Exhibit 10
EXECUTION VERSION
STOCK PURCHASE AGREEMENT
BY AND AMONG
SAFECO CORPORATION,
GENERAL AMERICA CORPORATION,
WHITE MOUNTAINS INSURANCE GROUP, LTD.
AND
OCCUM ACQUISITION CORP.
dated as of
March 15, 2004
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of March 15, 2004 (this
"AGREEMENT"), is by and among Safeco Corporation, a Washington corporation
("SELLER"), General America Corporation ("GAC"), a Washington corporation and a
wholly owned subsidiary of Seller, White Mountains Insurance Group, Ltd., a
company existing under the laws of Bermuda ("PARENT"), and Occum Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("BUYER").
WHEREAS, Seller operates on a nationwide basis in segments of the
insurance industry and other financial services-related businesses, including,
through those certain direct and indirect Subsidiaries of Seller identified on
SCHEDULE A (each such person, an "ACQUIRED COMPANY"), the provision of
individual and group insurance products, annuity products, mutual funds and
investment advisory services;
WHEREAS, Buyer desires to purchase (directly or indirectly) all of the
issued and outstanding capital stock of the Acquired Companies as of the Closing
Date (collectively, the "SHARES") for the consideration and subject to the terms
and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE SHARES
SECTION 1.1 PURCHASE AND SALE OF SHARES. At the Closing, on the terms
and subject to the conditions set forth in this Agreement, Seller shall, and,
with respect to the stock of SIS, shall cause GAC to, sell, assign, transfer,
convey and deliver to Buyer, and Buyer hereby agrees to purchase, all of the
Shares, free and clear of all Liens.
SECTION 1.2 CLOSING. Subject to the provisions of Article VI, the
closing of the purchases and sales contemplated by this Agreement (the
"CLOSING") shall take place in Seattle, WA at the offices of Seller at 10:00
a.m. Pacific time on the later of (i) June 30, 2004 and (ii) the last day of the
month after the date on which each of the conditions set forth in Article V
(other than conditions that are satisfied by the delivery of documents or the
payment of money at the Closing) have been satisfied or waived by the party or
parties entitled to the benefit of such conditions (or if such day is not a
Business Day, on the next succeeding Business Day); PROVIDED, that solely for
purposes of the parties' respective accounting, the Closing shall be deemed to
have occurred at 12:01 a.m. on the first day of the following month, or at such
other place, at such other time or on such other date as Parent and Seller may
mutually agree. The date on which the Closing actually occurs is hereinafter
referred to as the "CLOSING DATE." Subject to the provisions of Article VI, a
party's failure to consummate the purchases and sales provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 1.2 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
SECTION 1.3 CLOSING OBLIGATIONS.
(a) At the Closing, Seller shall, or with respect to SIS, cause
GAC to, deliver to Buyer:
(i) certificates representing the Shares of the Acquired
Companies that are direct subsidiaries of Seller and GAC, duly
endorsed (or accompanied by duly executed stock powers) in proper
form for transfer of such Shares, with appropriate transfer stamps,
if any, affixed, to Buyer;
(ii) a Transition Services Agreement, substantially in
the form attached hereto as EXHIBIT A (the "TRANSITION SERVICES
AGREEMENT");
(iii) an Intellectual Property License from Seller to
Buyer, substantially in the form attached hereto as EXHIBIT B (the
"BUYER INTELLECTUAL PROPERTY LICENSE");
(iv) a Transitional Trademark License, substantially in
the form attached hereto as EXHIBIT C (the "TRANSITIONAL TRADEMARK
LICENSE");
(v) a Lease Agreement for the Redmond, WA campus
facility, substantially in the form attached hereto as EXHIBIT D
(the "LEASE AGREEMENT"); and
(vi) a copy of each new Investment Company Advisory
Agreement (or, where permitted, approval of the continuation of the
existing Investment Company Advisory Agreement) described in Section
4.9(b)(i)(B)(x).
(b) At the Closing, Buyer shall, and Parent shall cause Buyer
to, deliver to Seller, including for the benefit of GAC with respect to
SIS:
(i) $1,350,000,000 (the "CLOSING CONSIDERATION") by wire
transfer of immediately available funds to an account designated by
Seller in writing at least two (2) Business Days' prior to the
Closing Date, subject to the post-Closing purchase price adjustment
pursuant to Section 1.4 hereof;
(ii) the Transition Services Agreement;
(iii) the Transitional Trademark License; and
(iv) the Lease Agreement (the documents described in
clauses (ii)-(iv) along with this Agreement and the Buyer
Intellectual Property License, being referred to collectively as the
"TRANSACTION DOCUMENTS").
SECTION 1.4 POST-CLOSING ADJUSTMENT.
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(a) As soon as practicable following the Closing, Seller shall
prepare or cause to be prepared audited financial statements (including
balance sheets and statements of income and the requisite footnotes
thereto) of the Insurance Subsidiaries as of and for the six months ended
June 30, 2004 (the "JUNE FINANCIAL STATEMENTS"). The June Financial
Statements (i) shall be prepared in accordance with SAP (which for purposes
of this SECTION 1.4 only shall include the Agreed Accounting Policies)
consistently applied in accordance with the accounting policies and
practices (including with respect to assumptions, estimations methodology
and actuarial methodology) used to prepare the Insurance Subsidiary
Statements as of December 31, 2003 (the "DECEMBER FINANCIAL STATEMENTS")
and (ii) shall be audited by Ernst & Young LLP in accordance with generally
accepted auditing standards in the United States ("GAAS"). For the
avoidance of doubt, certain of the accounting policies and practices used
to prepare the December Financial Statements and to be used to prepare the
June Financial Statements are set forth on Schedule 1.4 attached hereto
(such policies and practices, the "AGREED ACCOUNTING POLICIES"). No later
than forty-five (45) days following the Closing, Seller shall cause a copy
of the June Financial Statements to be delivered to Buyer, along with an
unqualified executed audit opinion of Ernst & Young LLP substantially in
the form attached hereto as Exhibit 1.4 stating that (i) the June Financial
Statements were prepared in accordance with SAP and (ii) the June Financial
Statements were audited by Ernst & Young LLP in accordance with GAAS.
(b) Buyer shall have forty-five (45) days following delivery of
the June Financial Statements (the "OBJECTION PERIOD") to provide written
notice to Seller (the "OBJECTION NOTICE") of any good faith objection to
any portion of the June Financial Statements (and the June Adjusted
Statutory Book Value calculated therefrom), which objection shall be set
forth with reasonable detail in such Objection Notice. Unless Buyer timely
delivers an Objection Notice before the expiration of the Objection Period,
the June Financial Statements (and the June Adjusted Statutory Book Value
calculated therefrom) shall be deemed to have been accepted and approved by
Buyer and shall thereafter be final and binding upon Buyer for purposes of
any post-closing adjustment set forth in this Section 1.4 (and any amounts
to be paid pursuant to Section 1.4(f) hereof shall thereupon be paid). In
addition, to the extent any portion of the June Financial Statements or of
the calculation of the June Adjusted Statutory Book Value shall not be
expressly objected to in the Objection Notice, such matters shall be deemed
to have been accepted and approved by Buyer and shall be final and binding
upon Buyer for purposes hereof. If Buyer timely delivers an Objection
Notice before the expiration of the Objection Period, then those aspects of
the June Financial Statements objected to in the Objection Notice shall not
thereafter be final and binding until resolved in accordance with this
Section 1.4.
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(c) Following receipt of any Objection Notice, Seller and Buyer
shall discuss in good faith the applicable objections set forth therein for
a period of thirty (30) days thereafter and shall, during such period,
attempt to resolve the matter or matters in dispute by mutual written
agreement. If the parties reach such an agreement, such agreement shall be
confirmed in writing and the June Financial Statements shall be revised to
reflect such agreement (or the parties shall otherwise agree to reflect
such agreement in a written memorandum of adjustment (an "ADJUSTMENT
MEMORANDUM")), which agreement (and the (i) June Financial Statements, as
so revised, including the June Adjusted Statutory Book Value calculated
therefrom or (ii) Adjustment Memorandum, as applicable) shall thereafter be
final and binding upon Seller and Buyer for purposes of any post-closing
adjustment set forth in this Section 1.4 (and any amounts to be paid
pursuant to Section 1.4(f) hereof shall thereupon be paid).
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(d) If the parties are unable to reach a mutual agreement in
accordance with Section 1.4(c) hereof during the thirty (30) day period
referred to therein, then Seller and Buyer shall jointly select a qualified
partner (with fifteen (15) or more years of life insurance accounting
experience) of either Deloitte & Touche LLP or KPMG LLP (the "ACCOUNTING
EXPERT"), who, acting as an expert and not as an arbitrator, shall resolve
those matters still in dispute with respect to the June Financial
Statements and the June Adjusted Statutory Book Value calculated therefrom.
