any compromise or settlement of, or take any other
material action with respect to, any litigation, action, suit, claim, proceeding
or investigation other than (i) the prosecution, defense and settlement of
litigation, actions, suits, claims, proceedings or investigations in the
ordinary course of business consistent with past practice, (ii) the settlement
of reinsurance Contracts or policy claims in the ordinary course of business
consistent with past practice and (iii) any payment for Taxes (which payments
are subject to Section 4.6);
(h) grant or agree to grant to any officer or employee of a DMS
Company or a DMS Subsidiary any increase in salary or bonus, severance, profit
sharing, retirement, deferred compensation, insurance or other compensation or
benefits, or establish any new compensation or benefit plans or arrangements, or
amend or agree to amend any existing Company Plans, except (i) as may be
required under existing agreements or by Law or pursuant to the normal severance
policies or practices of the applicable DMS Company or DMS Subsidiary as in
effect on the date of this Agreement, or (ii) increases in salary in the
ordinary course of business consistent with past practice not in excess of 25%
of such officer's or employee's base salary for the prior year;
(i) enter into or amend any employment, consulting, severance or
similar agreement with any individual except in the ordinary course of business
consistent with past practice;
(j) alter or amend its existing investment guidelines or policies;
(k) make any change in any Tax or accounting policy or any material
change in any Tax or accounting practice, except as required by any changes in
SAP or GAAP or applicable Law;
(l) enter into any agreement that restrains, limits or impedes any
DMS Company's or DMS Subsidiary's ability to compete with or conduct any
business or line of business;
(m) materially amend or cancel or agree to the material amendment or
cancellation of any Contract listed on Section 2.2(m) of the Disclosure
Schedule, or enter into any new Contract which would be required to be listed on
Section 2.2(m) of the Disclosure Schedule (other than the renewal of any
existing Contract);
33
(n) make any change in its underwriting, pricing or actuarial
policies or any material change in its underwriting, pricing or actuarial
practices, except as required by any changes in SAP or GAAP or applicable Law;
(o) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
in excess of $500,000, other than the payment, discharge or satisfaction of (i)
liabilities reflected or reserved against in, or contemplated by, the Financial
Statements (or the notes thereto), (ii) liabilities incurred since December 31,
1999 in the ordinary course of business consistent with past practice or (iii)
Intercompany Obligations in accordance with Section 1.7;
(p) merge or consolidate with any other Person;
(q) mortgage, pledge or subject to any lien any of its properties or
assets except in the ordinary course of business consistent with past practice;
(r) take any action or omit to take any action with the intention of
causing any of the representations or warranties contained in Article II to
become untrue; or
(s) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of this
Section 4.1.
Section 4.2 Acquisition Proposals; Inconsistent Activities.
-----------------------------------------------
(a) Acquisition Proposals. During the period from the date of this
---------------------
Agreement to the Closing, the Parent and the Seller shall not, and shall not
authorize or permit any of their respective Subsidiaries, or any of its or their
respective officers, directors, employees, agents or representatives (including
any investment banker, financial advisor, attorney or accountant retained by any
of them), to, directly or indirectly, (i) initiate or solicit any Acquisition
Proposal (as defined in Section 4.2(b)), (ii) provide any non-public information
regarding the Seller, the DMS Companies or the DMS Subsidiaries to, or enter
into or maintain or continue discussions or negotiations with, any Person that
has made an Acquisition Proposal, or (iii) enter into any agreement providing
for any Acquisition Proposal. The Seller shall immediately terminate, and shall
cause its Subsidiaries and its or their respective officers, directors,
employees, agents and representatives to terminate, all existing discussions or
negotiations, if any, with any Persons conducted heretofore with respect to, or
that could reasonably be expected to lead to an Acquisition Proposal.
(b) Definition of Acquisition Proposal. For purposes of this Agreement,
----------------------------------
the term "Acquisition Proposal" means any inquiry, proposal or offer from any
Person (other than the Purchaser or any of its Affiliates) relating to (i) any
merger, consolidation, recapitalization, liquidation or other direct or indirect
business combination involving the Seller or any DMS Company or DMS Subsidiary,
(ii) any acquisition of shares of capital stock or other equity securities of
the Seller or any DMS Company or DMS Subsidiary (other than such acquisitions by
the Seller, any DMS Company or any DMS Subsidiary), or (iii) any acquisition,
license, purchase or other disposition of a substantial portion of the business
or assets of the Seller or any DMS Company or DMS Subsidiary.
34
(c) Inconsistent Activities. During the period from the date of this
-----------------------
Agreement to the Closing, the Purchaser and its corporate parents shall not, and
shall not authorize or permit any of its Subsidiaries, or any of its or their
respective officers, directors, employees, agents or representatives, to,
propose, announce or enter into any transaction that could reasonably be
expected to have a Purchaser Effect or to materially adversely affect the
Purchaser's ability to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities as are
necessary for the consummation of the transactions contemplated hereby and to
fulfill the conditions thereto.
Section 4.3 Access to Information; Confidentiality. The Seller shall, and
--------------------------------------
shall cause the DMS Companies and the DMS Subsidiaries to, afford to the
Purchaser and its officers, employees, accountants, counsel, financial advisors
and other representatives reasonable access (subject, however, to existing
confidentiality and similar non-disclosure obligations) during normal business
hours and upon reasonable notice during the period prior to the Closing to all
of the Seller's, the DMS Companies' and the DMS Subsidiaries' properties, books,
contracts, commitments, Tax Returns and records (but not its customer database)
and shall permit them to consult with the respective officers, employees,
auditors, actuaries and attorneys of the Seller, the DMS Companies and the DMS
Subsidiaries. During such period, the Seller shall, and shall cause the DMS
Companies and the DMS Subsidiaries to, furnish as promptly as practicable to the
Purchaser (a) the actuarial valuation opinions and reports referred to in
Section 2.2(r)(i) and the analyses, reports and data referred to in Section
2.2(r)(ii) for the year ended December 31, 2000; and (b) such other information
(subject, however, to existing confidentiality and similar non-disclosure
obligations) concerning the Business and the DMS Companies' and the DMS
Subsidiaries' properties, operations and personnel as the Purchaser may from
time to time reasonably request. Except as required by Law, the Purchaser will
hold, and will cause its directors, officers, employees, accountants, counsel,
financial advisors and other representatives and Affiliates to hold, any non-
public information obtained from the Parent, the Seller, any DMS Company or any
DMS Subsidiary in confidence to the extent required by, and in accordance with
the provisions of, the agreement, dated June 19, 2000, between First AUSA Life
Company and the Parent (the "Confidentiality Agreement") with respect to
confidentiality and other matters.
Section 4.4 Commercially Reasonable Efforts; Regulatory Matters. On the
---------------------------------------------------
terms and subject to the conditions set forth in this Agreement, each of the
parties shall use commercially reasonable efforts to take, or cause to be taken,
all actions, and do, or cause to be done, and assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate,
in the most expeditious manner practicable, the transactions contemplated
hereby, including the satisfaction of the conditions set forth in Article V.
Without limiting the generality or effect of the foregoing, each of the parties
hereto shall (a) make promptly its respective filings, and thereafter make any
other required submissions, with respect to the transactions contemplated hereby
(i) under the HSR Act and (ii) with the insurance regulatory authorities in the
jurisdictions in which the Insurance Subsidiaries are, or are deemed to be,
domiciled or where the transactions contemplated by this Agreement are otherwise
subject to approval or notification, and (b) use commercially reasonable efforts
to take, or cause to be taken, all other appropriate actions, and to do, or
cause to be done, all other things necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement, including using its reasonable best efforts to obtain all
licenses, permits, consents,
35
approvals, authorizations, qualifications and orders of Governmental Entities as
are necessary for the consummation of the transactions contemplated hereby and
to fulfill the conditions thereto.
Section 4.5 Public Announcements; Communications with Business Partners.
-----------------------------------------------------------
(a) The Purchaser, the Parent and the Seller shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release, filing with the SEC or other public statements with
respect to the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation and
the receipt of the approval of the other party, except as may be required by
applicable Law, by court process or by obligations pursuant to any listing
agreement with any national securities exchange. The Purchaser, the Parent and
the Seller shall consult with each other with respect to communications with the
investment community, including conferences with, and response to inquiries
from, analysts regarding the transactions contemplated by this Agreement.
(b) From the date hereof until the Closing, the Parent and the Seller
shall, and shall cause the DMS Companies and DMS Subsidiaries to, consult with
and provide the Purchaser with a reasonable opportunity to review, comment on
and approve any material communication with the business partners of the DMS
Companies and DMS Subsidiaries that relates to the transactions contemplated by
this Agreement.
(c) From the date hereof until the Closing, the Purchaser shall, and shall
cause its Affiliates to, consult with and provide the Seller and the Parent with
a reasonable opportunity to review, comment on and approve any material
communication with the business partners of the DMS Companies and the DMS
Subsidiaries that relates to the transactions contemplated by this Agreement.
Section 4.6 Tax Matters.
-----------
(a) Tax Sharing Agreements. Any Tax sharing or Tax allocation agreement
----------------------
or arrangement between the Seller or the Parent and any DMS Tax Company or DMS
Subsidiary is terminated as of the Closing Date and shall have no further effect
for any Tax year. All obligations under all such agreements or arrangements
shall be settled pursuant to Section 1.7 for the settlement of Intercompany
Obligations.
(b) The Seller's Return Obligations.
-------------------------------
(i) The Seller shall prepare and timely file (including extensions)
in proper form with the appropriate Taxing Authority or shall cause to be
prepared and timely filed (including extensions) in proper form with the
appropriate Taxing Authority all necessary foreign, U.S. federal, state and
local Tax Returns of or which include or relate to the JCPIIG Assets or the
Other Assets, the DMS Tax Companies or the DMS Subsidiaries for Pre-Closing Tax
Periods that are required to be filed (including extensions) on or prior to the
Closing Date.
(ii) The Seller shall prepare and timely file (including extensions)
in proper form with the appropriate Taxing Authority or shall cause to be
prepared and timely filed (including extensions) in proper form with the
appropriate Taxing Authority all consolidated,
36
combined or unitary Tax Returns of the Parent or the Seller which include or
relate to the JCPIIG Assets or the Other Assets, the DMS Tax Companies or DMS
Subsidiaries with respect to any Pre-Closing Tax Period (including any short
period) that are not required to be filed on or prior to the Closing Date.
(iii) The Seller shall prepare and timely furnish (including
extensions) in proper form to the Purchaser or shall cause to be prepared and
timely furnished (including extensions) in proper form to the Purchaser any Tax
Return not described in Section 4.6(b)(i) or 4.6(b)(ii) of a DMS Shares Company,
DMS Subsidiary or relating to the JCPIIG Assets or the Other Assets that must be
filed within 60 days after the Closing Date (including extensions) if such Tax
Return was prepared by the Parent or an Affiliate of the Parent (other than any
DMS Shares Company or DMS Subsidiary) for the immediately preceding Tax period;
provided, however, that the foregoing shall not include Tax Returns that must be
filed by JCPIIG or a DMS Shares Company or DMS Subsidiary (A) with any Taxing
Authority of any foreign jurisdiction or (B) for Taxes imposed on premiums. The
Purchaser shall provide or cause to be provided to the Seller in a timely manner
all necessary data and other information to prepare all Tax Returns described in
this Section 4.6(b)(iii). The Purchaser shall be responsible for the accuracy,
execution and timely filing of all Tax Returns described in this Section
4.6(b)(iii); provided, however, that the immediately preceding clause shall not
relieve the Seller and/or the Parent of any obligation pursuant to Sections
4.6(d) and 4.6(g).
(iv) The Purchaser shall prepare and deliver, or shall cause to be
prepared and delivered to the Seller (at no cost to the Seller), within 60 days
of receipt of the Seller's request therefor, the Seller's standard foreign, U.S.
federal, state and local Tax Return data gathering packages (and/or information
requested therein) relating to the DMS Shares Companies, the DMS Subsidiaries,
the JCPIIG Assets, and the Other Assets with respect to Tax Returns and
schedules for which the Seller is responsible pursuant to Section 4.6. Such
information shall be prepared on a basis consistent with the prior Tax year's
data gathering requests. In addition to providing such information to the
Seller, the Purchaser shall promptly provide or cause to be provided to the
Seller such other information as the Seller may reasonably request in order for
the operations of the DMS Shares Companies and the DMS Subsidiaries to be
properly reported in such Tax Returns and schedules for which the Seller is
responsible pursuant to Section 4.6.