If the parties fail to agree on an Accounting Expert within five (5)
Business Days after the expiration of the thirty (30) day period, either
party may request the American Arbitration Association to appoint such an
Accounting Expert (or a qualified partner (with fifteen (15) or more years
of life insurance accounting experience) of another accounting firm if both
accounting firms decline to or are disqualified from accepting the
dispute), and such appointment shall be conclusive and binding upon the
parties. The Accounting Expert's resolution of the matters in dispute,
including any adjustments to the June Financial Statements (or the June
Adjusted Statutory Book Value calculated therefrom) made by the Accounting
Expert, shall be made by a detailed writing and shall be final and binding
on Seller and Buyer (and any amounts to be paid pursuant to Section 1.4(f)
hereof shall thereupon be paid). Within twenty (20) days of the appointment
of the Accounting Expert, each party shall deliver a written presentation
of its position to the Accounting Expert and the other party, and the
parties will then have ten (10) days to prepare a written response to the
other party's presentation. The Accounting Expert may also request written
responses from the parties to specific questions at any time, which shall
be delivered to the Accounting Expert and the other party. The Accounting
Expert shall make a determination as soon as practicable and in any event
within sixty (60) days (or such other time as the parties shall agree in
writing) after its engagement. Notwithstanding anything set forth in this
Section 1.4(d), the scope of any dispute to be resolved by the Accounting
Expert pursuant to this Section 1.4(d) shall be limited to whether the June
Financial Statements were prepared in accordance with SAP (including the
Agreed Accounting Policies), consistently applied with their application as
of December 31, 2003, or whether there were mathematical errors in the June
Financial Statements or the calculation of the June Adjusted Statutory Book
Value, and, except for the foregoing matters, the Accounting Expert shall
not and is not to make any further determination. In resolving any disputed
item, the Accounting Expert may not assign a value to any particular item
greater than the greatest value for such item claimed by Seller or Buyer or
less than the smallest value for such item claimed by Seller or Buyer, in
each case as presented to the Accounting Expert. Seller and Buyer agree to
fully cooperate with each other and with the Accounting Expert to resolve
any dispute.
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(e) Seller and Buyer agree that judgment may be entered to give
effect to the determination of the Accounting Expert in any court having
jurisdiction over the party against which such determination is to be
enforced. Notwithstanding any other provision of this Agreement to the
contrary, the procedure set forth in this Section 1.4 shall be each party's
exclusive remedy against the other party to this Agreement with respect to
any disputes relating to an adjustment to the Closing Consideration;
PROVIDED, HOWEVER, that, except as provided in this sentence and in Section
7.3(d), Seller and GAC acknowledge that neither the decision of the
Accounting Expert, if any, nor Parent and Buyer's acceptance of the final
and binding June Financial Statements shall in any way limit or otherwise
affect Parent and Buyer's rights to make any claim for breach of any
representation, warranty or covenant of Seller or GAC under this Agreement,
or in Parent and Buyer's right to indemnification for any such breach under
Article VII.
(f) If the June Adjusted Statutory Book Value as calculated from
the final and binding June Financial Statements: (i) is greater than the
Target Statutory Book Value, then Buyer shall pay to Seller the amount by
which the June Adjusted Statutory Book Value exceeds the Target Statutory
Book Value; or (ii) is less than the Target Statutory Book Value, then
Seller shall pay to Buyer the amount by which the June Adjusted Statutory
Book Value is less than the Target Statutory Book Value (the amount of
either such adjustment, a "POST-CLOSING ADJUSTMENT AMOUNT"). The "PURCHASE
PRICE" shall equal the Closing Consideration plus the Post-Closing
Adjustment Amount, if payable by Buyer, or minus the Post-Closing
Adjustment Amount, if payable by Seller. Buyer and Seller acknowledge that
for purposes of the procedures set forth in this Section 1.4 only, the
calculation of June Adjusted Statutory Book Value will be made subject to
the provisions of Section 4.15.
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(g) Any Post-Closing Adjustment Amount payable by Seller
pursuant to this Section 1.4 shall be paid promptly by Seller, but in no
event later than ten (10) Business Days following the final and binding
determination of such Post-Closing Adjustment Amount (as determined by the
Accounting Expert). Any Post-Closing Adjustment Amount payable by Buyer
pursuant to this Section 1.4, shall be paid promptly by Buyer, but in no
event later than ten (10) Business Days following the final and binding
determination of such Post-Closing Adjustment Amount (as determined by the
Accounting Expert); PROVIDED, HOWEVER, that if any Post-Closing Adjustment
Amount payable by Buyer pursuant to this Section 1.4 shall be an amount
greater than $20 million (the "INITIAL ADJUSTMENT AMOUNT"), then Buyer
shall (i) pay the Initial Adjustment Amount to Seller within ten (10)
Business Days following the final and binding determination of such
Post-Closing Adjustment Amount (as determined by the Accounting Expert) and
(ii) shall issue to Seller a note (the "ADJUSTMENT NOTE") in the amount of
the excess of such Post-Closing Adjustment Amount over the Initial
Adjustment Amount, payable by Parent upon the earlier to occur of (A) the
second Business Day after the date when it becomes permissible under
applicable Law for Buyer to cause any Insurance Subsidiary to make a
dividend to Buyer in the amount of such excess (and Buyer agrees to use its
commercially reasonable efforts to facilitate the making of such dividend
as promptly as practicable) and (B) the first Business Day after the
twelve-month anniversary of the date that is 90 days after the Closing
Date. Payment by either party of (i) any Post-Closing Adjustment Amount or
(ii) the principal of any Adjustment Note shall in each case be made in
immediately available funds via wire transfer to an account designated by
the party entitled to receive such payment in writing, and shall in each
case be paid together with interest thereon, at a rate per annum equal to
the "Prime Rate" (as reported from time to time in THE WALL STREET JOURNAL)
plus 200 basis points, calculated on the basis of the actual number of days
elapsed divided by 365, from and including the Closing Date to but
excluding the date of payment.
(h) All fees and expenses of Seller relating to the matters
described in this Section 1.4, including the preparation and delivery of
the June Financial Statements and the fees of Ernst & Young LLP and
Milliman, shall be borne by Seller, and all fees and expenses of Buyer
relating to the matters described in this Section 1.4 shall be borne by
Buyer. Notwithstanding the foregoing, in the event any dispute is submitted
to the Accounting Expert for resolution as provided in Section 1.4(d)
hereof, the fees and expenses of the Accounting Expert (and any arbitrator
appointing such expert, if applicable) shall be borne equally by Seller and
Buyer.
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(i) Following the Closing, Buyer shall not take any action with
respect to the accounting books and records of the Acquired Companies and
their Subsidiaries on which the June Financial Statements or the
calculation of June Adjusted Statutory Book Value is to be based that is
not consistent with the past practices of the Acquired Companies (including
the Agreed Accounting Policies) and would affect the June Financial
Statements or the calculation of June Adjusted Statutory Book Value.
Without limiting the generality of the foregoing, no changes shall be made
in the methodology for establishing any reserve or other account existing
as of the date of the balance sheet included within the June Financial
Statements (including with respect to assumptions, estimations methodology
and actuarial methodology) that would affect the June Financial Statements
or the calculation of June Adjusted Statutory Book Value.
SECTION 1.5 CLOSING COSTS; TRANSFER TAXES AND FEES. Except as otherwise
provided in this Section 1.5, Buyer and Seller shall each bear 50% of the cost
of (a) all documentary, sales, use, stamp and transfer Taxes and any other Taxes
or fees imposed by reason of the transfer of the Shares (and any deficiency,
interest or penalty asserted with respect thereto) ("TRANSFER TAXES") and filing
any associated Tax Returns and (b) all recording, filing, title and registration
fees or other charges in connection with or as a direct result of the transfer
of the Shares. Buyer shall bear all Transfer Taxes resulting solely from the
fact that Parent is a foreign entity and all costs (including those costs
relating to insurance regulatory approvals) of applying for new Required
Licenses and obtaining the transfer of existing Required Licenses which may be
lawfully transferred.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF SELLER AND GAC
Except as set forth in the disclosure letter delivered by Seller to
Buyer (the "SELLER DISCLOSURE LETTER") (PROVIDED, that the listing of an item in
one part of the Seller Disclosure Letter shall be deemed to be a listing in each
part of the Seller Disclosure Letter and to apply to any other representation
and warranty of Seller and GAC in this Agreement to which its relevance is
reasonably apparent on its face), each of Seller and GAC represents and warrants
to Buyer as of the date of this Agreement and, unless such representations and
warranties address a matter only as of a certain date, as of the Closing Date as
follows:
SECTION 2.1 ORGANIZATION. Each of Seller, GAC and the Acquired Companies
has been duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has all
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 Acquired
Companies is duly qualified to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it, the sale of
insurance or the nature of the business conducted by it makes such qualification
necessary, except for such failures to be so duly qualified and in good standing
that, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect on the Acquired Companies.
SECTION 2.2 CAPITALIZATION.
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(a) The capitalization of each Acquired Company is set forth on
Part 2.2(a) of the Seller Disclosure Letter, and there are no equity
securities issued and outstanding of any Acquired Company except as so set
forth on Part 2.2(a) of the Seller Disclosure Letter. All of the Shares are
owned of record by Seller, GAC or an Acquired Company.
(b) All of the outstanding equity securities of each Acquired
Company have been duly authorized and are validly issued, fully paid and
nonassessable. None of the Shares have been issued in violation of, and
none of the Shares are subject to, any purchase option, call, right of
first refusal, preemptive, subscription or similar rights under any
provision of Law, the Constituent Documents of Seller or any subsidiary of
Seller or any Contract or Other Agreement.
(c) The Acquired Companies have no preferred stock, voting
common stock, non-voting common stock, or other shares of capital stock
reserved for or otherwise subject to issuance under existing plans or
contractual commitments. The Acquired Companies do not have any outstanding
bonds, debentures, notes or other debt obligations, or any outstanding
warrants or options for the purchase of any class of equity security, the
holders of which have the right to vote or which are convertible into or
exercisable for securities having the right to vote with the holders of the
Shares on any matter.
(d) There are no outstanding purchase rights, warrants, options,
rights, phantom stock rights, agreements, convertible or exchangeable
securities or other Contracts or Other Agreements relating to the issuance,
sale, voting, rescission, redemption or transfer of any equity securities
or other securities of any Acquired Company.
(e) None of the Acquired Companies owns, directly or indirectly,
any capital stock of or other equity interests in any corporation,
partnership or other Person (other than investments held in the Investment
Portfolio in accordance with the Investment Guidelines) and none of the
Acquired Companies is a member of or participant in any partnership or
joint venture other than as may be permitted by the Investment Guidelines.
(f) Prior to the execution of this Agreement, Seller (i) has
delivered to Buyer true and complete copies of the Constituent Documents,
each as amended to date, of each of the Acquired Companies and (ii) has
made available to Buyer true and complete copies of the stock certificate
and transfer books and the minute books of each of the Acquired Companies.
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SECTION 2.3 AUTHORIZATION; BINDING AGREEMENT. Each of Seller and GAC has
all requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction Documents to which each is a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the other Transaction Documents to which each
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of each of Seller and GAC. This Agreement has been duly and validly
executed and delivered by each of Seller and GAC and (assuming the accuracy of
the representations and warranties in Section 3.2) constitutes a legally valid
and binding agreement of each of Seller, and GAC enforceable against each of
Seller and GAC in accordance with its terms, subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors' rights and remedies generally, and (ii) the
effect of equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).
SECTION 2.4 NONCONTRAVENTION. Neither the execution and delivery of this
Agreement and the other Transaction Documents nor the consummation of the
transactions contemplated hereby and thereby will conflict with or result in any
breach of any provision of, or require any consent or approval (other than
consents and approvals described in Section 2.5 below) under or constitute (with
or without notice or lapse of time or both) a violation or default (or give rise
to any right of termination, cancellation or acceleration or to loss of a
material benefit) under, or result in the creation of any Lien upon the property
or assets of any Acquired Company under, any of the terms, conditions or
provisions of (i) the Constituent Documents of Seller, GAC or any Acquired
Company, (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment, agreement, arrangement or other instrument or
obligation (collectively, "CONTRACTS OR OTHER AGREEMENTS") to which Seller, GAC
or any Acquired Company is a party or by which any of them or any portion of
their properties or assets may be bound or (iii) any Law or Order applicable to
Seller, GAC, any Acquired Company or any portion of their properties or assets
or any Registered Investment Company or Registered Separate Account, other than
in the case of foregoing clauses (ii) and (iii), any such items that,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect on the Acquired Companies.
SECTION 2.5 APPROVALS. No license, permit, consent, approval, order,
certificate, authorization, declarations of or filing with any Governmental
Entity on the part of Seller, GAC or any Acquired Company that has not been
obtained or made is required in connection with the execution or delivery by
Seller or GAC of this Agreement or the other Transaction Documents or the
consummation by Seller and GAC of the transactions contemplated hereby and
thereby, other than (a) filings and other applicable requirements under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), (b) approvals, filings and/or notices required under any applicable state
or federal banking laws or any applicable state or federal laws related to the
sale or operation of insurance, investment companies, investment advisers or
broker-dealers set forth in Part 2.5 of the Seller Disclosure Schedule, or (c)
consents, approvals, authorizations, declarations or filings that, if not
obtained or made, would not reasonably be expected to result in a Material
Adverse Effect on the Acquired Companies, or prevent Seller or GAC from
consummating the transactions contemplated hereby.
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SECTION 2.6 FINANCIAL STATEMENTS. (a) Attached as Part 2.6(a) of the
Seller Disclosure Letter are (i) the unaudited combined financial statements
(consisting of balance sheets and statements of income) as of and for the year
ended December 31, 2003 of the Acquired Companies that are not Insurance
Subsidiaries and (ii) the audited financial statements (consisting of balance
sheets, statements of income and statements of cash flows), including the
related footnotes, as of and for the year ended December 31, 2003 of each of the
Acquired Companies listed on Part 2.6(a)(ii) of the Seller Disclosure Letter
(collectively, the financial statements described in clauses (i) and (ii), the
"NON-INSURANCE FINANCIAL STATEMENTS"). The Non-Insurance Financial Statements
were derived from the same data and prepared using the same methodologies as
were used in the annual audited GAAP financial statements of Seller included in
the Seller's filings under the Exchange Act, and fairly present in all material
respects (except, in the case of the Non-Insurance Financial Statements
described in clause (i) above, for the absence of footnotes) the financial
condition of the Acquired Companies that are not Insurance Subsidiaries as of
the respective dates thereof and the results of operations of the Acquired
Companies that are not Insurance Subsidiaries for the respective periods then
ended.
(b) The Acquired Companies that are not Insurance Subsidiaries do
not have any liabilities or obligations of any nature (whether accrued,
absolute, contingent, unasserted or otherwise) required by GAAP to be reflected
on a balance sheet or in the notes thereto, except (i) as disclosed, reflected
or reserved against in the balance sheet included in the Non-Insurance Financial
Statements and (ii) for ordinary course liabilities and obligations incurred in
the ordinary course of the business of the Acquired Companies that are not
Insurance Subsidiaries consistent with past practice since December 31, 2003 and
not in violation of this Agreement. This representation and warranty shall not
be deemed to be breached as a result of any change in GAAP or Law after the date
of this Agreement.
SECTION 2.7 CERTAIN SUBSIDIARIES.
(a) INSURANCE SUBSIDIARIES.
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(i) Part 2.7(a)(i) of the Seller Disclosure Letter sets
forth the name of each Acquired Company that is an insurance company
(collectively, the "INSURANCE SUBSIDIARIES"). Each of the Insurance
Subsidiaries is (i) duly licensed or authorized in all material
respects as an insurance company in its jurisdiction of
incorporation, (ii) duly licensed or authorized in all material
respects to carry on an insurance business in each other
jurisdiction where it is required to be so licensed or authorized,
and (iii) duly licensed or authorized in all material respects in
its jurisdiction of incorporation and each other applicable
jurisdiction to issue the Life & Annuity Contracts that it is
currently writing, and was duly licensed or authorized in all
material respects to issue the Life & Annuity Contracts that it
wrote at the time such Life & Annuity Contracts were issued and
otherwise to conduct its insurance and variable products business,
as required by Law. Seller, GAC and the Insurance Subsidiaries have
made all required filings under applicable Law regulating the
business and products of insurance, except where the failure to
file, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect on the Acquired
Companies. Part 2.7(a)(i) of the Seller Disclosure Letter sets forth
the states where Seller, GAC and the Insurance Subsidiaries are
domiciled or "commercially domiciled" for insurance regulatory
purposes. Seller has previously delivered to Parent true and
complete copies of all examination reports of insurance departments
and any insurance regulatory authorities received by any Insurance
Subsidiary since January 1, 2001.
(ii) With respect to each Insurance Subsidiary, each such
Insurance Subsidiary's audited Insurance Subsidiary Statements as of
and for the year ended December 31, 2003 are attached as Part
2.7(a)(ii) of the Seller Disclosure Letter. Such Insurance
Subsidiary Statements present (and, with respect to any Insurance
Subsidiary Statement for any quarter after December 31, 2003, and
prior to the Closing, will present) fairly in all material respects,
on a consistent basis and in accordance with the statutory
accounting practices prescribed or permitted by the appropriate
regulatory agencies of the jurisdiction in which such Insurance
Subsidiary is domiciled ("SAP"), the financial position at the date
of each such statement and results of each such Insurance
Subsidiary's operations for each such referenced period.
SCHEDULE 1.4 sets forth certain of the accounting policies and
practices (including with respect to assumptions, estimations
methodology and actuarial methodology) used by Seller to prepare the
December Financial Statements. No material deficiency has been
asserted in writing by any Governmental Entity with respect to any
Insurance Subsidiary Statements that has not been addressed to the
satisfaction of such Governmental Entity. Except as indicated
therein, all assets that are reflected as admitted assets on the
Insurance Subsidiary Statements comply in all material respects with
all applicable Laws regulating the business and products of
insurance with respect to admitted assets, as applicable, and the
amounts of capital reflected on the Insurance Subsidiary Statement
of each Insurance Subsidiary are sufficient in nature and amount to
meet all requirements of applicable Law. The Insurance Subsidiary
Statements comply in all material respects with all applicable Law.
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(iii) All reserves for policyholder liabilities reflected
on the balance sheets of the Insurance Subsidiary Statements as of
December 31, 2003, (A) were determined in accordance with actuarial
standards of practice, consistently applied, (B) were based on
actuarial assumptions that were reasonable in relation to the
relevant policy and contract provisions and (C) are in compliance
with SAP in all material respects (it being understood by Parent and
Buyer that in making the representations and warranties in this
Section 2.7(a)(iii) Seller and GAC are not representing and
warranting that the reserves referred to therein or the assets
supporting such reserves have been or will be sufficient or adequate
for the purposes for which they were established or that reinsurance
recoverables taken into account in determining the amount of such
reserves will be collectible). The Insurance Subsidiaries do not
have any liabilities or obligations of any nature (whether accrued,
absolute, contingent, unasserted or otherwise) required by SAP to be
reflected on a balance sheet or in the notes thereto, except (i) as
disclosed, reflected or reserved against in the balance sheets
included in the Insurance Subsidiary Statements, and (ii) for
ordinary course liabilities and obligations incurred in the ordinary
course of business and consistent with past practice since December
31, 2003 and not in violation of this Agreement (it being understood
by Parent and Buyer that in making the representations and
warranties in this Section 2.7(a)(iii) Seller and GAC are not
representing and warranting that the reserves referred to therein or
the assets supporting such reserves have been or will be sufficient
or adequate for the purposes for which they were established or that
reinsurance recoverables taken into account in determining the
amount of such reserves will be collectible).