(v) The Seller shall prepare, or shall cause to be prepared all Tax
Returns of or which include the DMS Tax Companies, the DMS Subsidiaries or which
relate to the JCPIIG Assets or the Other Assets, pursuant to Sections 4.6(b)(i),
4.6(b)(ii) and 4.6(b)(iii), in a manner consistent with past practice, unless
otherwise required by Law.
(vi) With respect to any Tax period that would otherwise include but
not end on the Closing Date, to the extent permissible, but not required
pursuant to applicable Tax Law, the Purchaser or its Affiliates shall cause any
DMS Shares Company or DMS Subsidiary (other than a foreign DMS Tax Company or a
foreign DMS Subsidiary) to (A) take all steps as are or may be reasonably
necessary, including without limitation the filing of elections or returns with
applicable Taxing authorities, to cause such period to end on the Closing Date
or (B) if clause (A) is inapplicable, report the operations of the DMS Shares
Company or DMS Subsidiary only for that portion of such period ending on the
Closing Date in a consolidated, combined or unitary
37
Tax Return filed by the Seller or a Seller Affiliate (other than a DMS Shares
Company or a DMS Subsidiary), notwithstanding that such Tax period does not end
on the Closing Date.
(vii) For purposes of this Agreement, (A) the term "Pre-Closing Tax
Period" means a Tax period or portion thereof that ends on or prior to the
Closing Date; if a Tax period begins on or prior to the Closing Date and ends
after the Closing Date, then the portion of the Tax period that ends on and
includes the Closing Date shall constitute a Pre-Closing Tax Period; (B) the
term "Post-Closing Tax Period" means any Tax period that begins after the
Closing Date; if a Tax period begins on or prior to the Closing Date and ends
after the Closing Date, then the portion of the Tax period that begins
immediately after the Closing Date shall constitute a Post-Closing Tax Period;
and (C) the term "Straddle Tax Period" means any Tax period that begins before
the Closing Date and ends after the Closing Date.
(c) The Purchaser's Return Obligations.
----------------------------------
(i) Subject to Section 4.6(b)(iii), the Purchaser shall
prepare and file in proper form with the appropriate Taxing Authority or
shall cause one or more DMS Shares Companies to prepare and file in proper
form with the appropriate Taxing Authority all Tax Returns of or which
include the JCPIIG Assets, the Other Assets, the DMS Shares Companies or
the DMS Subsidiaries for Tax Periods for which the Seller is not
responsible pursuant to Section 4.6(b)(i) and 4.6(b)(ii).
(ii) With respect to any Tax Return required to be filed by the
Purchaser with respect to the DMS Shares Companies and the DMS Subsidiaries
or with respect to the JCPIIG Assets, the Other Assets and as to which an
amount of Tax is allocable to the Seller under Section 4.6(d) or 4.6(g),
the Purchaser shall provide the Seller and its authorized representatives
with a copy of such completed Tax Return and a statement certifying the
amount of Tax shown on such Tax Return that is allocable to the Seller
pursuant to Section 4.6(d) or 4.6(g), together with appropriate supporting
information and schedules at least 30 Business Days prior to the due date
(including any extensions thereof) for the filing of such Tax Return, and
the Seller and its authorized representatives shall have the right to
review and comment on such Tax Return and statement prior to the filing of
such Tax Return. The Seller shall notify the Purchaser of the existence of
any objection (specifying in reasonable detail the nature and basis of such
objection) the Seller may have to any items set forth on such draft Tax
Returns (a "Dispute Notice") no later than 15 Business Days after receipt
of the draft Tax Returns. The Purchaser and the Seller agree to consult and
resolve in good faith any such objection. However, if the Purchaser and the
Seller cannot resolve any such objection, the objection shall be referred
to the Accountants for prompt resolution. The Purchaser and the Seller
shall share equally all costs of hiring the Accountants. The Purchaser
shall not file any Tax Return as to which an amount of Tax is allocable to
the Seller under Section 4.6(d) or 4.6(g) without the prior written consent
of the Seller, which consent shall not be unreasonably withheld or delayed;
provided, however, that no such consent shall be required if the Seller
shall not have timely delivered a Dispute Notice or the objections
contained in such Dispute Notice shall have been finally resolved.
38
(d) Apportionment, Allocation and Payment of Taxes.
----------------------------------------------
(i) All Taxes and Tax liabilities with respect to the DMS Shares
Companies , the DMS Subsidiaries, the JCPIIG Assets and the Other Assets that
relate to a Straddle Tax Period shall be apportioned between the Pre-Closing Tax
Period and the Post-Closing Tax Period as follows: (A) in the case of Taxes that
are either (1) based upon or related to income or receipts, or (2) imposed in
connection with any sale or other transfer or assignment of property (real or
personal, tangible or intangible) (other than conveyances pursuant to this
Agreement, as provided under Section 4.6(h)), such Taxes shall be deemed equal
to the amount which would be payable if the Tax year ended with the Closing
Date; and (B) in the case of Taxes imposed on a periodic basis with respect to
the JCPIIG Assets, the Other Assets or assets of any DMS Shares Company or DMS
Subsidiary, or otherwise measured by the level of any item, such Taxes shall be
deemed to be the amount of such Taxes for the entire period (or, in the case of
such Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period), multiplied by a fraction the numerator of which
is the number of calendar days in the period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire period. Any
deferred items taken into income pursuant to Treasury Regulation Sections
1.1502-13 and 1.1502-14 and any excess loss accounts taken into income pursuant
to Treasury Regulation Section 1.1502-19 as a result of this transaction shall
for these purposes be apportioned to a Pre-Closing Tax Period. Section 4.6(h)
shall control the allocation of Taxes thereunder.
(ii) Except to the extent accrued for as Taxes payable (other than as
deferred Taxes) on the Closing Date Balance Sheets, Taxes of the DMS Tax
Companies, the DMS Subsidiaries, the JCPIIG Assets and the Other Assets that are
attributable to any Pre-Closing Tax Period (including, in the case of any
Straddle Tax Period, Taxes as apportioned pursuant to Section 4.6(d)(i)),
whether shown on any original Tax Return or amended Tax Return for the period
referred to therein shall be allocated to the Seller.
(iii) All Taxes of the DMS Shares Companies, the DMS Subsidiaries, the
JCPIIG Assets and the Other Assets that are attributable to any Post-Closing Tax
Period (including, in the case of any Straddle Tax Period, Taxes as apportioned
pursuant to Section 4.6(d)(i)) shall be allocated to the Purchaser. All Taxes
that relate to the DMS Shares Companies, the DMS Subsidiaries, the JCPIIG Assets
and the Other Assets attributable to transactions not in the ordinary course of
business occurring on the Closing Date after the Purchaser's (or its designee's)
purchase of the JCPIIG Assets, the Other Assets and the Shares shall be
allocated to the Purchaser to the extent permitted by Treasury Regulation
Section 1.1502-76(b)(1)(ii)(B) or as required by Treasury Regulation Section
1.338-1(d).
(iv) The Seller shall pay or shall cause to be paid any and all Taxes
due with respect to Tax Returns filed by the Seller or the Purchaser pursuant to
Sections 4.6(b) and 4.6(c) to the extent that such Taxes are allocable to the
Seller pursuant to Sections 4.6(d)(ii) and 4.6(g)(i), and the Purchaser shall
pay or cause to be paid any and all Taxes due with respect to Tax Returns filed
by the Seller or the Purchaser pursuant to Sections 4.6(b) and 4.6(c) that are
allocable to the Purchaser pursuant to Sections 4.6(d)(iii) and 4.6(g)(ii).
39
(v) If the amounts set forth on the Closing Date Balance Sheets for
current Taxes payable exceeds the sum of the portion of all Taxes actually paid
in connection with the Straddle Tax Period Tax Returns that are allocable to
Pre-Closing Tax Periods pursuant to Section 4.6(d) without taking into account
any exception or reduction for such current Taxes payable, then the Purchaser
shall pay an amount equal to such excess to the Seller within 60 days after the
date on which the last such Straddle Tax Period Tax Return is filed.
(e) Cooperation; Audits. In connection with the preparation of Tax
-------------------
Returns, audit examinations, and any administrative or judicial proceedings
relating to the Tax liabilities imposed on or relating to the Seller, the DMS
Tax Companies or the DMS Subsidiaries or with respect to the JCPIIG Assets or
the Other Assets for all Pre-Closing Tax Periods, the Purchaser, the DMS Shares
Companies and the DMS Subsidiaries on the one hand, and the Parent and the
Seller on the other hand, shall cooperate fully with each other, including, but
not limited to, the furnishing or making available during normal business hours
of records, personnel (as reasonably required and at no cost to the other
party), books of account, powers of attorney or other materials necessary or
helpful for the preparation of such Tax Returns, the conduct of audit
examinations or the defense of claims by Tax authorities as to the imposition of
Taxes. The Parent, the Seller, the Purchaser, the DMS Tax Companies and the DMS
Subsidiaries shall retain all Tax Returns, schedules and work papers and all
material records or other documents relating to all Taxes of the Seller, the DMS
Tax Companies and the DMS Subsidiaries for the Tax period first ending after the
Closing Date and for all prior Tax periods until the later of (i) the expiration
of the statute of limitations of the Tax periods to which such Tax Returns and
other documents relate, without regard to extension, except to the extent
notified by another party in writing of such extensions for the respective Tax
periods, or (ii) seven years following the due date (without extension) for such
Tax Returns, and each of the Seller and the Purchaser shall maintain such Tax
Returns, schedules, work papers, records and documents in the same manner and
with the same care it uses in maintaining its Tax Returns, schedules, work
papers, records and documents. The Seller, the Parent and JCPIIG, on the one
hand, and each of the Purchaser, the DMS Shares Companies and the DMS
Subsidiaries, on the other hand, shall give the other party reasonable written
notice prior to destroying or discarding any such books or records and, if the
other party so requests, the other party shall take possession of such books and
records prior to the destruction thereof. Any information obtained under this
Section 4.6(e) shall be kept confidential, except as may be otherwise necessary
in connection with the filing of Tax Returns or claims for refund or in
conducting an audit or other proceeding.
(f) Controversies.
-------------
(i) After the Closing Date, the Purchaser shall make a good faith
effort to notify the Seller in writing within ten Business Days of the receipt
by the Purchaser or any Affiliate of the Purchaser (including a DMS Shares
Company or a DMS Subsidiary after the Closing Date) of written notice of any
inquiries, claims, assessments, audits or similar events with respect to Taxes
relating to the Purchaser, the DMS Shares Companies, the DMS Subsidiaries, the
JCPIIG Assets or the Other Assets for a Pre-Closing Tax Period for which, if
determined adversely to the taxpayer, the Seller or the Parent may be liable
under Section 4.6(g)(i); provided, however, that the Purchaser's failure to
notify the Seller shall not affect the Purchaser's right to indemnification
hereunder unless and to the extent that the Seller and/or the Parent is
materially adversely affected thereby.
40
(ii) In the case of an audit, administrative or judicial proceeding
or other action (each a "Tax Proceeding") that relates to Pre-Closing Tax
Periods, the Seller shall have the right, at its expense, to participate in and
control the conduct of such Tax Proceeding but only to the extent that such Tax
Proceeding relates solely to a potential adjustment for which the Seller and/or
the Parent has in writing acknowledged that it will indemnify Purchaser for the
amount of such potential adjustment as determined pursuant to such Tax
Proceeding that is allocable to the Seller and/or the Parent under Sections
4.6(d) and 4.6(g) (the "Seller/Parent Potential Liability"); provided, however,
that the Purchaser also may participate, at its expense, in any such Tax
Proceeding. If the Seller and/or the Parent does not assume the defense of any
such Tax Proceeding, the Purchaser may defend the same in such manner as it may
deem appropriate, including, but not limited to, the settling of such Tax
Proceeding, after giving five-days' prior written notice to the Seller setting
forth the terms and conditions of settlement. If there is a proposed adjustment
that relates to an issue for which the Seller and/or the Parent may be solely
liable pursuant to Section 4.6(g)(i) but the Seller and the Purchaser have not
finally determined the Seller's sole liability with respect thereto, the
Purchaser agrees to consult with the Seller and in good faith allow the Seller
to participate in such Tax Proceeding in connection therewith until (A) a final
determination is made as to the Seller's and/or the Parent's obligation to
indemnify Purchaser for such proposed adjustment and/or (B) the Purchaser
receives from the Seller and/or the Parent an acknowledgement in writing of the
Seller/Parent Potential Liability, in which case the provisions of the second
preceding sentence shall control. In the event that issues relating to a
potential adjustment for which the Seller and/or the Parent have acknowledged
its/their liability are required to be dealt with in the same Tax Proceeding as
separate issues relating to a potential adjustment for which the Purchaser would
be liable, the Purchaser shall have the right to control the Tax Proceeding but
only with respect to the latter issues.
(iii) With respect to issues relating to a potential adjustment for
which the Seller and/or the Parent have acknowledged the Seller/Parent Potential
Liability and for which the Purchaser, any DMS Shares Company or any DMS
Subsidiary may also be liable under Section 4.6(g)(ii), (A) each party may
participate in the Tax Proceeding, at its expense, and (B) the Tax Proceeding
shall be controlled by that party which would bear the burden of the greater
portion of the sum of the adjustment and any corresponding adjustments that may
reasonably be anticipated for future Tax periods. The principle set forth in the
immediately preceding sentence shall govern also for purposes of deciding any
issue that must be decided jointly (including, without limitation, choice of
judicial forum) in situations in which separate issues are otherwise controlled
under this Section 4.6(f) by the Purchaser and the Seller.
(iv) Neither the Purchaser, the Seller, the Parent nor any Affiliate
thereof shall enter into any compromise or agree to settle any claim pursuant to
any Tax Proceeding that would adversely affect the other party for any year
without the written consent of the other party, which consent may not be
unreasonably withheld. The Purchaser and the Seller agree to cooperate, and the
Purchaser agrees to cause each DMS Shares Company and each DMS Subsidiary to
cooperate, in the defense against and the compromise of any Tax Proceeding.
41
(g) Tax Indemnification.
-------------------
(i) The Seller and the Parent shall indemnify the Purchaser, each
DMS Shares Company and each DMS Subsidiary, in each case to the extent not
accrued for as Taxes payable (other than as deferred Taxes) on the Closing Date
Balance Sheets (adjusted appropriately for any payment of excess accrued current
Taxes payable pursuant to Section 4.6(d)(v) and adjusted to the extent such
accrued Taxes previously offset amounts otherwise payable by the Seller and/or
the Parent in connection with Section 4.6(d)(iv) and this Section 4.6(g)) from
and against (A) any Taxes for any Pre-Closing Tax Period resulting from, arising
out of, relating to or caused by any liability or obligation of any DMS Tax
Company or DMS Subsidiary for Taxes of any person other than a DMS Tax Company
or DMS Subsidiary and all losses, claims, liabilities, costs and expenses
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and disbursements) ("Losses") relating to such Taxes
(1) under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign Law), (2) as a transferee or successor, (3) by contract,
or (4) otherwise, (B) any U.S. federal, state or local income Tax attributable
solely to the deemed sale of assets resulting from the Section 338 Elections (as
defined in Section 4.6(j)(i)), (C) any breach of any covenant in this Section
4.6, (D) any Taxes and any Losses relating to such Taxes imposed on any DMS Tax
Company or DMS Subsidiary for any Pre-Closing Tax Period, and (E) any Taxes and
any Losses relating to such Taxes attributable to the JCPIIG Assets or the Other
Assets for any Pre-Closing Tax Period. The Seller's and the Parent's
indemnification obligation under this Section 4.6(g)(i) with respect to any Tax
resulting from any audit, proceeding or action subject to Section 4.6(f) the
defense of which the Seller was not allowed to assume in contravention of
Section 4.6(f) shall be discharged to the extent of any material adverse effect
to the Seller and/or the Parent resulting therefrom. The Seller and/or the
Parent shall discharge its obligation to indemnify the Purchaser against such
Pre-Closing Tax Period Tax by paying to the Purchaser, any DMS Shares Company or
any DMS Subsidiary, as the Purchaser may direct, an amount equal to the amount
of such Tax or Loss relating to such Tax; provided, however, that if the
Purchaser provides the Seller with written notice of a Pre-Closing Tax Period
Tax at least 30 days prior to the date on which the relevant Tax is required to
be paid by the Purchaser or the applicable DMS Shares Company or DMS Subsidiary,
the Seller and/or the Parent shall, if and to the extent that it is liable for
such Tax hereunder, discharge its obligation to indemnify the Purchaser against
such Tax by timely paying an amount equal to the amount of such Tax to the
relevant Taxing Authority and by timely providing the Purchaser with proof of
such payment.
(ii) The Purchaser shall indemnify the Seller and any of its
Affiliates (other than any DMS Shares Company or DMS Subsidiary) from and
against (A) any Taxes and any Losses relating to such Taxes [paid by the Seller
or any Seller Affiliate (other than a DMS Shares Company or DMS Subsidiary)]
imposed on the Purchaser, any DMS Shares Company, any DMS Subsidiary or any
Affiliate of the Purchaser for any Post-Closing Tax Period, (B) any Taxes and
any Losses relating to such Taxes with respect to the DMS Shares Companies, DMS
Subsidiaries, the JCPIIG Assets or the Other Assets arising from a transaction
not in the ordinary course of business occurring on the Closing Date after the
Purchaser's purchase of the Shares, (C) any Taxes and any Losses relating to
such Taxes resulting from a Section 338(g) Election subject to Section 4.6(m) of
this Agreement, (D) any breach of any covenant in this Section 4.6 by the
Purchaser or any of its Affiliates, and (E) any Taxes and any Losses relating to
such Taxes attributable to the JCPIIG Assets or the Other Assets for any Post-
Closing Tax Period. The
42
Purchaser shall discharge its obligation to indemnify the Seller against such
Post-Closing Tax Period Tax by paying to the Seller an amount equal to the
amount of such Tax; provided, however, that if the Seller provides the Purchaser
with written notice of a Post-Closing Tax Period Tax at least 30 days prior to
the date on which the relevant Tax is required to be paid by the Seller, the
Purchaser shall, if and to the extent that it is liable for such Tax hereunder,
discharge its obligation to indemnify the Seller against such Tax by timely
paying an amount equal to the amount of such Tax to the relevant Taxing
Authority and by timely providing the Seller with proof of such payment.
(h) Conveyance Taxes.
----------------
(i) The Purchaser shall assume liability for and pay any and all
sales, value added, transfer, stamp, registration, real property transfer or
gains, and similar Taxes (including any penalties and interest) incurred as a
result of the purchase of shares by an entity or entities designated by the
Purchaser, as contemplated by Section 8.8 of this Agreement, when due, and the
Purchaser, at its own expense, shall file or cause to be filed all necessary Tax
Returns and other documentation with respect to such Taxes and fees. The Seller
shall provide reasonable assistance in connection with such filings. In no
event, however, shall the Taxes listed in the first sentence of this Section
4.6(h)(i) include any income or franchise Tax (or any similar Tax imposed in
lieu thereof).
(ii) The Seller shall assume liability for and pay any and all other
sales, value added, transfer, stamp, registration, real property transfer or
gains, and similar Taxes (including any penalties and interest) incurred as a
result of the transactions contemplated by this Agreement when due, and the
Seller, at its own expense, shall file or cause to be filed all necessary Tax
Returns and other documentation with respect to such Taxes and fees. The
Purchaser shall provide reasonable assistance in connection with such filings.
(i) Refunds; Carrybacks. The Purchaser shall pay or cause to be paid to
-------------------
the Seller any Tax refunds or credits (except to the extent reflected on the
Closing Date Balance Sheets or due as the result of the carry back of a net
operating or capital loss arising in a Post-Closing Tax Period) attributable to
any Pre-Closing Tax Period received by or credited to the Purchaser, a DMS
Shares Company or any DMS Subsidiary, net of any direct costs attributable to
receipt of such refund or credit, including Taxes payable with respect to such
refund, within ten days after the receipt of such refund or the realization of
such credit. All refunds attributable to any (A) Post-Closing Tax Period or (B)
Pre-Closing Tax Period not otherwise payable to the Seller shall be for the
benefit of the Purchaser and if received by or otherwise credited to the Seller
or any Affiliate thereof (other than a DMS Shares Company or DMS Subsidiary),
the Seller shall pay or cause to be paid an amount equal to such refund or
credit to the Purchaser within ten days after the receipt of such refund or the
realization of such credit. At the Seller's request, the Purchaser shall
cooperate with the Seller in obtaining such refunds, including through the
filing of amended Tax Returns or refund claims as prepared by the Seller, at its
own expense.
(j) Section 338 Elections.
---------------------
(i) The Purchaser or an appropriate Affiliate of the Purchaser on the
one hand, and the Seller or an appropriate Affiliate of the Seller, on the other
hand, shall join with
43
each other in making the election provided by Sections 338(g) and 338(h)(10) of
the Code, in accordance with Treasury Regulation Section 1.338(h)(10)-1(c)(2),
with respect to any DMS Shares Company or DMS Subsidiary that is a U.S.
corporation for U.S. federal income tax purposes and that is so designated in
Section 4.6(j)-1 of the Disclosure Schedule, and, if permissible, similar actual
elections or deemed elections with respect to each such company under any
applicable state or local Tax Laws (collectively, the "Section 338 Elections").
No Section 338 Elections shall be made with respect to any DMS Shares Company or
DMS Subsidiary that is so designated in Section 4.6(j)-2 of the Disclosure
Schedule.
(ii) The Section 338 Elections shall be made on one or more Forms
8023, or any successor Form or Forms, and a draft of each such Form shall be
prepared by the Purchaser and delivered by the Purchaser to the Seller as
promptly as practicable, but in no event later than 30 days after the Closing
Date Balance Sheets have been finalized or, if earlier, 120 days prior to the
due date for timely filing such Forms 8023. Within 30 days after the Purchaser
delivers the draft of each such Form 8023 to the Seller, the Seller shall notify
the Purchaser of the existence of any objection that the Seller may have to the
draft of each such Form 8023. The Purchaser and the Seller shall promptly
endeavor in good faith to resolve any such objection. The Purchaser shall
deliver to the Seller a copy of the final version of each such Form 8023 within
30 days after the later of (A) the date on which the Purchaser and the Seller
shall have resolved any objections or (B) the failure of the Seller to notify
the Purchaser of an objection within 30 days. The Seller shall return each such
final Form 8023 after having been endorsed by the Seller or its appropriate
Affiliate to the Purchaser no later than ten days after the Purchaser shall have
delivered each such final Form 8023 to the Seller. The Purchaser shall file each
such Form 8023 with the Internal Revenue Service in accordance with Treasury
Regulation Section 1.338(h)(10)-1(c)(2) no later than ten days prior to the due
date for timely filing such final Form 8023, unless otherwise agreed to in
writing by the parties, and the Purchaser shall provide written evidence to the
Seller that it has done so. For each DMS Shares Company or DMS Subsidiary for
which Section 338 Elections have been made, the Purchaser shall attach or shall
cause to be attached a copy of each such Form 8023 to (A) the consolidated U.S.
corporation income Tax Return that includes the Purchaser and each such DMS
Shares Company or DMS Subsidiary for the Tax year that ends on or includes the
Closing Date, (B) any other U.S. corporation income Tax Return(s) for any DMS
Shares Company or DMS Subsidiary for Tax year(s) that begin immediately after
the Closing Date, and (C) any state or local Tax Return, if required to do so in
order to make such Section 338 Elections effective in the relevant state or
local jurisdiction. The Seller shall attach a copy of each such Form 8023 to (A)
the consolidated U.S. corporation income Tax Return that the Seller shall file
for its Tax year that includes the Closing Date, (B) the final Tax Return for a
DMS Shares Company or DMS Subsidiary for the Pre-Closing Tax Period, and (C) any
state or local Tax Return, if required to do so in order to make such Section
338 Elections effective in the relevant state or local jurisdiction. Pursuant to
Section 4.6(g)(i), the Seller and/or the Parent shall be responsible for any
U.S. federal, state or local income Taxes attributable solely to the deemed sale
of assets resulting from the Section 338 Elections provided for in this Section
4.6(j) with respect to any DMS Shares Company or DMS Subsidiary for which the
Section 338 Elections are made.