(iv) Since January 1, 2001, each Insurance Subsidiary has
had procedures and programs which are reasonably designed to provide
assurance that its respective agents and employees are in material
compliance with Law, including without limitation, advertising,
licensing and sales practices laws, regulations, directives,
bulletins and opinions of governmental authorities. Seller has no
knowledge of any material noncompliance with such procedures and
programs.
14
(v) Each of the Life & Annuity Contracts has been
marketed and sold by the Insurance Subsidiaries and, to the
knowledge of Seller, marketed and sold by the independent agents of
the Insurance Subsidiaries, in each case, in compliance in all
material respects with applicable Law of the respective jurisdiction
in which such Life & Annuity Contracts have been sold, including (i)
all applicable prohibitions against "redlining" or withdrawal of
business lines, (ii) all applicable requirements relating to the
disclosure of the nature of insurance products as policies of
insurance, (iii) all applicable requirements relating to insurance
product projections and illustrations, (iv) all applicable
prohibitions against discrimination based on factors relating to
race, gender, national origin or similar distinctions, (v) all
applicable prohibitions against "churning," or other improper
replacement practices, (vi) all applicable prohibitions against
"vanishing premium," premium offsets or other under-funding of life
insurance policies, (vii) all applicable requirements relating to
"Holocaust victims" and (viii) all other requirements or
prohibitions relating to unfair trade practices under applicable
Law. Each of the Insurance Subsidiaries has provided notice and
disclosure, to the extent such notice and disclosure is required by
applicable Law, to prospective insureds of situations, if any, in
which premiums are charged (or policy charges are imposed) from the
date of issue of a Life & Annuity Contract, notwithstanding that
coverage begins at a later date.
(vi) Since January 1, 2001, each Insurance Subsidiary has
maintained records which in all material respects accurately reflect
transactions in reasonable detail, and accounting controls, policies
and procedures reasonably designed to ensure that such transactions
are recorded in a manner which permits the preparation of financial
statements in accordance with GAAP and applicable statutory
accounting requirements.
(vii) Seller has delivered to Buyer a true and correct
copy of the Investment Guidelines, and since January 1, 2002 the
Investment Portfolio has been invested in compliance in all material
respects with the Investment Guidelines, as in effect at the time
any such investment was made.
15
(b) BROKER/DEALER SUBSIDIARIES. Part 2.7(b) of the Seller
Disclosure Letter sets forth the name of each Acquired Company that is
registered as a broker or dealer (collectively, the "BROKER/DEALER
SUBSIDIARIES"). Except as would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect on the Acquired
Companies, (i) each of the Acquired Companies and each of its respective
employees that is required, in order to conduct its business as it is now
conducted, to be registered, licensed or qualified as a broker-dealer under
the Exchange Act or, in the case of any employees, is otherwise required to
be registered, licensed or qualified under the Exchange Act or NASD
Regulations (which for this purpose shall include the NASD's Membership and
Registration Rules (Rules 1000-1140)) is so registered, licensed or
qualified (and has been so registered, licensed or qualified at all times
since January 1, 1999 it has been required under applicable Law to be so
registered, licensed or qualified), (ii) each Broker/Dealer Subsidiary is a
member organization in good standing of the NASD, Inc. ("NASD"), securities
exchanges, commodities exchanges, boards of trade, clearing organizations,
trade organizations and such other Governmental Entities and organizations
in which its membership is required in order to conduct its business as it
is now conducted, (iii) each Broker/Dealer Subsidiary has timely filed all
registrations, declarations, reports, notices, forms or other filings
required to be filed with the SEC, NASD, the New York Stock Exchange or any
other Governmental Entity and all fees and assessments due and payable in
connection therewith have been paid, (iv) since the later of its inception
or January 1, 2002, each Broker/Dealer Subsidiary has had net capital (as
such term is defined in Rule 15c3-1 of the Exchange Act) that satisfies the
minimum net capital requirements of the Exchange Act and of the laws of any
jurisdiction in which such Broker/Dealer Subsidiary conducts business, and
(v) no Broker/Dealer Subsidiary is, nor is any "associated person" of any
Broker/Dealer Subsidiary, subject to a "statutory disqualification" (as
such terms are defined in the Exchange Act) or subject to a
disqualification that would be a basis for censure, limitations on the
activities, functions or operations of, or suspension or revocation of the
registration of such Broker/Dealer Subsidiary as a broker-dealer, under the
Exchange Act and, to the knowledge of Seller and GAC, there is no
proceeding or investigation pending by any Governmental Entity or
self-regulatory organization that is reasonably likely to result in any
such censure, limitations, suspension or revocation.
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(c) INVESTMENT ADVISER. Part 2.7(c) of the Seller Disclosure
Letter sets forth the name of each Acquired Company that is registered as
an "investment adviser" under the Investment Advisers Act (an "INVESTMENT
ADVISER SUBSIDIARY"). Except as would not reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect on the
Acquired Companies, (i) each of the Acquired Companies and each of its
employees that is required, in order to conduct its business as it is now
conducted, to be registered, licensed or qualified as an investment adviser
under the Investment Advisers Act is so registered, licensed or qualified
(and has been so registered, licensed or qualified at all times since
January 1, 1999 it has been required under applicable Law to be so
registered, licensed or qualified), (ii) each "investment adviser
representative" (as defined in the Investment Advisers Act) of an
Investment Adviser Subsidiary, if any, who is required to be registered as
such is so registered (and has been so registered, licensed or qualified at
all times since January 1, 1999 it has been required under applicable Law
to be so registered, licensed or qualified), (iii) each Investment Adviser
Subsidiary has timely filed all registrations, declarations, reports,
notices, forms or other filings required to be filed with the SEC or any
other Governmental Entity (the "SEC DOCUMENTS"), and as of their respective
dates, the SEC Documents of each Investment Adviser Subsidiary complied in
all respects with the requirements of applicable Law (including the
Securities Laws), and all fees and assessments due and payable in
connection therewith have been paid, (iv) no Investment Adviser Subsidiary
or any Person "associated" (as such term is defined in the Investment
Advisers Act) with any Investment Adviser Subsidiary has been convicted of
any crime or is subject to any disqualification that would be a basis for
denial, suspension, or revocation of registration of an investment adviser
under Section 203(e) of the Investment Advisers Act or Rule 206(4)-4(b)
thereunder and, to the knowledge of Seller, there is no proceeding or
investigation pending by any Governmental Entity or self-regulatory
organization that is reasonably likely to result in any such denial,
suspension or revocation, (v) in the conduct of its business with respect
to employee benefit plans subject to Title I of ERISA ("ERISA PLANS"), none
of the Acquired Companies have (A) breached any applicable fiduciary duty
under Part 4 of Title I of ERISA which would subject it to liability under
Sections 405 or 409 of ERISA, (B) engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code
which would subject it to liability or taxes under Sections 409 or 502 of
ERISA or Section 4975 of the Code or (C) engaged in any conduct that could
constitute a crime or violation listed in Section 411 of ERISA that could
preclude such Person from providing services to any ERISA Plan, and (vi)
each Investment Adviser Subsidiary and each of its predecessors, if any,
has at all times rendered investment advisory services to investment
advisory clients, including the Clients, in compliance with all applicable
requirements as to portfolio composition and portfolio management including
the terms of any and all applicable investment advisory agreements, written
instructions from such investment advisory clients, the organizational
documents of such investment advisory clients, prospectuses, board of
director or trustee directives and applicable Law.
17
(d) Except as would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect on the Acquired
Companies, no Investment Adviser Subsidiary has taken any action that would
(x) prevent any of the Registered Investment Companies (other than a
Registered Separate Account) from qualifying as a "regulated investment
company", within the meaning of Section 851 of the Code, (y) cause any
Client account which is subject to ERISA to fail to comply with the
applicable requirements of ERISA or (z) otherwise be inconsistent with any
of the Investment Adviser Subsidiaries' prospectus and other offering,
advertising and marketing materials. The Seller has previously delivered to
the Buyer a complete copy of each SEC Document filed by each Investment
Adviser Subsidiary from January 1, 2001 through the date hereof (including
a composite Form ADV as in effect on the date hereof).
(e) Each Acquired Company that acts as an investment adviser or
distributor to a Registered Investment Company has adopted a formal code of
ethics and a written policy regarding xxxxxxx xxxxxxx, a complete and
accurate copy of each of which has been delivered to Parent and each of
which substantially complies with Law. The policies of each Investment
Adviser Subsidiary with respect to avoiding conflicts of interest are as
set forth in its most recent Form ADV thereof, as amended, copies of which
have been delivered to Parent, and there have been no material violations
or allegations of violations of such policies that have occurred or been
made that have not been addressed in accordance with these procedures.
(f) Each Investment Adviser Subsidiary has at all times
maintained books and records which accurately reflect transactions in
reasonable detail, and accounting controls, policies and procedures
reasonably designed to ensure that such transactions are (i) executed in
accordance with its management's general or specific authorization, as
applicable, and (ii) recorded in a manner which permits the preparation of
financial statements in accordance with GAAP and applicable regulatory
accounting requirements and other account and financial data, including
performance results, in accordance with applicable regulatory requirements,
and the documentation pertaining thereto is retained, protected and
duplicated in accordance with all applicable regulatory requirements,
including the Investment Advisers Act and the Investment Company Act.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
2003, the Acquired Companies have conducted their respective businesses only in
the ordinary course consistent with past practice (except in connection with the
transactions contemplated hereby) and have used commercially reasonable efforts
to preserve intact the business organization of the Acquired Companies and to
maintain satisfactory relationships with the customers, suppliers and employees
and others with which the Acquired Companies have business relationships and,
without limiting the generality of the foregoing:
(a) There have been no changes, effects, events, occurrences or
developments which, individually or in the aggregate, have had or would
reasonably be expected to result in a Material Adverse Effect on the
Acquired Companies.
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(b) None of the Acquired Companies has sold, assigned,
transferred or conveyed any Proprietary Right.
(c) Except as otherwise contemplated by this Agreement or as
required to ensure that any Plan is maintained in compliance with
applicable Law or to comply with any Contract or Other Agreement regarding
Business Employees or Plan entered into prior to the date hereof (complete
and accurate copies of which have been heretofore delivered to Buyer), none
of the Acquired Companies has (A) adopted, entered into, terminated or
amended any collective bargaining agreement or Plan or any Contract or
Other Agreement with respect to any current or former employees of an
Acquired Company or any Bank Channel Employee, (B) increased in any manner
the compensation, bonus or fringe or other benefits of, or paid any bonus
of any kind or amount whatsoever to, any current or former Business
Employee, except for any planned salary increases and payment of bonuses,
each as described in Part 2.8(c) of the Seller Disclosure Letter, (C) paid
any benefit or amount not required under any Plan or Contract or Other
Agreement as in effect on the date of this Agreement, other than as
contemplated in the foregoing clause (B), (D) except in the ordinary course
of business consistent with past practice, granted or paid any severance or
termination pay or increase in any manner the severance or termination pay
of any current or former employees of an Acquired Company or any Bank
Channel Employee, (E) granted any awards under any bonus, incentive,
performance or other Plan, Contract or Other Agreement or otherwise, other
than as contemplated in the foregoing clause (B), (F) taken any action to
fund or in any other way secure the payment of compensation or benefits
under any Plan or Contract or Other Agreement, (G) taken any action to
accelerate the vesting or payment of any compensation or benefit under any
Plan or Contract or Other Agreement or (H) materially changed any actuarial
or other assumption used to calculate funding obligations with respect to
any Acquired Company Plan or changed the manner in which contributions to
any Acquired Company Plan are made or the basis on which such contributions
are determined.
(d) No Acquired Company has effected any amendment or
modification to its Constituent Documents.
(e) None of the Acquired Companies has made any material change
in its fiscal year, accounting methods or principles used for GAAP or
statutory reporting purposes, except for changes which are required by Law,
SAP or GAAP of all enterprises in the same business.
(f) Except in the ordinary course of business consistent with
past practice, no Acquired Company has made any material change, and
neither Seller, GAC nor any Acquired Company has permitted any of the
Insurance Subsidiaries to make any material change, in its underwriting or
claims management practices, pricing practices, reserving practices,
reinsurance practices, marketing practices or investment policies or
practices or Investment Guidelines, except in each case as required by Law.
(g) None of the Acquired Companies has made any new material Tax
election or any settlement or compromise of any material income Tax
liability.
19
(h) No Acquired Company has revalued any properties or assets,
including writing off notes or accounts receivable, other than in the
ordinary course of the business of the applicable Acquired Company, or as
required by applicable Law, SAP or GAAP.
(i) The investments of the Acquired Companies have been
maintained, and no sales or other dispositions of investments have been
effected, other than in accordance with the Investment Guidelines and in
the ordinary course of business.
(j) The Seller has not taken or failed to take any action or
permitted any Acquired Company to take or fail to take any action, in each
case for the purpose of either (i) shifting statutory income or surplus
from the period following June 30, 2004 to the period preceding June 30,
2004 or (ii) increasing statutory income or surplus with the intent of
increasing the June Adjusted Statutory Book Value or increasing the Closing
Consideration to the detriment of Buyer and Parent; PROVIDED, HOWEVER, that
Parent and Buyer agree that any action taken by Seller, to the extent
necessary to ensure that an independent auditor's opinion will be
unqualified after an issue as to ability to give an unqualified opinion is
raised by such auditor, shall not be deemed to be a breach of this Section
2.8(j).
(k) No Acquired Company has launched or introduced any material
new product or service.
SECTION 2.9 LITIGATION, JUDGMENTS, NO DEFAULT, ETC. There is no suit,
action or proceeding (collectively, "PROCEEDING") pending or, to the knowledge
of Seller, threatened in writing since January 1, 2001, to which any of the
Acquired Companies or any Registered Investment Company or Registered Separate
Account is a party and which (i) relate to or involve a claim for specified
damages of more than $1,000,000, (ii) relate to or involve any class action
claims, (iii) seek any material injunctive relief or (iv) would reasonably be
expected to give rise to any legal restraint on or prohibition against the
transactions contemplated by this Agreement. There is no Proceeding or claim by
any of the Acquired Companies pending, or which the Seller or a Subsidiary
intends to initiate on behalf of any Acquired Company, against any other Person.
To the knowledge of Seller, there is no pending or threatened investigation of
any of the Acquired Companies or any Registered Investment Company or Registered
Separate Account by any Governmental Entity. To the knowledge of Seller, there
is no judgment, decree, injunction (preliminary or otherwise), rule or order
(collectively "ORDERS") of any arbitrator or Governmental Entity outstanding
against any of the Acquired Companies, any Registered Investment Company or any
Registered Separate Account.
SECTION 2.10 COMPLIANCE; MATERIAL CONTRACTS.
(a) No Acquired Company is in violation, breach or default of
any term, condition or provision of its Constituent Documents.
20
(b) None of the Acquired Companies or, to the knowledge of
Seller, any other party thereto, is in violation of or in breach or default
under (nor, to the knowledge of Seller, does there exist any condition
which upon the passage of time or the giving of notice or both would cause
such a violation of or breach or default under) any Material Contract (as
defined below) to which any Acquired Company is a party or by which any of
them or any portion of their respective properties or other assets may be
bound, except for violations, breaches or defaults that, individually or in
the aggregate, would not reasonably be expected to result in a Material
Adverse Effect on the Acquired Companies. Other than Related Contracts,
none of the Acquired Companies has entered into any Contract or Other
Agreement with any Affiliate of the Seller (other than another Acquired
Company) that is in effect. Part 2.10(b) of the Seller Disclosure Letter
sets forth a true and complete list of each Contract or Other Agreement
(other than a Life and Annuity Contract or Related Contract entered into in
the ordinary course of business) to which any Acquired Company is a party,
or by which any of them or any portion of their respective properties or
other assets may be bound, and that is of a nature described below in this
Section 2.10(b) (each, a "MATERIAL CONTRACT"):
(i) an employment contract (whether oral or written)
that has an aggregate future liability in excess of $100,000 and is
not terminable by such Acquired Company by notice of not more than
60 days for a cost of less than $50,000;
(ii) a Contract or Other Agreement (x) containing a
provision limiting the ability of any Acquired Company to engage in
any line of insurance or asset management in any geographical area
or to compete with any Person, or (y) providing for "exclusivity" as
a result of which any Acquired Company is restricted with respect to
distribution and marketing;
(iii) a (A) management, service, consulting or other
similar type of contract or (B) advertising agreement or
arrangement, in any such case which has an aggregate future
liability to any person (other than another Acquired Company) in
excess of $250,000 and is not terminable by such Acquired Company by
notice of not more than 60 days for a cost of less than $125,000;
(iv) a material license, option or other agreement
relating in whole or in part to any Proprietary Rights described in
Section 2.14 (including any license or other agreement under which
any Acquired Company is licensee or licensor of any such Proprietary
Right);
(v) a Contract or Other Agreement under which any
Acquired Company has borrowed any money from, or issued any note,
bond, debenture or other evidence of indebtedness to, any Person, or
any other note, bond, debenture or other evidence of indebtedness
issued to any Person, in any such case which, individually, is in
excess of $1,000,000;
21
(vi) a Contract or Other Agreement under which (A) any
Person has directly or indirectly guaranteed indebtedness,
liabilities or obligations of such Acquired Company or (B) any
Acquired Company has directly or indirectly guaranteed indebtedness,
liabilities or obligations of any Person (in each case other than
endorsements for the purpose of collection in the ordinary course of
business), in any such case which, individually, is in excess of
$1,000,000;
(vii) a Contract or Other Agreement under which such
Acquired Company has made any advance, loan, extension of credit or
capital contribution to, or other investment in, any Person, in any
such case which, individually, is in excess of $1,000,000;
(viii) a Contract or Other Agreement providing for
indemnification outside of the ordinary course of business of any
Person with respect to liabilities relating to any current or former
business of any Acquired Company or any predecessor to an Acquired
Company;
(ix) a Contract or Other Agreement with any Person (other
than an Acquired Company) to which a Broker/Dealer Subsidiary is a
party and pursuant to which such Broker/Dealer Subsidiary acts as a
placement agent for securities;
(x) a Contract or Other Agreement by or to which any
Acquired Company or any of an Acquired Companies' assets or business
is bound or subject which has an aggregate future liability to any
Person (other than another Acquired Company) in excess of $1,000,000
and is not terminable by such Acquired Company by notice of not more
than 60 days for a cost of less than $500,000;
(xi) a Contract or Other Agreement preventing the
solicitation for employment of third parties by the applicable
Acquired Company;
(xii) a "standstill" Contract or Other Agreement
prohibiting an Acquired Company from acquiring the assets or
securities of any person;
(xiii) a partnership, joint venture, shareholders or other
similar Contract or Other Agreement with any Person; or
(xiv) a Contract or Other Agreement relating to the future
disposition or acquisition of any investment in any person or of any
interest in any business enterprise (other than the disposition or
acquisition of investments in the ordinary course of the business of
the applicable Acquired Company, including the disposition or
acquisition of investments forming part of the Investment
Portfolio), or requiring an Acquired Company to purchase any
security (other than the disposition or acquisition of investments
in the ordinary course of business of the applicable Acquired
Company, including the disposition or acquisition of investments
forming part of the Investment Portfolio).