(k) Allocation of Purchase Price. The Purchaser and the Seller agree to
----------------------------
allocate the purchase price among the Shares, the JCPIIG Assets and the Other
Assets as reflected in Section 4.6(k) of the Disclosure Schedule, which schedule
shall be prepared initially based on the
44
Unadjusted Purchase Price and shall be adjusted in order to take into account
differences, if any, between $277,317,373 and the Closing Date SAP Net Book
Value on the one hand, and $173,805,753 and the Closing Date GAAP Net Book
Value, on the other hand, each as separately allocated to each of the DMS Shares
Companies, the DMS Subsidiaries, the JCPIIG Assets and the Other Assets to
reflect such differences, if any. Each of the Seller and its Affiliates, the
Purchaser and its Affiliates, the DMS Tax Companies and the DMS Subsidiaries
shall adhere to, and be bound by, the allocation reflected in Section 4.6(k) of
the Disclosure Schedule for foreign, U.S. federal, state or local income tax
purposes. Neither the Seller and its Affiliates, nor the Purchaser and its
Affiliates, nor the DMS Tax Companies and the DMS Subsidiaries shall take any
position contrary to the allocation reflected in Section 4.6(k) of the
Disclosure Schedule unless required to do so by applicable Tax Laws.
(l) Allocation of Aggregate Deemed Sales Price. From the date of execution
------------------------------------------
of this Agreement, the Purchaser and the Seller shall promptly endeavor in good
faith to allocate the aggregate deemed sales price, as such term is defined in
Treasury Regulation Section 1.338-4, to the assets of each DMS Shares Company or
DMS Subsidiary designated in Section 4.6(j)-1 of the Disclosure Schedule in
accordance with the rules prescribed in Treasury Regulation Section 1.338-6. No
later than 60 days from the execution of this Agreement, the Purchaser shall
deliver to the Seller draft statements (the "Allocation Statements") proposing
to allocate the aggregate deemed sales price to the assets of each DMS Shares
Company or DMS Subsidiary designated in Section 4.6(j)-1 of the Disclosure
Schedule, based upon the assets of each DMS Shares Company or DMS Subsidiary as
set forth on the books and records thereof on September 30, 2000 consistent with
the calculation of the Unadjusted Purchase Price. Within 30 days after the
Purchaser shall deliver the draft Allocation Statements to the Seller, the
Seller shall notify the Purchaser of the existence of any objection (specifying
in reasonable detail the nature and basis of such objection) that the Seller may
have to the draft Allocation Statements. The Purchaser and the Seller shall
promptly endeavor in good faith to resolve any such objection. If the Purchaser
and the Seller fail to resolve such objection within 30 days, the objection
shall be referred to the Accountants for prompt resolution. If the Seller does
not notify the Purchaser of any objection to the draft Allocation Statements
within 30 days, or upon resolution of any disputed items, the method of
allocation reflected on the draft Allocation Statements (as revised, if
applicable, by the mutual agreement of the Purchaser and the Seller or by the
Accountants) shall be the final method used for the Allocation Statements.
Promptly after the Closing Date, (i) the Purchaser shall adjust the Allocation
Statements to reflect the amounts reported on the Closing Date Balance Sheets
and (ii) the Purchaser shall deliver to the Seller the draft final Allocation
Statements. Within 30 days after the Purchaser delivers the draft final
Allocation Statements to the Seller, the Seller shall notify the Purchaser of
the existence of any objection (specifying in reasonable detail the nature and
basis of such objection) that the Seller may have to the draft final Allocation
Statements. The Purchaser and the Seller shall promptly endeavor in good faith
to resolve any such objection. If the Purchaser and the Seller fail to resolve
such objection within 30 days, the Accountants shall determine whether the
adjustments were reasonable and, if not reasonable, shall appropriately revise
the draft final Allocation Statements. If the Seller does not respond within 30
days, or upon resolution of any disputed items, the allocations reflected on the
draft final Allocation Statements (as revised, if applicable, by the mutual
agreement of the Purchaser and the Seller or by the Accountants) shall be the
final Allocation Statements. Each of the Seller, the Parent and their Affiliates
and the Purchaser and its Affiliates, the DMS Tax Companies and the DMS
Subsidiaries shall adhere to, and be bound
45
by, the final Allocation Statements for U.S. federal income tax purposes and, to
the extent relevant for state or local income tax purposes. Each of the Seller,
the Parent, the Purchaser, the DMS Tax Companies and the DMS Subsidiaries shall
take no position contrary to the final Allocation Statements unless required to
do so by applicable Tax Laws.
(m) Section 338(g) Elections. The Purchaser shall not make or cause the
------------------------
DMS Shares Companies or the DMS Subsidiaries to make any Section 338(g) election
for any of the DMS Shares Companies or the DMS Subsidiaries, other than as
required in connection with making the Section 338 Elections in accordance with
Section 4.6(j), without the prior written consent of the Seller (a "Section
338(g) Election"), which consent may be withheld for any reason or for no
reason. If any such Section 338(g) Election is made (other than any such
election made as required in connection with making the Section 338 Election in
accordance with Section 4.6(j)) for any of the DMS Shares Companies or the DMS
Subsidiaries, the U.S. consolidated income Tax Return filed by the Seller with
respect to the Tax period that includes the Closing Date shall in all respects
be consistent with such Section 338(g) Election, if made, and all income, gain,
loss and other items arising from such Section 338(g) Election shall be properly
reflected therein. The Purchaser shall indemnify the Seller for all Taxes and
all Losses relating to such Taxes resulting from such Section 338(g) Election
and shall file or cause to be filed each Form 8023 with respect to any such
Section 338(g) Election.
(n) Time of Payment. Payment by the Purchaser or the Seller of any amounts
---------------
due under this Section 4.6 in respect of Taxes shall be made (i) at least ten
Business Days before the due date of the applicable estimated or final Tax
Return required to be filed by the Seller or the Purchaser on which is required
to be reported income for a period beginning before and ending after the Closing
Date without regard to whether the Tax Return shows overall net income or loss
for such period, and/or (ii) within ten Business Days following (A) an agreement
between the Seller and the Purchaser that an indemnity amount is payable, (B)
the resolution of any audit, proceeding or action subject to Section 4.6(f) with
a Taxing Authority, (C) a "determination" as defined in Section 1313(a) of the
Code, or (D) the date on which one party notifies the other party that the other
party has a liability for a determinable amount under this Section 4.6 in
respect of Losses and is provided with calculations or other materials
supporting such liability; provided, however, that the net amount of all such
payments required by Section 4.6(n)(ii) shall be made by the Purchaser or the
Seller, beginning after the Closing Date, on December 15th of each calendar
year. The party that makes any payment pursuant to Section 4.6(n)(i) shall
immediately provide the other party with written proof of such payment.
(o) Miscellaneous.
-------------
(i) The Seller and the Purchaser agree to treat all payments made by
either of them to or for the benefit of the other (including any payments to any
DMS Tax Company or DMS Subsidiary) under this Section 4.6, under other indemnity
provisions of this Agreement as adjustments to the Purchase Price or as capital
contributions for Tax purposes and that such treatment shall govern for purposes
hereof except to the extent that the Laws of a particular jurisdiction provide
otherwise, in which case such payments shall be made in an amount sufficient to
indemnify the relevant party on an after-Tax basis.
46
(ii) Except with respect to Sections 1.7, 2.2(o), 4.1(g), 4.1(k),
and 4.1(o), notwithstanding any other provisions of this Agreement, all rights
and obligations with respect to Taxes shall be governed solely by this Section
4.6.
(iii) The Seller shall make reasonable best efforts to have delivered
to the Purchaser as promptly as possible after the Closing Date copies of the
most recent earnings and profits or stock basis studies completed by a third
party relating to any DMS Shares Company or DMS Subsidiary not listed in Section
4.6(j)-1 of the Disclosure Schedule; provided, however, that the Seller (1)
makes no representation or warranty with respect to any aspect of any such
studies, including, but not limited to, the assumptions on which such studies
are based or the accuracy thereof, (2) reserves the right to redact any
information contained in any such studies that does not relate solely to the DMS
Shares Companies or the DMS Subsidiaries, and (3) shall not provide any such
studies if the provision thereof would violate any agreement with any such third
party.
(iv) For purposes of Section 2.2(o) and this Section 4.6, the term
"DMS Tax Companies" shall mean the DMS Shares Companies and JCPIIG for all
periods, and the term "DMS Subsidiary" shall also include a Subsidiary of a DMS
Tax Company.
(p) Notices.
-------
(i) All notices required by this Section 4.6 to be provided to the
Seller shall be sent to: X. X. Xxxxxx Company, Inc., 0000 Xxxxxx Xxxxx, Xxxxx,
Xxxxx 00000, Attention : Vice President and Director of Taxes.
(ii) All notices required by this Section 4.6 to be provided to the
Purchaser shall be sent to: AEGON USA, Inc., 0000 Xxxxxxxx Xxxx XX, Xxxxx
Xxxxxx, Xxxx 00000, Attention: Vice President and Director of Taxes.
Section 4.7 Employee Benefit Matters.
-------------------------
(a) Employees and Compensation. Each individual who is an employee of a
--------------------------
DMS Company or a DMS Subsidiary immediately prior to the Closing (a "DMS
Employee") will continue as an employee of such DMS Company or DMS Subsidiary on
and after the Closing. For purposes of this Section 4.7, (i) Xxxxxx X. Xxxxxxx
will be deemed to be a DMS Employee and (ii) the term DMS Employee will include
an individual who on the Closing Date is on a medical or disability leave of
absence or any other approved leave of absence from the DMS Company or DMS
Subsidiary; provided, however, such individual on leave shall be a DMS Employee
only if and when the individual returns to work within the period and under the
conditions provided in connection with such leave but in no instance later than
six months after such leave began and further provided that notwithstanding any
provision herein, the Purchaser, the DMS Companies, the DMS Subsidiaries and
their affiliates shall have no liability or responsibility for such individual
except for reinstatement rights until the individual returns to work with the
DMS Company or a DMS Subsidiary and Seller shall have all other liabilities and
responsibilities for such individual, including but not limited to disability
payments, compensation and benefits, until such date, if any, the individual
returns to work with a DMS Company or a DMS Subsidiary. Until at least December
31, 2002, the Purchaser will, or will
47
cause one of its affiliates to, provide each DMS Employee, for so long as each
such employee remains employed by the Purchaser or one of its affiliates, with
base pay, that (as determined in the Purchaser's reasonable good faith judgment)
is at least equal to the rates of base pay, provided to each such DMS Employee
by the DMS Companies and the DMS Subsidiaries on the Closing Date, based on
schedules and documents provided to the Purchaser prior to the Closing Date. For
calendar year 2001, with applicable payments made in 2002, the Purchaser will,
or will cause one of its affiliates to, provide each eligible DMS Employee, as
long as each such employee remains employed by the Purchaser or one of its
affiliates, through January 23, 2002 with short-term annual incentive
compensation in accordance with the X.X. Xxxxxx Direct Marketing Services, Inc.
Management Incentive Compensation Plan, that (as determined in the Purchaser's
reasonable good faith judgment) is at least equal to the rate of short-term
annual incentive compensation provided under the short-term annual incentive
compensation plan in which each such DMS Employee participates on the Closing
Date, based on schedules and documents provided to the Purchaser prior to the
Closing Date. For purposes of the preceding sentence, a DMS Employee's rate of
short-term annual incentive compensation will be not less than $1.00 per unit
under the short-term annual incentive compensation plan in which the DMS
Employee participates on such date. In addition, the Purchaser will, or will
cause one of its affiliates to, assume and fully discharge any and all
liabilities of the Parent and the Seller under the Retention Incentive and
Maximizing Value Plans established for DMS Employees. Nothing contained in this
Section 4.7 will limit the right of the Purchaser or any of its affiliates to
terminate or suspend the employment of any DMS Employee after the Closing or to
discontinue or modify the benefits provided to any such employee; provided,
however, that in the event of any such termination, suspension, discontinuance
or modification, the Purchaser will be solely responsible for and will discharge
all liabilities incurred as a result of such termination, suspension,
discontinuance or modification, including without limitation any such
liabilities asserted against the Parent or the Seller that relate to or are
based on any action or inaction of the Purchaser or any of its affiliates on or
after the Closing.
(b) Employee Benefits. Effective as of the Closing, the Purchaser will, or
-----------------
will cause one of its affiliates to, provide employee benefits to DMS Employees
on terms and conditions that are at least as favorable to such employees as the
terms and conditions of such benefits offered to similarly situated employees of
the Purchaser and its affiliates, except for enhanced retirement benefits,
retention or severance benefits that have been adopted by the Purchaser or its
affiliates in connection with specific transactions which apply only to limited
groups of employees rather than similarly situated employees in general. In
addition, the Purchaser agrees that under any employee benefit plan made
available after the Closing to DMS Employees, the years of service credited to
them by the Parent, the Seller, the DMS Companies and the DMS Subsidiaries prior
to the Closing (as set forth on a schedule to be provided by the Seller to the
Purchaser on or prior to the Closing) will be treated as years of service with
the Purchaser and its Affiliates in determining eligibility and vesting (but not
for benefit accrual) under such employee benefit plan, and in determining the
amount of benefits under any applicable sick leave, vacation, severance or other
welfare plan. Effective as of the Closing, and subject to the foregoing
provisions of this Section 4.7(b), the Purchaser will, or will cause one of its
affiliates to, cover DMS Employees under a group health plan, to waive any
preexisting condition limitations applicable to such employees under such group
health plan and to take all action necessary to ensure that such employees are
given full credit for all co-payments, co-insurance, annual out-of-pocket limits
and deductibles incurred under any group health plan of the Parent, the Seller,
a DMS Company or a DMS Subsidiary for the plan year that includes the
Closing Date. The lifetime maximum limitation under the Purchaser's group health
plan will apply to DMS Employees and their covered dependents, provided,
however, that the lifetime maximum limitation applicable to a DMS Employee or
the covered dependent of a DMS Employee under such group health plan will be
reduced by an amount equal to the benefits that were paid to such person under
any group health plan of the Parent, Seller, a
48
DMS Company or a DMS Subsidiary and where applied against the lifetime maximum
payment for such person under such group health plan, based on a schedule
provided to the Purchaser by Seller on or prior to the Closing Date. If any DMS
Employee terminates employment during the period beginning on the Closing Date
and ending on December 31, 2002, the Purchaser will, or will cause one of its
affiliates to, provide such employee with severance benefits, in addition to any
Retention Incentive payment and any Maximizing Value Plan payment owed to such
employee, in an amount equal to (as determined in Purchaser's reasonable good
faith judgment) no less than the benefits provided under, and in accordance with
the terms of, the Seller's Contingent Severance and Outplacement Pay Plan for
Associates (if the DMS Employee would have been eligible for benefits under such
Plan).
(c) Supplemental Benefit Liabilities. Prior to the Closing, the Parent
--------------------------------
and the Seller will take all action necessary to cause X. X. Xxxxxx Life
Insurance Company to:
(i) assume the accrued benefit obligation (whether or not vested)
under the Supplemental Retirement Program for Management Profit-Sharing
Associates of X. X. Penney Company, Inc. (the "Parent MSRP") of each DMS
Employee identified on Section 4.7(c) to the Disclosure Schedule as a
participant in the Parent MSRP in the amount set forth on such Schedule;
and
(ii) terminate the Supplemental Retirement Program for Eligible
Management Associates of JCPenney Financial Services (the "DMS MSRP").
No later than ten days after the Closing, the Purchaser will, or will cause
one of its Affiliates to, pay to each DMS Employee listed on Section 4.7(c) to
the Disclosure Schedule, in a single lump sum payment, the total amount of the
accrued benefit obligation of such DMS Employee set forth on such Schedule,
provided such DMS Employee furnishes to the Seller and the Purchaser a release
of claims, in a form satisfactory to the Seller and the Purchaser, against the
Seller, the Purchaser and their respective Affiliates with respect to any
benefits that may be owed to such DMS Employee under the Parent MSRP and the DMS
MSRP.
(d) Retained Liabilities. Except as provided in Section 4.7(c), the
--------------------
Seller will retain and be solely responsible for discharging (i) all liabilities
of the Parent, the Seller, each DMS Company and each DMS Subsidiary to employees
and former employees of the DMS Companies and the DMS Subsidiaries with respect
to periods of employment ending prior to the Closing and arising under any
Benefit Plan of the Parent or the Seller or under any compensation plan, program
or agreement of the Parent or the Seller, including but not limited to
liabilities under any Benefit Plan of the Parent or the Seller for post-
retirement benefits required to be recognized by FASB 106 or for post-retirement
benefits required to be recognized by FASB 112 or otherwise with respect to DMS
employees and former employees of the DMS Companies, the DMS Subsidiaries (and
their dependents and beneficiaries), except to the extent the amount of
49
any such liabilities is reflected on the Closing Date Balance Sheet, and (ii)
all health continuation obligations arising prior to the Closing, including
without limitation, those obligations under COBRA and similar foreign, state and
local laws.
Section 4.8 Use of X. X. Xxxxxx Name.
------------------------
(a) Use of Name. Except as otherwise expressly provided in this Section
-----------
4.8, the Purchaser will not use, and, except as specifically provided for in the
Marketing Services Agreement, from and after the Closing will cause the DMS
Companies and the DMS Subsidiaries not to use, the name "X. X. Penney,"
"Penney," or "JCP" or any variation thereof or any other trade name, brand name,
trademark, service xxxx or other xxxx listed or described in Section 1.8 of the
Disclosure Schedule or any variation thereof (collectively, the "Xxxxxx Xxxxx"),
except that (i) for a period of up to 365 days after the Closing Date the DMS
Companies and the DMS Subsidiaries may use existing stocks of policy forms and
other printed materials, including stationery, promotional materials and the
like, so long as they are marked or stickered so as to clearly indicate in a
manner approved in writing by the Seller that the DMS Company or the DMS
Subsidiary is no longer a Subsidiary or Affiliate of the Seller or the Parent,
(ii) for a period of up to 24 months after the Closing Date, the Purchaser, the
DMS Companies and the DMS Subsidiaries may use the Xxxxxx Xxxxx to indicate the
former designation of the respective entity or product or the former affiliation
of the entity or product with the Seller or the Parent (i.e. "formerly known as.
. ."), and (iii) the Purchaser, the DMS Companies and the DMS Subsidiaries may
use the Xxxxxx Xxxxx in communications with customers of the DMS Companies and
the DMS Subsidiaries for the purpose of administering and servicing products
that bear a Xxxxxx Xxxx. The Licensee will use its reasonable best efforts to
change the names of any DMS Companies or DMS Subsidiaries that contain a Xxxxxx
Xxxx within 365 days after the Closing Date.
(b) No Rights to Xxxxxx Xxxxx. Except (i) for the permitted uses
-------------------------
authorized in Section 4.8(a) and (ii) the Purchaser's right to maintain archival
copies of any materials acquired pursuant to this Agreement that include or
embody any Xxxxxx Xxxxx, and notwithstanding anything contained in this
Agreement to the contrary, no rights or licenses are granted to the Purchaser
with respect to any Xxxxxx Xxxx, and any license (other than the license granted
pursuant to the Marketing Services Agreement), whether express or implied, that
any DMS Company or any DMS Subsidiary may have been granted with respect to the
use of any Xxxxxx Xxxx, whether alone or in combination with other words or
designs, is hereby terminated effective as of the Closing. The Purchaser shall
cause the DMS Companies and the DMS Subsidiaries to amend their respective
corporate names as promptly as practicable after the Closing, subject to the
receipt of all necessary regulatory approvals, to delete any use of the Xxxxxx
Xxxxx, including without limitation the names "X. X. Xxxxxx," "Xxxxxx" or "JCP"
or any variations thereof.
(c) Ownership of Xxxxxx Xxxxx. The Purchaser acknowledges that the Parent
-------------------------
is the owner of all right, title and interest in, to and under the Xxxxxx Xxxxx,
whether alone or in combination with other words or designs. The Purchaser shall
not use any of the Xxxxxx Xxxxx or, after the Closing, permit any DMS Company or
any DMS Subsidiary to use any of the Xxxxxx Xxxxx, except as specifically
authorized by this Agreement or the Marketing Services Agreement. After the
Closing, the Purchaser will not, and will not permit any DMS Company or
50
any DMS Subsidiary to: (a) take any action that would interfere with the
Parent's registration and/or use of the Xxxxxx Xxxxx throughout the world; (b)
take any action that would diminish or dilute the distinctiveness or validity of
any Xxxxxx Xxxx; (c) challenge the Parent's ownership of any Xxxxxx Xxxx and/or
any registration thereof; or (d) attempt to register any Xxxxxx Xxxx or any xxxx
confusingly similar thereto, alone or in combination with other words or
designs, as a trademark, service xxxx or trade name anywhere in the world.
Section 4.9 Internet-Related Matters.
-------------------------
(a) Websites. The Seller and the Purchaser will cooperate and work
--------
diligently (i) so that, promptly following the Closing, all text, images and
other content relating to the DMS Companies or the DMS Subsidiaries contained in
all websites maintained by the Seller or the Parent ("Website Materials") are
provided to the Purchaser for inclusion in the Purchaser's and its Affiliates'
websites and (ii) to remove all Xxxxxx Xxxxx from any such text, images or other
content except to the extent in any particular instance that the inclusion of
the applicable Xxxxxx Xxxx in such text, images or other content is specifically
permitted under the Marketing Services Agreement.
(b) Ownership of Domain Names. The Parent shall retain ownership of all
-------------------------
domain names employing the name "X. X. Penney" or "Penney" and neither the
Purchaser, any DMS Company nor any DMS Subsidiary nor any of their respective
Affiliates shall have any right or license to any such domain name.
(c) Internet Protocol Address. To the extent that the Seller, a DMS
-------------------------
Company or a DMS Subsidiary utilizes any Internet protocol address space
allocated to the Parent, such Internet protocol address space shall remain the
property of the Parent, and, except as provided in Section 4.14 or the
Transition Services Agreement, no rights or licenses are granted to the
Purchaser, the DMS Companies or the DMS Subsidiaries with respect thereto.
(d) Phone Network. Except as provided in Section 4.14 or the Transition
-------------
Services Agreement, none of the Purchaser, any DMS Company or any DMS Subsidiary
shall have any right to continued access to the Parent's phone network, the
Parent's Internet mail or the Parent's computer network.
Section 4.10 Non-Competition. Except as contemplated by this Agreement,
---------------
the License Agreement, the Marketing Services Agreement or the Transition
Services Agreement:
(a) During the term of the License Agreement, neither the Parent, the
Seller nor any of their respective Affiliates shall: offer, issue, sell, refer
or promote, directly or indirectly, Approved Products in the United States of
America (including the District of Columbia but excluding the Commonwealth of
Puerto Rico, the U.S. Virgin Islands and all other territories or possessions of
the United States of America) (the "US Area"), the United Kingdom, Canada,
Australia or Japan (the "Non-Competition Area"). Notwithstanding the foregoing,
nothing contained herein will prohibit (i) the Parent, the Seller or any of
their respective Affiliates from offering, issuing, selling, referring or
promoting, directly or indirectly, Approved Products to customers of the Parent,
the Seller or any of their respective Affiliates anywhere (other than the US
Area) the Parent, the Seller or any of their respective Affiliates conducts
business in the retail
51
industry or (ii) JCPenney Telemarketing, Inc. (or any successor to JCPenney
Telemarketing, Inc.) from providing administrative services (which excludes
selling activities) with respect to insurance products that are Approved
Products.