22
SECTION 2.11 FINDERS AND INVESTMENT BANKERS. Neither Seller nor any
Acquired Company nor any of their respective officers, directors or Affiliates
has employed any investment banker, financial advisor, broker or finder in
connection with the transactions contemplated by this Agreement, except for
Xxxxxxx, Xxxxx & Co. ("XXXXXXX SACHS") and Xxxxxxxx USA, Inc. ("MILLIMAN"), or
incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders' fees or commissions in connection with
the transactions contemplated hereby, except for fees payable to Xxxxxxx Xxxxx
and Milliman, all of which fees have been or will be paid by Seller in
accordance with the agreements between Seller and Xxxxxxx Sachs and Seller and
Milliman.
SECTION 2.12 COLLECTIVE BARGAINING AGREEMENTS. No Acquired Company is a
party to or subject to any collective bargaining agreement with any labor union.
To the knowledge of Seller, no union organization campaign is in progress with
respect to the Business Employees. There are no labor controversies pending or,
to the knowledge of Seller, threatened in writing against any Acquired Company
which, individually or in the aggregate, would reasonably be expected to result
in a Material Adverse Effect on the Acquired Companies. There are not any
pending charges against Seller (relating to any of the Acquired Companies, any
of their current or former employees or the Bank Channel Employees), any
Acquired Company or any current or former employees of Seller or any Acquired
Company by any Governmental Entity responsible for the prevention of unlawful
employment practices, and none of Seller or any Acquired Company has received
written communication during the past three years of the intent of any
Governmental Entity responsible for the enforcement of labor or employment laws
to conduct an investigation of or affecting any Acquired Company and, to the
knowledge of Seller, no such investigation is in progress.
SECTION 2.13 INSURANCE. Seller carries insurance with respect to the
Acquired Companies with insurers that, to the knowledge of Seller, are solvent,
in amount and types of coverage which are customary in the industry and against
risks and losses which are usually insured against by persons holding or
operating similar properties and similar businesses. Except as would not
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Effect on the Acquired Companies, all such policies are in full
force and effect, all premiums due and payable thereon have been paid (other
than retroactive or retrospective premium adjustments that are not yet, but may
be, required to be paid with respect to any period ending prior to the Closing
Date), and no notice of cancellation or termination has been received with
respect to any such policy which has not been replaced on substantially similar
terms prior to the date of such cancellation. To the knowledge of Seller, the
business of the Acquired Companies has been conducted in a manner so as to
conform in all material respects to all applicable provisions of such insurance
policies. No material claims have been asserted under any of such insurance
policies or relating to the properties, assets or operations of the Acquired
Companies since January 1, 2002.
SECTION 2.14 PROPRIETARY RIGHTS.
23
(a) The Acquired Company Proprietary Rights, together with the
intellectual property being licensed under each of the Transitional
Trademark License, the Buyer Intellectual Property License and the IP Side
Letters, will immediately after the Closing be sufficient to conduct the
business of the Acquired Companies as it is now being conducted. Part
2.14(a) of the Seller Disclosure Letter sets forth a true and complete list
of all material unregistered and unpatented Acquired Company Proprietary
Rights. With respect to all Acquired Company Proprietary Rights that are
registered or subject to an application for registration in the United
States, Part 2.14(a) of the Seller Disclosure Letter sets forth a list of
all registered Acquired Company Proprietary Rights and a list of all
jurisdictions in which such Proprietary Rights are registered or
registrations applied for and all registration and application numbers. All
the material Acquired Company Proprietary Rights have been duly registered
in, filed in or issued by the appropriate Governmental Entity where such
registration, filing or issuance is necessary for the conduct of the
business of the Acquired Companies as it is presently conducted. The
Acquired Companies are the owners of, and, to the knowledge of Seller, have
the right to use, execute, reproduce, display, perform, modify, enhance,
distribute, prepare derivative works of and sublicense, without payment to
any other Person, all the Acquired Company Proprietary Rights, and the
consummation of the transactions contemplated hereby does not and will not
conflict with, alter or impair any such rights, and since January 1, 2002
neither Seller nor any Acquired Company has received any written
communication from any Person asserting any ownership interest in any
Acquired Company Proprietary Rights. Neither Seller nor any Acquired
Company has granted any license of any kind relating to any Acquired
Company Proprietary Rights (other than to an Acquired Company).
(b) To the knowledge of Seller, the operations of the Acquired
Companies do not violate, conflict with or infringe and, to the knowledge
of Seller, since January 1, 2002, no Person has asserted in writing to the
Acquired Companies that such operations violate, conflict with or infringe
any patents, copyrights or trademarks owned by any third party. To the
knowledge of Seller, there are no third parties whose operations infringe
nor has anyone asserted in writing that such operations conflict with or
infringe, any Acquired Company Proprietary Rights.
SECTION 2.15 COMPLIANCE WITH LAW. The businesses of the Acquired
Companies have been conducted in compliance with all Laws applicable to the
Acquired Companies, except for instances of non-compliance which would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Acquired Companies. None of the Acquired Companies or any
Registered Investment Company or Registered Separate Account has received any
written notice of any alleged violation of Law from a Governmental Entity since
January 1, 2002 (other than written notices which have been cured or otherwise
remedied), and there are no pending or, to the knowledge of Seller, threatened
hearings or investigations with respect to any such violation. To the knowledge
of the Seller, there is no unresolved violation or exception by any Governmental
Entity with respect to any report or statement relating to any examination of
any Acquired Company or any Registered Investment Company or Registered Separate
Account. This Section 2.15 does not relate to matters covered by Section 2.17,
Section 2.18, Section 2.19 or Section 2.20.
24
SECTION 2.16 REAL PROPERTY.
(a) Each of the Acquired Companies has good, clear and
marketable fee title to the real property listed on Part 2.16(a) of the
Seller Disclosure Letter, free and clear of all Liens except (i) taxes not
yet due and (ii) such imperfections or irregularities of title or other
Liens as do not and would not reasonably be expected to materially affect
the use of the real property subject thereto or affected thereby or
otherwise materially impair business operations at such properties.
(b) Part 2.16(b) of the Seller Disclosure Letter sets forth the
address of each material parcel of property leased or subleased by an
Acquired Company (each, a "LEASED PROPERTY"), and a true and complete list
of all leases for each such Leased Property (each, a "LEASE") (including
the date and name of the parties to such Lease). With respect to each of
the Leases:
(i) such Lease is valid and in full force and effect;
(ii) to the knowledge of Seller, the transactions
contemplated in this Agreement do not require the consent of any
other party to a Lease, an assignment of Lease or a sublease;
(iii) to the knowledge of Seller, (A) the Acquired Company
or any other party to the Lease is not in breach or default under
such Lease, and (B) no event has occurred or circumstance exists
which, with the delivery of notice, the passage of time or both,
would constitute such a breach or default, or permit the
termination, modification or acceleration of rent under such Lease;
(iv) to the knowledge of Seller, the Acquired Company has
not subleased, licensed or otherwise granted anyone the right to use
or occupy such Leased Property or any portion thereof; and
(v) to the knowledge of Seller, the Acquired Company has
not collaterally assigned or granted any other security interest in
such Lease or any interest therein.
(c) The Leased Properties comprise all of the real property used
in the business of the Acquired Companies as currently conducted.
SECTION 2.17 LICENSES AND PERMITS.
25
(a) Except as otherwise expressly addressed in Section 2.7, the
Acquired Companies and each Registered Investment Company and Registered
Separate Account have obtained, and are and have at all times since January
1, 2002 been in compliance in all respects with, all necessary licenses,
permits, consents, approvals, orders, certificates, authorizations,
declarations and filings required by all Governmental Entities for the
conduct of the businesses and operations of the Acquired Companies as now
conducted (collectively, the "REQUIRED LICENSES"), except where the failure
to have obtained or complied with any such Required Licenses, individually
or in the aggregate, would not reasonably be expected to result in a
Material Adverse Effect on the Acquired Companies.
(b) Part 2.17(b) of the Seller Disclosure Letter sets forth a
list of all Required Licenses. Since January 1, 2002, Seller has not
received written notice of any Proceedings relating to the revocation or
modification of any Required Licenses the loss of which, individually or in
the aggregate, would reasonably be expected to result in a Material Adverse
Effect on the Acquired Companies. To the knowledge of Seller, and except
for the "relicensing" requirements in the states identified on Part 2.17(b)
of the Seller Disclosure Letter and any similar requirements in other
states that may be triggered by the change in control of the Insurance
Subsidiaries but do not require the approval of any Governmental Entity
sooner than 90 days following the Closing, none of the Required Licenses
will be subject to suspension, modification, revocation or nonrenewal as a
result of the execution and delivery of this Agreement or the other
Transaction Documents or the consummation of the transactions contemplated
hereby or thereby.
SECTION 2.18 ENVIRONMENTAL MATTERS. Except for such matters that,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect on the Acquired Companies:
(a) each of the Acquired Companies is, and has been, in
compliance with all Environmental Laws, and none of the Acquired Companies has
received any communication that alleges that any of the Acquired Companies are
in violation of, or have liability under, any Environmental Law;
(b) each of the Acquired Companies has obtained and is in
compliance with all Environmental Permits necessary for its operations as
currently conducted;
(c) there are no Environmental Claims pending or, to the
knowledge of Seller, threatened in writing, against any of the Acquired
Companies;
(d) there have been no releases of any Hazardous Material that
would reasonably be expected to form the basis of any Environmental Claim
against any of the Acquired Companies or against any Person whose liabilities
for such Environmental Claims any of the Acquired Companies have, or may have,
retained or assumed, either contractually or by operation of law; and
(e) (i) none of the Acquired Companies has retained or assumed,
either contractually or by operation of law, any liabilities or obligations that
could reasonably be
26
expected to form the basis of any Environmental Claim against any of the
Acquired Companies and (ii) to the knowledge of Seller, no Environmental Claims
are pending against any Person whose liabilities for such Environmental Claims
any of the Acquired Companies have, or may have, retained or assumed, either
contractually or by operation of law.
SECTION 2.19 TAX RETURNS AND TAX PAYMENTS.
(a) Seller has timely filed all U.S. federal income Tax Returns
and Combined Returns and each of the Acquired Companies has timely filed
all other Tax Returns required to be filed by them for taxable periods
prior to the Closing Date, except, as to such Tax Returns, to the extent
that any failure to have filed, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on the
Acquired Companies, and all such Tax Returns were true and correct in all
material respects. Seller and the Acquired Companies have paid all Taxes
shown to be due on such Tax Returns and all other Taxes otherwise due,
except to the extent that any failure so to pay, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect on the Acquired Companies. The unpaid Taxes of the Acquired
Companies (i) did not, as of December 31, 2003, exceed the reserve for Tax
liability set forth on the face of the December 31, 2003 balance sheet
included within the December Financial Statements and the December 31, 2003
combined balance sheet included within the Non-Insurance Financial
Statements and (ii) will not exceed such reserve as adjusted for operations
through the Closing Date, except to the extent that any failure to reserve,
individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect on the Acquired Companies. Subject to
Section 4.8(c), the reserve for Tax liability will be prepared in
accordance with the past custom and practice of the Acquired Companies in
filing their Tax Returns. The reserve for Taxes for federal income Taxes
and state income Taxes for Combined Returns on the December 31, 2003
balance sheet included within the December Financial Statements and the
December 31, 2003 combined balance sheet included within the Non-Insurance
Financial Statements will be settled prior to the Closing Date pursuant to
Section 4.13 or otherwise.
(b) No claim for unpaid Taxes in writing by a Tax authority has
been asserted against Seller or any Acquired Company and no written notice
of audit by a Tax authority has been received by Seller, which, if resolved
unfavorably, individually or in the aggregate, would reasonably be expected
to result in a Material Adverse Effect on the Acquired Companies. No audit
or examination of any Acquired Company is being conducted by a Tax
authority, which, if resolved unfavorably, individually or in the
aggregate, would reasonably be expected to result in a Material Adverse
Effect on the Acquired Companies. No extension of the statute of
limitations is in effect on the assessment of any Taxes of the Acquired
Companies. None of the Acquired Companies is or has been during any year
for which the applicable statute of limitations with respect to the payment
of federal income Taxes has not yet expired, a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code other
than an affiliated group the common parent of which is or was Seller or has
any liability resulting from Taxes of any Person other than the Acquired
Companies under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law).
27
(c) Seller is not a "foreign person" within the meaning of
Section 1445 of the Code.
(d) Each of the Acquired Companies has complied with all
applicable laws relating to the payment and withholding of Taxes (i)
pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or similar
provisions under any state, local or foreign laws) and (ii) with respect to
any Policy under Sections 3405, 6047(a) and 6047(d)(1)(B) of the Code or
similar provisions under any state, local or foreign laws, except to the
extent that any failure to have paid or withheld, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect on the Acquired Companies and has, within the time and manner
prescribed by law, withheld from and paid over to the proper authorities
all amounts required to be so withheld and paid over under applicable laws.
(e) None of the Acquired Companies shall be required to include
in a Tax period ending after the Closing Date taxable income attributable
to income that accrued in a prior Tax period but was not recognized in any
prior Tax period as a result of the installment method of accounting, the
long-term contract method of accounting, the cash method of accounting or
Section 481 of the Code or comparable provisions of state, local or foreign
Tax law.
(f) No material liens for Taxes exist with respect to any of the
assets or properties of the Acquired Companies except for statutory liens
for Taxes not yet due or payable.
(g) Each deficiency resulting from any closed audit or
examination relating to Taxes of the Seller and the Acquired Companies has
been timely paid, except to the extent that any failure to have paid,
individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect on the Acquired Companies.
28
(h) Except as otherwise provided in this Section 2.19(h), each
reserve item with respect to the Insurance Subsidiaries, in all material
respects, was determined correctly in accordance with the requirements of
Sections 807, 811 and 846 of the Code for any tax returns in which any of
them were included for the taxable periods ended December 31, 2001 and
December 31, 2002, has been consistently and correctly applied with respect
to the filing of all tax returns including any of them for all taxable
years for which the applicable statute of limitations has not expired, and
will be consistently and correctly applied with respect to the filing of
any tax returns in which any of them will be included for the taxable
period ended December 31, 2003 and the taxable period from January 1, 2004
through the Closing Date when such tax returns are filed (it being
understood by Parent and Buyer that in making the representations and
warranties in this Section 2.19(h), Seller and GAC are not representing and
warranting that the reserves referred to therein or the assets supporting
such reserves have been or will be sufficient or adequate for the purpose
for which they were established or that reinsurance receivables taken into
account in determining the amount of such reserves will be collectible). No
representation or warranty is made in this Section 2.19(h) with respect to
reserve items in connection with the implementation of 2001 CSO reserving
methodology.
(i) No Insurance Subsidiary has agreed, or is required to make,
any adjustment under Section 807(f) of the Code.
(j) Each Insurance Subsidiary is and has been taxable as a life
insurance company within the meaning of Section 816 of the Code for the
taxable period ending on or including the Closing date and for all prior
taxable periods for which the statute of limitations has not expired.
(k) Set forth on Part 2.19(k) of the Seller Disclosure Letter is
the policyholders surplus account and the shareholders surplus account (as
defined in Section 815 of the Code) for each Insurance Subsidiary as of
December 31, 2002 as reported on Seller's consolidated federal income Tax
Return for the taxable year ending on December 31, 2002, which surplus
accounts were materially correct as of the date such Tax Returns was filed.
(l) All tax sharing agreements to which the Acquired Companies
are parties or by which the Acquired Companies are bound will be terminated
before closing. None of the Acquired Companies is party to or bound by any
written, tax indemnity obligation.
SECTION 2.20 EMPLOYEE BENEFIT PLANS.
29
(a) Part 2.20(a)(i) of the Seller Disclosure Letter sets forth a
true and correct list of each bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock appreciation, restricted stock, stock option, phantom stock,
performance, retirement, thrift, savings, stock bonus, cafeteria, paid time
off, perquisite, fringe benefit, vacation, severance, termination,
retention, change of control, disability, death benefit, hospitalization,
medical or other welfare benefit or other plan, program, arrangement or
understanding, whether oral or written, formal or informal, funded or
unfunded (whether or not legally binding), including, without limitation,
each "employee pension benefit plan" (as defined in Section 3(2) of ERISA,
whether or not subject to ERISA) (a "PENSION PLAN") and "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA, whether or not subject
to ERISA) (a "WELFARE PLAN"), whether or not subject to the United States
law, in each case maintained or contributed to, or required to be
maintained or contributed to, by Seller or any of its Subsidiaries or any
other person or entity that, together with Seller, is or was treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (each,
together with Seller, a "COMMONLY CONTROLLED ENTITY") providing
compensation or benefits to any current or former employees of an Acquired
Company or any Bank Channel Employee (each such plan, a "PLAN" and,
collectively, the "PLANS") that is a material Plan, other than the Acquired
Company Plans. Part 2.20(a)(ii) of the Seller Disclosure Letter sets forth
a true and correct list of each Acquired Company Plan. With respect to each
Acquired Company Plan and other material Plan, Seller has delivered to
Parent complete and correct copies of such Plan (or a description of such
Plan if not written). To the extent applicable to an Acquired Company Plan,
Seller has delivered to Buyer complete and correct copies of all trust
agreements, insurance contracts or other funding agreements or
arrangements, the three most recent actuarial and trust reports, the three
most recent Form 5500s required to have been filed with the IRS and all
schedules thereto, the most recent IRS determination letter, all current
summary plan descriptions, and any and all amendments to any such document.
To the knowledge of Seller, each item described in the immediately
preceding sentence was as of its date and is true and correct in all
material respects.
(b) Each Plan intended to be qualified under Section 401(a) of
the Code, and the trust (if any) forming a part thereof, has received a
favorable determination letter from the IRS with respect to all tax law
changes through the Economic Growth and Tax Relief Reconciliation Act of
2001 as to its qualification under the Code and to the effect that each
such trust is exempt from taxation under Section 501(a) of the Code. No
such determination letter has been revoked, and, to the knowledge of
Seller, revocation has not been threatened. No event has occurred and no
circumstances exist that would (i) be reasonably likely to adversely affect
(x) such qualification or tax-exempt status in form or operation or (y) the
tax-qualification of such Plan, or (ii) materially increase its cost or
require security under Section 307 of ERISA.
30
(c) Each of the Acquired Company Plans has been operated and
administered in compliance in all material respects with its terms. Each
Acquired Company and all the Acquired Company Plans are in compliance in
all material respects with the applicable provisions of ERISA, the Code and
all other Applicable Laws. All contributions required to be made to any
Acquired Company Plan have been timely made or properly accrued on the
Non-Insurance Financial Statements or the Insurance Subsidiary Statements.