(b) Notwithstanding any other provisions of this Section 4.10 to the
contrary, (i) the Parent, the Seller and their respective Affiliates shall not
be prohibited from: (A) self-insuring or providing benefits under any other
benefit plans of the Parent, the Seller and such Affiliates (including forming
or owning a captive direct or indirect Subsidiary of the Parent, the sole
business of which is to provide the equivalent of self-insurance for the Parent
and its Affiliates); (B) making investments in the ordinary course of business
of less than ten percent (in the aggregate) of the outstanding voting stock of
any Person that engages, directly or through subsidiaries, in the life and
health insurance or reinsurance business (provided that any such investment by
any 401(k) plan or trust or any other retirement or pension plan sponsored by
the Parent, the Seller or any such Affiliate for the benefit of its employees
shall not be included in determining the amount of any such investment, unless
the management of the Parent or any Affiliate controls the specific investment
decisions of such plan or trust); and (C) making investments in the ordinary
course of business in any Person that engages in any insurance or reinsurance
business other than the life and health insurance or reinsurance business, and
(ii) Eckerd Corporation shall not be prohibited from offering pharmacy benefit
management services or other primary benefit services.
Section 4.11 Further Assurances. In case at any time after the Closing
------------------
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Each of the parties hereto agrees to
defend vigorously against any actions, suits or proceedings in which such party
is named as defendant which seeks to enjoin, restrain or prohibit the
transactions contemplated hereby or seeks damages with respect to such
transactions.
Section 4.12 Notices; Efforts to Remedy. Each Party hereto shall promptly
--------------------------
give written notice to the other party hereto upon becoming aware of the
occurrence of any event which would cause or constitute a breach of any of the
representations, warranties or covenants of such party contained in this
Agreement and shall use reasonable best efforts to prevent or promptly remedy
the same. During the period from the date of this Agreement to the Closing, the
Seller and the Purchaser each shall cause one or more of its representatives to
confer on a regular basis with representatives of the other to formulate a
transition plan and to report on the general status of its ongoing operations.
The Seller shall promptly notify the Purchaser of any change in each case on a
consolidated basis in the normal course of the DMS Companies' businesses or in
the operation of its or their properties having a Material Adverse Effect and of
the receipt by the Seller or the DMS Companies or the DMS Subsidiaries of notice
of any governmental complaints, investigations or hearing (or communications
indicating that the same may be contemplated) or the receipt by the Seller or
the DMS Companies or the DMS Subsidiaries of a notice of the institution or the
threat of litigation involving the Seller or any of the DMS Companies or the DMS
Subsidiaries which, individually or in the aggregate, would have a Material
Adverse Effect. The Purchaser shall promptly notify the Seller of any change in
its businesses or in the operation of its or their properties having a Purchaser
Effect, and of the receipt by the Purchaser of notice of any governmental
complaints, investigations or hearing (or communications indicating that the
same may be contemplated) or the receipt by Purchaser of a
52
notice of the institution or the threat of litigation involving Purchaser or any
of its Affiliates which would reasonably be expected to have, individually or in
the aggregate, a Purchaser Effect.
Section 4.13 Conseco Reinsurance. Promptly after the date of this
-------------------
Agreement, the Seller shall cause Xxxxxxxx & Xxxxxxxxx, Inc. (or, if Xxxxxxxx &
Xxxxxxxxx, Inc. is unable or unwilling to serve, a firm of consulting actuaries
of nationally recognized standing reasonably satisfactory to the Purchaser and
the Seller) (the "Actuaries") to determine, as of December 31, 2000, whether the
amounts held in the Reinsurance Trust are adequate (under accepted actuarial
standards) to cover the total amount of all reasonably anticipated matured and
unmatured benefits, claims and other liabilities of the Cedent reinsured under
the Conseco Agreement. The Actuaries shall deliver to the Purchaser and the
Seller, as promptly as practicable, a written report setting forth their
determination. If the Actuaries determine that such amounts are inadequate (the
amount of such inadequacy being referred to herein as the "Shortfall Amount"),
then the Parent shall promptly request Conseco or one of its Affiliates to
increase the amount of assets held in the Reinsurance Trust by the Shortfall
Amount. The fees of the Actuary shall be paid one-half by the Purchaser and one-
half by the Seller.
Section 4.14 Transition Services.
-------------------
(a) The Parent shall provide transition assistance to the DMS Companies
and the DMS Subsidiaries after the Closing similar to the ongoing business
services provided to the DMS Companies and the DMS Subsidiaries at the time of
Closing at costs determined on the same basis as those charged at the time of
Closing; provided, however, that except as provided in this Section 4.14, the
Parent shall not be required to provide access to any Benefit Plans in
connection with providing such services. If requested by the Purchaser, the
Parent will continue to provide to DMS Employees medical, dental, life and long
and short-term disability benefits; provided, however, that to the extent such
benefits are insured, such benefits will be provided only with the consent of
the applicable insurance provider, and the Parent will use its reasonable best
efforts to obtain such consent. The cost of providing such benefits shall be
equal to the costs of such benefits to the Parent. In no event shall the Parent
be required to provide such services for more than 24 months after the Closing
Date. Promptly after the date hereof, the parties shall negotiate a Transition
Services Agreement reflecting the terms of this Section 4.14 with the goal of
executing and delivering an agreement at the Closing. Execution and delivery of
a Transition Services Agreement shall not be a condition to Closing.
(b) With respect to information technology services after the Closing, the
Parent or the Seller and the Purchaser shall jointly communicate and cooperate
with the third party providers with which the Parent has software license
agreements to (i) seek any amendment, approval or consent necessary in order to
permit the Parent or Seller to provide information technology services to the
Purchaser and (ii) to negotiate any additional compensation that such third
party vendor may require in connection with any such amendment, approval or
consent, if applicable, for which such additional compensation the Purchaser
shall be responsible.
Section 4.15 Monogram Bank. Not later than 30 days prior to the Closing,
-------------
Parent shall provide written notice to Monogram Bank (as defined in the
Marketing Services Agreement) (i) of the Transfer (as defined in the Marketing
Services Agreement), (ii) directing Monogram
53
Bank, upon the Closing, to directly pay and deposit all Purchaser Funds (as so
defined) to an account specified in writing by the Purchaser and (iii)
designating, pursuant to the Monogram Agreement, each of the Purchaser and any
DMS Company and DMS Subsidiary domiciled in the United States as an Authorized
Entity (as defined in the Monogram Agreement) effective as of the Closing.
Section 4.16 Direct Monogram Agreement. The Parent and the Purchaser
-------------------------
shall cooperate in seeking prior to the Closing a direct agreement of Purchaser
with Monogram Bank or to permit Purchaser to have specified third party
beneficiary rights under the Program Agreement.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1 Conditions to Each Party's Obligation. The respective
-------------------------------------
obligation of each party to consummate the transactions contemplated hereby is
subject to the satisfaction or written waiver on or prior to the Closing Date of
the following conditions:
(a) No Injunction or Illegality. No injunction, order, decree or judgment
---------------------------
shall have been issued by any Governmental Entity of competent jurisdiction and
be in effect, and no statute, rule or regulation shall have been enacted or
promulgated by any Governmental Entity and be in effect, which in either case
restrains or prohibits the consummation of the transactions contemplated hereby;
provided, however, that the party invoking this condition shall use its best
efforts to have any such restraint removed.
(b) HSR Act; Governmental Approvals. The required waiting period under
-------------------------------
the HSR Act and insurance Laws applicable to the purchase and sale of the Shares
and the Other Assets shall have expired or been earlier terminated, and all
notices, reports and other filings required to be made prior to the Closing by
any DMS Company or any DMS Subsidiary or by the Purchaser with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Closing from, any Governmental Entity in connection with
the execution and delivery of this Agreement and the Marketing Services
Agreement and the consummation of the transactions contemplated hereby shall
have been made or obtained without the imposition of any conditions that would
reasonably be expected to have a Material Adverse Effect.
Section 5.2 Conditions to Obligations of the Parent and the Seller. The
------------------------------------------------------
obligations of the Seller to consummate the transactions contemplated hereby is
subject to the satisfaction or written waiver on or prior to the Closing Date of
the following conditions:
(a) Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Purchaser contained in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and those that are not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and, except for any such representations and warranties that
speak as of an earlier specified date, as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Purchaser
shall have performed and complied
54
in all material respects with all covenants and agreements required to be
performed or complied with by it hereunder on or prior to the Closing Date.
(b) Closing Deliveries. The Purchaser shall have made the deliveries
------------------
required to be made by it under Section 1.6(a).
Section 5.3 Conditions to Obligations of the Purchaser. The obligation of
------------------------------------------
the Purchaser to consummate the transactions contemplated hereby is subject to
the satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Parent and the Seller contained in this Agreement that are
qualified as to materiality shall be true and correct in all respects, and those
that are not so qualified shall be true and correct in all material respects, as
of the date of this Agreement and, except for any such representations and
warranties that speak as of an earlier specified date, as of the Closing Date
with the same force and effect as though made on and as of the Closing Date. The
Parent and the Seller shall have performed and complied in all material respects
with all covenants and agreements required to be performed or complied with by
it hereunder on or prior to the Closing Date.
(b) No Material Adverse Effect. There shall not have occurred since
--------------------------
December 31, 1999 any Material Adverse Effect or any change, event or occurrence
which would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(c) Closing Deliveries. The Seller shall have made the deliveries
------------------
required to be made by it under Section 1.6(b).
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
Section 6.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned at any time prior to the
Closing as follows:
(a) by the mutual written consent of the Parent and the Purchaser;
(b) by the Parent or the Purchaser, if the Closing shall not have occurred
on or before December 31, 2001, otherwise than as a result of any breach of any
provision of this Agreement by the party seeking to terminate this Agreement;
(c) by the Parent or the Purchaser, if any court of competent jurisdiction
or other Governmental Entity shall have permanently enjoined, restrained or
otherwise prohibited the consummation of the transactions contemplated hereby
and such injunction, restraint or prohibition shall have become final and
nonappealable, provided that the party seeking to terminate this Agreement shall
have used its reasonable best efforts to prevent and remove such injunction,
restraint or prohibition;
(d) by the Parent, if the Purchaser shall have (i) breached any of its
representations or warranties contained in this Agreement that are qualified as
to materiality or (ii) breached in any
55
material respect any of its representations or warranties that are not so
qualified or any of its covenants contained in this Agreement, in each case
which breach cannot be or has not been cured within 30 days after the giving of
written notice to the Purchaser; or
(e) by the Purchaser, if the Parent or the Seller shall have (i) breached
any of its representations or warranties contained in this Agreement that are
qualified as to materiality or (ii) breached in any material respect any of its
representations or warranties that are not so qualified or any of its covenants
contained in this Agreement, in each case which breach cannot be or has not been
cured within 30 days after the giving of written notice to the Seller.
Section 6.2 Effect of Termination. In the event of the termination of
---------------------
this Agreement and the abandonment of the transactions contemplated hereby
pursuant to Section 6.1, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party hereto or its directors,
officers, agents or representatives, and all rights and obligations of any party
hereto shall cease; provided, however, that (a) the third sentence of Section
4.3, this Section 6.2 and Article VIII shall survive any such termination and
abandonment and (b) nothing contained in this Section shall relieve any party
from liability for any intentional breach of this Agreement.
Section 6.3 Amendment. This Agreement may not be modified or amended
---------
except by written agreement executed and delivered by duly authorized officers
of each of the respective parties.
Section 6.4 Extension; Waiver. At any time prior to the Closing, the
-----------------
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement, or (c) waive compliance
with any of the agreements or conditions of the other parties contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in a written instrument executed and delivered
by a duly authorized officer on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification by the Parent and the Seller. Subject to the
--------------------------------------------
other provisions of this Article VII, from and after the Closing, the Parent and
the Seller shall jointly and severally indemnify and hold the Purchaser and its
Affiliates and their respective directors, officers, employees. agents and
representatives (the "Purchaser Indemnitees') harmless from and against any and
all Damages suffered by any Purchaser Indemnitee arising out of or relating to:
(a) any breach of any representation or warranty of the Seller or the
Parent contained in Article II of this Agreement or in any certificate or other
document delivered pursuant hereto;
(b) any breach of any covenant of the Seller or the Parent contained in
this Agreement or the Transition Services Agreement;
56
(c) the use of the Xxxxxx Xxxxx pursuant to the terms of Section 4.8(a)
and in accordance with the other terms of this Agreement; and
(d) any Excluded Liabilities.
For purposes of determining whether indemnification is available under this
Section 7.1 and the amount that is indemnifiable, all qualifications as to
materiality contained in representations and warranties, and all exceptions to
representations and warranties for any items that are not material or that would
not reasonably be expected to have a Material Adverse Effect, or words to
similar effect, shall be disregarded.
Section 7.2 Indemnification by the Purchaser. Subject to the other
--------------------------------
provisions of this Article VII, from and after the Closing, the Purchaser shall
indemnify and hold the Seller, the Parent, their respective Affiliates (other
than the DMS Companies or DMS Subsidiaries) and their respective directors,
officers, employees, agents and representatives (the "Seller Indemnitees")
harmless from and against any Damages suffered by any Seller Indemnitee arising
out of or relating to:
(a) any breach of any representation or warranty of the Purchaser
contained in Article III of this Agreement or in any certificate or other
document delivered pursuant hereto;
(b) any breach of any covenant of the Purchaser contained in this
Agreement or the Transition Services Agreement; and
(c) any Assumed Liabilities; and
(d) any JCPIIG Liabilities.
For purposes of determining whether indemnification is available under this
Section 7.2 and the amount that is indemnifiable, all qualifications as to
materiality contained in representations and warranties, and all exceptions to
representations and warranties for any items that are not material or that would
not reasonably be expected to have a Material Adverse Effect, or words to
similar effect, shall be disregarded.
Section 7.3 Notice and Resolution of Claims.
-------------------------------
(a) Notice. Each Person entitled to indemnification pursuant to Section
------
7.1 or Section 7.2 (an "Indemnitee") shall give written notice to the Seller or
the Purchaser, respectively, promptly after obtaining knowledge of any claim
that it may have under Section 7.1 or Section 7.2, as applicable. Such notice
shall set forth in reasonable detail the claim and the basis for
indemnification. Failure to give such written notice in a timely manner shall
not release the party from whom such indemnification is sought (the
"Indemnifying Party") from its obligations under Section 7.1 or Section 7.2, as
applicable, except to the extent that such failure materially prejudices the
ability of the Indemnifying Party to contest such claim.
(b) Defense of Third Party Claims. If a claim for indemnification
-----------------------------
pursuant to Section 7.1 or Section 7.2 shall arise from an Action (as defined in
Section 8.3) involving a third party (a "Third Party Claim"), the Indemnifying
Party may assume the defense of such Third Party
57
Claim, provided the Indemnifying Party proceeds with diligence and in good faith
with respect thereto. If the Indemnifying Party assumes the defense of such
Third Party Claim, such defense shall be conducted by counsel chosen by the
Indemnifying Party, provided that the Indemnitee shall retain the right to
employ its own counsel and participate in the defense of such Third Party Claim
at its own expense (which will not be recoverable from the Indemnifying Party
under this Article VII or otherwise). In addition, the Indemnitee may employ
separate counsel, and the Indemnifying Party shall bear the expenses of such
separate counsel, if (i) in the written opinion of counsel to the Indemnified
Party reasonably satisfactory to the Indemnifying Party, use of counsel of the
Indemnifying Party's choice would be expected to give rise to a conflict of
interest, (ii) the Indemnifying Party shall not have employed counsel to
represent the Indemnified Party within a reasonable time after notice of the
assertion of any such claim or institution of any such action or proceeding, or
(iii) the Indemnifying Party shall authorize the Indemnified Party in writing to
employ separate counsel at the expense of the Indemnifying Party. In no event
shall the Indemnifying Party be obligated to pay the fees and expenses of more
than one counsel for all Indemnified Parties with respect to any claim
indemnified under this Article VII. Notwithstanding the foregoing provisions of
this Section 7.3(b), (i) no Indemnifying Party shall be entitled to settle any
Third Party Claim for which indemnification is sought under Section 7.1 or
Section 7.2 without the Indemnitee's prior written consent unless as part of
such settlement the Indemnitee is released from all liability with respect to
such Third Party Claim and such settlement does not impose any equitable remedy
on the Indemnitee, adversely affect the Indemnitee's business or require the
Indemnitee to admit any wrongdoing, and (ii) no Indemnitee shall be entitled to
settle any Third Party Claim for which indemnification is sought under Section
7.1 or Section 7.2 without the Indemnifying Party's prior written consent unless
as part of such settlement the Indemnifying Party is released from all liability
with respect to such Third Party Claim and such settlement does not impose any
equitable remedy on the Indemnifying Party, adversely affect the Indemnifying
Party's business or require the Indemnifying Party to admit any wrongdoing.
Section 7.4 Limits on Indemnification.
-------------------------
(a) Exclusion of Certain De Minimis Matters. Neither the Seller nor the
---------------------------------------
Purchaser shall have any obligation or liability to any Indemnitee pursuant to
Section 7.1(a) or Section 7.2(a), respectively, with respect to any individual
event or condition (or combination of events and conditions arising out of the
same breach) from which the Damages suffered by the Indemnitee shall not have
exceeded $50,000 (any such event or condition being hereinafter referred to as a
"De Minimis Matter").
(b) Deductible. (i) The Parent and the Seller shall not have any
----------
liability to any Purchaser Indemnitee under Section 7.1(a) unless and until the
aggregate amount of Damages suffered by the Purchaser Indemnitees arising out of
the matters referred to in Section 7.1(a), exclusive of any and all Damages
arising out of De Minimis Matters, shall have exceeded $15,000,000, in which
case the Seller shall be obligated and liable under Section 7.1(a) only with
respect to such excess; and (ii) the Purchaser shall not have any obligation or
liability to any Seller Indemnitee under Section 7.2(a) unless and until the
aggregate amount of Damages suffered by the Seller Indemnitees arising out of
the matters referred to in Section 7.2(a), exclusive of any and all Damages
arising out of De Minimis Matters, shall have exceeded
58
$15,000,000, in which case the Purchaser shall be obligated and liable under
Section 7.2(a) only with respect to such excess.
(c) Limit of Liability. The aggregate liability of the Parent and the
------------------
Seller, on the one hand, and the Purchaser, on the other hand, under Section
7.1(a) or Section 7.2(a), respectively, shall not exceed $615,000,000; provided,
however, that the foregoing limitation shall not apply to Damages attributable
to a breach by the Seller or the Parent of the representations and warranties
contained in the first four sentences of Sections 2.1(b) and 2.1(c), Section
2.1(e), the first sentence of 2.2(b), Section 2.2(d) and the first four
sentences of Section 3.2.
(d) Survival. The representations and warranties contained in Articles
--------
II and III of this Agreement shall terminate on March 31, 2003, except that the
representations and warranties set forth in Sections 2.2(n), 2.2(o) and 2.2(t)
shall survive until 30 days after the expiration of the applicable statute of
limitations and the representations and warranties set forth in the first three
sentences of Section 2.1(b) and Section 2.1(c), Section 2.1(e), Section 2.2(a),
Section 2.2(d) and the first three sentences of Section 3.2 shall survive
indefinitely. Neither the Seller nor the Purchaser shall have any obligation or
liability pursuant to Section 7.1(a) or Section 7.2(a), respectively, for any
breach of any representation or warranty unless notice of a claim asserting such
breach shall have been given in accordance with Section 7.3(a) prior to the
termination of such representation or warranty.
(e) Exclusive Remedy. After the Closing, except for any nonmonetary,
----------------
equitable relief to which any Indemnitee may be entitled, the rights and
remedies set forth in this Article VII shall constitute the sole and exclusive
rights and remedies of the parties hereto under or with respect to the subject
matter of this Agreement. Each of the parties hereto hereby waives any and all
claims and any cause of action for monetary damages under or with respect to the
subject matter of this Agreement (other than any claims or causes of action
arising out of the express provisions of this Article VII) that it might
otherwise be entitled to assert against the other party hereto under any Law of
any Governmental Entity, under the common law of any jurisdiction or otherwise.
Section 7.5 Indemnity Payments. All payments made pursuant to this
------------------
Article VII (other than interest payments) shall be treated by the parties
hereto on all Tax Returns as an adjustment to the Purchase Price.
Section 7.6 Coordination With Tax Covenant. In the event any provision of
------------------------------
this Article VII is inconsistent with any provision of Section 4.6(g), the
provisions of Section 4.6(g) shall control.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Reliance. The representations and warranties of the Purchaser
--------
contained in this Agreement, the Transaction Agreements or any certificates
delivered pursuant to this Agreement constitute the sole and exclusive
representations and warranties of the Purchaser to the Parent and the Seller in
connection with this Agreement and the transactions contemplated
59
hereby, and the Parent and the Seller acknowledge that all other representations
and warranties are specifically disclaimed and may not be relied upon or serve
as a basis for a claim against the Purchaser. The representations and warranties
of the Parent and the Seller contained in this Agreement, the Transaction
Agreements or any certificates delivered pursuant to this Agreement constitute
the sole and exclusive representations and warranties of the Parent and the
Seller to the Purchaser in connection with this Agreement and the transactions
contemplated hereby, and the Purchaser acknowledges that all other
representations and warranties are specifically disclaimed and may not be relied
upon or serve as a basis for a claim against the Parent or the Seller. THE
PURCHASER ACKNOWLEDGES THAT THE PARENT AND THE SELLER DISCLAIM ALL WARRANTIES
OTHER THAN THOSE EXPRESSLY CONTAINED IN THIS AGREEMENT, THE TRANSACTION
AGREEMENTS AND ANY CERTIFICATES DELIVERED PURSUANT TO THIS AGREEMENT AS TO THE
SELLER AND ITS SUBSIDIARIES AND THEIR RESPECTIVE BUSINESSES, ASSETS,
LIABILITIES, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS, EITHER
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
Section 8.2 Fees and Expenses. The Parent shall pay one-half and the
-----------------
Purchaser shall pay one-half of the filing fees to be paid pursuant to the HSR
Act. Except as provided in Section 4.7, all other recording or filing fees or
similar costs imposed or levied by reason of, in connection with or attributable
to this Agreement and the transactions contemplated hereby shall be borne by the
Purchaser. Whether or not the transactions contemplated hereby shall be
consummated, except as set forth in the immediately preceding sentence, each
party hereto shall pay its own expenses incident to preparing for, entering into
and carrying out this Agreement and the consummation of the transactions
contemplated hereby.
Section 8.3 Certain Definitions. (a) For purposes of this Agreement the
-------------------
following terms have the meanings set forth below:
(i) "Action" means any demand, claim, action, suit, proceeding or
investigation by or before any court or Governmental Entity.
(ii) an "Affiliate" of any Person means another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person.
(iii) "Business Day" means any day other than Saturday, Sunday or
any other day on which banks in the City of New York are required or permitted
to close.
(iv) "Damages" means all losses, claims, liabilities, costs and
expenses (including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and disbursements). The term "Damages" is not limited
to matters asserted by third parties against any Person entitled to be
indemnified, but includes Damages incurred or sustained by the Purchaser, the
Seller, the Parent, a DMS Company or a DMS Subsidiary in the absence of a third
party claim.
60
(v) "DMS Companies" means (x) prior to and at the Closing, the DMS
Shares Companies and JCPIIG and (y) after the Closing, the DMS Shares Companies.
(vi) "DMS Subsidiary" means a Subsidiary of a DMS Shares Company
and the JCPIIG Subsidiary Companies.
(vii) "Excluded Liabilities" means (x) any fees or expenses referred
to in Section 2.2(z) and (y) any other liabilities or obligations of any kind or
nature of the Seller which does not constitute an Assumed Liability.
(viii) "Intellectual Property" means all trade names, trademarks,
service marks, logos, registered copyrights and patents (including registrations
and applications to register or renew the registration of any of the foregoing),
computer software, know-how and trade secrets used by the Seller, the DMS
Companies or the DMS Subsidiaries in connection with the conduct of the
Business, but excluding computer software commercially available to the general
public and readily replaceable).
(ix) "JCPIIG Assets" means all of the rights, properties and assets
of every kind, character and description, wherever located and whether tangible
or intangible, real or personal or fixed or contingent, owned or held by JCPIIG
but excluding the JCPIIG Sub Shares.
(x) "knowledge of the Seller and the Parent" means the actual
knowledge of any of the applicable individuals listed in Section 8.3(a)(x) of
the Disclosure Schedule.
(xi) "Laws" means all applicable statutes, laws, ordinances, rules,
orders and regulations.
(xii) a "Material Adverse Effect" means a material adverse effect on
(x) the ability of the Parent or the Seller to timely perform its respective
obligations under this Agreement or any Transaction Agreement to which it is a
party or to consummate the transactions contemplated hereby or thereby, or (y)
the Business or financial condition, results of operations or assets of the DMS
Companies and the DMS Subsidiaries taken as a whole, excluding any effects
resulting from (A) changes in general U.S. economic conditions, (B) conditions
affecting the life or health insurance or direct marketing industries generally,
which do not have a disproportionate adverse effect on the DMS Companies and the
DMS Subsidiaries, or (C) the execution, delivery, announcement or performance of
this Agreement or the Transaction Agreements to which it is a party or the
consummation of any transaction contemplated hereby or thereby.
(xiii) "Other Assets" means all of the rights, properties and assets
of every kind, character and description, wherever located and whether tangible
or intangible, real or personal or fixed or contingent, owned or held by the
Seller in connection with the conduct of the Business or otherwise arising out
of the conduct of the Business, including without limitation the assets listed
on Section 8.3(a)(xiii) to the Disclosure Schedule, but excluding the Retained
Assets and the Shares.
(xiv) a "Person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity.
61
(xv) a "Subsidiary" of any Person means any other Person of which
(x) the first mentioned Person or any subsidiary thereof is a general partner,
(y) voting power to elect a majority of the board of directors or others
performing similar functions with respect to such other Person is held by the
first mentioned Person and/or by any one or more of its subsidiaries, or (z) at
least 50% of the equity interests of such other Person is, directly or
indirectly, owned or controlled by such first mentioned Person and/or by any one
or more of its subsidiaries.
(xvi) "Transaction Agreements" means this Agreement, the License
Agreement, the Marketing Services Agreement, the Assignment Agreement, the
JCPIIG Assignment and Assumption Agreement, the JCPIIG Xxxx of Sale, and the
Xxxx of Sale and the Release.
(xvii) "Transferred Intellectual Property" means all Intellectual
Property other than Intellectual Property owned by or licensed to the Parent and
any other Intellectual Property included in the Retained Assets.
(xviii) "Transition Services Agreement" means the agreement
contemplated by Section 4.14, if any such agreement is executed and delivered by
the Parent and the Purchaser.
(b) For purposes of this Agreement the following terms have the meanings
set forth in the sections noted below:
Accountants Section 1.4(d)
Actuaries Section 4.13
Acquisition Proposal Section 4.2(b)
Agreement Introductory Paragraph
Allocation Statements Section 4.6(l)
Applicable Rate Section 1.4(h)(i)
Assignment Agreement Section 1.6(a)(v)
Assumed Liabilities Section 1.10
Benefit Plan Section 2.2(n)
Xxxx of Sale Section 1.6(b)(v)
Business Recitals
Cedent Section 2.2(r)(v)
Closing Section 1.5
Closing Date Section 1.5
Closing Date Balance Sheets and
Net Book Value Statements Section 1.4(c)
Closing Date GAAP Balance Sheet Section 1.4(a)
Closing Date GAAP Net Book Value Section 1.4(b)
Closing Date GAAP Net Book Value
Statement Section 1.4(b)
Closing Date SAP Net Book Value Section 1.4(a)
Closing Date SAP Net Book Value
Statement Section 1.4(a)
Code Section 2.2(n)(iii)
Collective Bargaining Agreements Section 2.2(m)(ii)
Company Plan Section 2.2(n)
62
Confidentiality Agreement Section 4.3
Conseco Section 2.2(r)(v)
Conseco Agreement Section 2.2(r)(v)
Contracts Section 2.2(m)
De Minimis Matter Section 7.4(a)
Disclosure Schedule Recitals
Dispute Notice Section 4.6(c)
DMS Shares Companies Recitals
DMS Employee Section 4.7(a)
DMS MSRP Section 4.7(c)(ii)
DMS Tax Companies Section 4.6(o)(iv)
Environmental Law Section 2.2(t)
ERISA Section 2.2(n)
Estimated GAAP Balance Sheet Section 1.3(b)
Estimated Intercompany Amount Section 1.7(a)
Estimated GAAP Net Book Value
Statement Section 1.3(b)
Estimated SAP Balance Sheet Section 1.3(a)
Estimated SAP Net Book Value
Statement Section 1.3(a)
Exchange Act Section 2.1(d)
Financial Statements Section 2.2(f)(i)
GAAP Section 2.2(f)(i)
GAAP Balance Sheet Section 1.4(h)(iv)
GAAP Net Book Value Section 1.4(h)(v)
Governmental Entity Section 2.1(d)
HSR Act Section 2.1(d)
Hazardous Materials Section 2.2(t)
Indemnifying Party Section 7.3(a)
Indemnitee Section 7.3(a)
Insurance Contracts Section 2.2(p)(ii)
Insurance Subsidiaries Section 2.2(a)(ii)
Intercompany Obligations Section 1.7(a)
Investment Assets Section 2.2(j)(i)
JCPIIG Recitals
JCPIIG Xxxx of Sale Section 1.6(b)(vi)
JCPIIG Liabilities Section 1.10
JCPIIG Sub Shares Recitals
JCPIIG Subsidiary Companies Recitals
Leased Real Property Section 2.2(k)
Legal Proceedings Section 2.1(f)
License Agreement Recitals
Liens or Encumbrances Section 1.1
Listed Intellectual Property Section 2.2(l)(i)
Marketing Services Agreement Recitals
MVP Plan Section 1.3(c)
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Net Settlement Amount Section 1.7(a)
1940 Act Section 2.2(x)
Nonassignable Contract Section 1.9(a)
Non-Competition Area Section 4.10(a)
Objection Notice Section 1.4(c)
Owned Real Property Section 2.2(k)
Parent Introductory Paragraph
Parent MSRP Section 4.7(c)(i)
Xxxxxx Xxxxx Section 4.8(a)
Permitted Liens Section 2.2(j)(i)
Post-Closing Tax Period Section 4.6(b)
Pre-Closing Tax Period Section 4.6(b)
Premium Tax Returns Section 4.6(b)(iii)
Purchase Price Section 1.4(f)
Purchaser Introductory Paragraph
Purchaser Disclosure Schedule Recitals
Purchaser Effect Section 3.1
Purchaser Indemnitees Section 7.1
Purchaser Review Period Section 1.4(c)
Reinsurance Trust Section 2.2(r)(v)
Reinsurer Section 2.2(r)
Release Section 1.6(a)(viii)
Retained Assets Section 1.8
SAP Section 2.2(f)(ii)
SAP Balance Sheet Section 1.4(h)(i)
SAP Companies Section 1.3(a)
SAP Net Book Value Section 1.4(h)(iii)
SAP Statements Section 2.2(f)(ii)
SEC Section 2.1(d)
Section 338(g) Election Section 4.6(m)
Seller Introductory Paragraph
Seller Shares Recitals
Seller Indemnitees Section 7.2
Seller's Auditor Section 1.4(a)
Shares Recitals
Shortfall Amount Section 4.13
Straddle Tax Period Section 4.6(b)(vii)
Taxes Section 2.2(o)
Tax Matter Section 4.6(f)
Tax Returns Section 2.2(o)
Taxing Authority Section 2.2(o)
Third Party Claim Section 7.3(b)
Unadjusted Purchase Price Section 1.2
US Area Section 4.10(a)
Website Materials Section 4.9(a)
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Section 8.4 Notices. All notices, requests, claims, demands and other
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communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by facsimile (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses other than notices required by Section 4.6, which shall be delivered
to the addresses set forth in Section 4.6(p) (or at such other address for a
party as shall be specified by like notice):
(i) if to the Purchaser, to
Commonwealth General Corporation
0000 Xxxxxxxx Xxxx, X.X.
Xxxxx Xxxxxx, Xxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P.
000 Xxxx 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxxx X. Xxx, Esq.
Facsimile: (000) 000-0000
(ii) if to the Parent or the Seller, to
X. X. Xxxxxx Company, Inc.
0000 Xxxxxx Xxxxx
Xxxxx, Xxxxx 00000
Attention: Senior Vice President and Director of
Business Planning and Support Services
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
X. X. Penney Company, Inc.
0000 Xxxxxx Xxxxx
Xxxxx, Xxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
and
Xxxxx, Day, Xxxxxx & Xxxxx
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
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Section 8.5 Interpretation. The language used in this Agreement will be
--------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. When a
reference is made in this Agreement to a Section, such reference shall be to a
Section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for convenience of reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." For purposes of this Agreement, with respect to any matter that is
clearly disclosed in any portion of the Disclosure Schedule in such a way as to
make its relevance to the information called for by another Section of this
Agreement readily apparent, such matter shall be deemed to have been included in
the Disclosure Schedule in response to such other Section, notwithstanding the
omission of any appropriate cross-reference thereto. Any interest payable under
any provision of this Agreement shall be calculated on the basis of a 360-day
year consisting of 12 30-day months. ALL RELEASES, DISCLAIMERS, LIMITATIONS ON
LIABILITY AND INDEMNITIES SET FORTH IN THIS AGREEMENT SHALL APPLY AND OPERATE IN
ACCORDANCE WITH THEIR RESPECTIVE TERMS NOTWITHSTANDING ANY SOLE, JOINT, AND/OR
CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OR BASIS FOR LIABILITY
OF THE PARTY WHOSE LIABILITY IS RELEASED, DISCLAIMED, LIMITED OR INDEMNIFIED.
Section 8.6 Entire Agreement; Third-Party Beneficiaries. This Agreement,
-------------------------------------------
the Marketing Services Agreement and the Confidentiality Agreement constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter of
this Agreement and the Marketing Services Agreement. This Agreement is not
intended to confer upon any Person (including without limitation any employees
or former employees of the DMS Companies or the DMS Subsidiaries), other than
the parties hereto, any rights or remedies, except that each Indemnitee shall be
a third party beneficiary with respect to Article VII and shall be entitled to
the rights and benefits of, and to enforce, the provisions thereof.
Section 8.7 Governing Law; Venue. This Agreement shall be governed by,
--------------------
and construed in accordance with, the Laws of the State of Delaware, regardless
of the Laws that might otherwise govern under applicable principles of conflicts
of Laws thereof. Each of the parties hereto (i) hereby submits itself to the
personal jurisdiction of any appropriate state or federal court in the State of
Delaware in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) shall not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (iii) shall not bring any action relating to this Agreement or any of the
transactions contemplated hereby in any other court.
Section 8.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of Law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment without
such prior written consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Notwithstanding the
66
foregoing, the Purchaser may, upon written notice delivered to the Parent no
later than forty-five days after the date hereof, designate one or more wholly
owned Subsidiaries of AEGON N.V. to receive the shares of Canadian Premier
Holdings, Ltd. or the direct Subsidiaries of JCPIIG and the JCPIIG Assets and to
assume the JCPIIG Liabilities at the Closing so long as the Purchaser reimburses
the Parent and the Seller for any reasonable incremental out-of-pocket costs
incurred by the Parent or the Seller, respectively, as a result of such
designation. The Parent and the Seller will provide the Purchaser with
documentation of such costs that is reasonably satisfactory to the Purchaser.
Section 8.9 Enforcement.
------------
(a) Injunctive Relief. Irreparable damage would occur in the event that
-----------------
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the provisions of this Agreement, this
being in addition to any other remedy to which they are entitled at Law or in
equity.
(b) Right to Jury Trial. EACH PARTY HERETO WAIVES ITS RIGHTS TO A JURY
-------------------
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.10 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under any
applicable Law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein and there had been contained herein instead such
valid, legal and enforceable provisions as would most nearly accomplish the
intent and purpose of such invalid, illegal or unenforceable provision.
Section 8.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
[signature page follows]
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IN WITNESS WHEREOF, the Purchaser, the Parent and the Seller have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
COMMONWEALTH GENERAL CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxxxx
--------------------------------------------
Xxxxx X. Xxxxxxxxxxx
Vice President and Controller
X.X. XXXXXX COMPANY, INC.
By: /s/ XX Xxxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxxx
Senior Vice President and
Director of Business Planning and Support
X. X. PENNEY DIRECT MARKETING SERVICES, INC.
By: /s/ Xxxx X. Xxxxxxx
---------------------
Xxxx X. Xxxxxxx
Executive Vice President,
Secretary and General Counsel