There are no pending or, to the knowledge of Seller, threatened
investigations by any Governmental Entity, termination proceedings or other
claims (except routine claims for benefits payable under the Plans) by or
on behalf of any employee or beneficiary under any Acquired Company Plan,
or otherwise involving any such Acquired Company Plan or the assets of any
Acquired Company Plan and there are not any facts or circumstances that
could give rise to any material liability in the event of any such
investigation, claim or proceeding. All reports, returns and similar
documents with respect to the Acquired Company Plans required to be filed
with any Governmental Entity or distributed to any Acquired Company Plan
participant have been duly and timely filed or distributed and all reports,
returns and similar documents actually filed or distributed were true and
correct in all material respects.
(d) Except as expressly provided in Section 4.6, with respect to
any Plan (other than any Acquired Company Plan), there is no liability
which could reasonably be expected to become a liability of Parent, Buyer
and its Subsidiaries (including the Acquired Companies) following the
Closing. No Commonly Controlled Entity has (i) engaged in a transaction
described in Section 4069 of ERISA that could subject Parent, Buyer or any
of its Subsidiaries (including each Acquired Company) to liability at any
time after the date hereof or (ii) acted in a manner that could, or failed
to act so as to, result in material fines, penalties, taxes or related
charges under (x) Section 502(c), (i) or (1) of ERISA, (y) Section 4071 of
ERISA or (z) Chapter 43 of the Code.
(e) No amount or other entitlement or economic benefit that
could be received (whether in cash or property or the vesting of property)
as a result of the execution or delivery of this Agreement or any of the
transactions contemplated by this Agreement (alone or in combination with
any other event, including termination of employment) by any current or
former employees of an Acquired Company or any Bank Channel Employee who is
a "disqualified individual" (as such term is defined in Treasury Regulation
Section 1.280G-1) under any Plan or Contract or Other Agreement or
otherwise would be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code) and no such disqualified
individual is entitled to receive any additional payment from an Acquired
Company in the event that the excise tax required by Section 4999(a) of the
Code is imposed.
(f) No Acquired Company Plan (i) is subject to Title IV or Part
3 of Title I of ERISA or Section 412 of the Code or (ii) is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN"),
and no employee benefit plan (that would be treated as an Acquired Company
Plan if it were still in existence) described in the immediately preceding
clause (i) or (ii) has been terminated within the six years prior to the
date hereof, the liabilities of which have not been satisfied in full.
31
(g) With respect to each Plan that is subject to Title IV or
Part 3 of Title I of ERISA or Section 412 of the Code: (i) no reportable
event (within the meaning of Section 4043 of ERISA, other than an event for
which the reporting requirements have been waived by regulations) has
occurred in the six (6) years prior to the date hereof or is expected to
occur on or prior to the Closing; (ii) there has been no application for
waiver and has been no accumulated funding deficiency (within the meaning
of Section 302 of ERISA or Section 412 of the Code), whether or not waived,
as of the most recently ended plan year of such Plan; (iii) no Commonly
Controlled Entity has been required to provide security under Section
401(a)(29) of the Code; (iv) all premiums (and interest charges and
penalties for late payment, if applicable) have been paid when due to the
Pension Benefit Guaranty Corporation ("PBGC"); and (v) no filing has been
made with the PBGC and no proceeding has been commenced by the PBGC to
terminate any Plan and no condition exists which could constitute grounds
for the termination of any such Plan by the PBGC.
(h) No Acquired Company has any unsatisfied actual or contingent
liability under Title IV of ERISA for any employee benefit plan that is not
a Plan.
(i) No "prohibited transaction" (as defined in Section 4975 of
the Code or Section 406 of ERISA) has occurred that involves the assets of
any Acquired Company Plan that could subject any Acquired Company or any of
its Subsidiaries, any of their employees, or, to the knowledge of Seller, a
trustee, administrator or other fiduciary of any trust created under any
Acquired Company Plan to the tax or sanctions on prohibited transactions
imposed by Section 4975 of the Code or Title I of ERISA; no Acquired
Company or any of its Subsidiaries, any of their employees, or, to the
knowledge of Seller, a trustee, administrator or other fiduciary of any
Acquired Company Plan or any agent of any of the foregoing has engaged in
any transaction or acted in a manner that could, or has failed to act so as
to, subject any Acquired Company or any of its Subsidiaries, any of their
employees or any trustee, administrator or other fiduciary to any liability
for breach of fiduciary duty under ERISA or any other applicable Law.
(j) No Acquired Company Plan that is a Welfare Plan provides
benefits after termination of employment except where the cost thereof is
borne entirely by the former employee (or his or her eligible dependents or
beneficiaries) or as required by Section 4980B(f) of the Code or any
similar statute.
32
(k) No current or former employee of any Acquired Company or any
Bank Channel Employees will be entitled to any additional compensation,
severance or other benefits or any acceleration of the time of payment or
vesting of any compensation or benefits under any Plan or Contract or Other
Agreement as a result of the transactions contemplated hereby (alone or in
combination with any other event) or any compensation or benefits under any
Plan or Contract or Other Agreement the value of which will be calculated
on the basis of any of the transactions contemplated hereby (alone or in
combination with any other event), except as expressly provided in this
Agreement. The execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby (alone or in combination with any other event) and
compliance with the provisions of this Agreement and the other Transaction
Documents do not and will not require the funding (whether through a
grantor trust or otherwise) of, or increase the cost of, any Plan or
Contract and Other Agreement or any other employment arrangement.
(l) No Acquired Company has any material liability or
obligations, including under or on account of a Plan or Contract or Other
Agreement, arising out of the hiring of persons to provide services and
treating such persons as consultants or independent contractors and not as
employees.
SECTION 2.21 INVESTMENT ADVISORY ACTIVITIES.
(a) ADVISORY AGREEMENTS, INVESTMENT COMPANIES AND OTHER CLIENTS.
(i) Part 2.21(a)(i) of the Seller Disclosure Letter sets
forth a list, as of December 31, 2003, of each Client with an
account of greater than $1,000,000 of each Investment Advisor
Subsidiary and shows for each such Client the aggregate amount of
assets under management with Safeco Asset Management Company as of
such date.
(ii) Seller has previously delivered to Parent copies of
each Advisory Agreement with any of the Clients listed on Part
2.21(a)(i) of the Seller Disclosure Letter, such Advisory Agreements
being referred to herein as the "CLIENT CONTRACTS"; provided that,
for purposes of clauses (iii) and (iv) below, "Client Contracts"
shall include all Advisory Agreements, regardless of the size of any
related account. Since January 1, 2003, none of the Investment
Adviser Subsidiaries has received and none is aware of any written
demands or formal requests for reductions in the fee rates, waivers
of fees or other reductions in the amounts payable under the Client
Contracts.
33
(iii) Each Client Contract and any subsequent renewal has
been duly authorized, executed and delivered by the Investment
Adviser Subsidiary party thereto and, to the knowledge of Seller,
each other party thereto, and is a valid and legally binding
agreement, enforceable against such Investment Adviser Subsidiary
and, to the knowledge of Seller, each other party thereto, subject
to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting
creditors' rights and remedies generally, and (ii) the effect of
equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(iv) Each Investment Adviser Subsidiary and, to the
knowledge of Seller, each other party thereto, is in substantial
compliance with the terms of each Client Contract to which it is a
party, and is not in default under any of the terms of any such
Client Contract, except where such default would not reasonably be
expected to result in, individually or in the aggregate, a Material
Adverse Effect on the Acquired Companies; there does not exist under
any Client Contract any event or condition that, after notice or
lapse of time or both, would constitute an event of default
thereunder on the part of the Investment Adviser Subsidiary in
question, or, to the knowledge of Seller, any other party thereto,
except, in each case, where such event or condition would not
reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Effect on the Acquired Companies.
(b) REGISTERED INVESTMENT COMPANIES.
(i) Each Registered Investment Company is, and at all
times required under the Securities Laws has been, duly registered
with the SEC as an investment company under the Investment Company
Act. Since January 1, 1999, each Registered Investment Company has
continuously been (A) in substantial compliance with (w) the terms
and conditions of its Constituent Documents, (x) the Securities Laws
and the rules and regulations promulgated thereunder, (y) its
investment policies and investment restrictions set forth in its
registration statement as from time to time in effect and (z) the
laws of its jurisdiction of formation and of each jurisdiction in
which shares of such Registered Investment Company have been offered
for sale or sold, and (B) duly registered or licensed and in good
standing under the laws of each jurisdiction in which qualification
is necessary. Without limiting the generality of the foregoing, each
Registered Investment Company has maintained its records in
compliance in all material respects with each of the Investment
Company Act, the Investment Advisers Act and the rules of the
National Association of Securities Dealers, Inc., including records
necessary to substantiate the performance of the Registered
Investment Company set forth in such Registered Investment Company's
registration statements as from time to time in effect. There are no
special restrictions, consent judgments or SEC or judicial orders on
or against or with regard to any Registered Investment Company in
effect, except for exemptive orders issued pursuant to Section 6(c)
of the Investment Company Act listed on Part 2.21(b)(i) of the
Seller Disclosure Letter.
34
(ii) Seller has delivered to Parent copies of the audited
financial statements for each of the Registered Investment Companies
for their fiscal year ending in 2002, and will deliver to Parent
copies of any interim financial statements (whether quarterly,
semi-annual or annual) prepared in the ordinary course for periods
ending after the date hereof and before the Closing Date promptly
upon such financial statements becoming available (the "INVESTMENT
COMPANY FINANCIAL STATEMENTS"). Each Investment Company Financial
Statement is consistent with the books and records of such
Registered Investment Company, and has been prepared in accordance
with GAAP applied on a consistent basis throughout the periods
presented in such Investment Company Financial Statement, subject,
in the case of interim unaudited Investment Company Financial
Statements, only to normal recurring year-end adjustments. The
minute books of each Registered Investment Company accurately record
all material corporate action taken by its shareholders and trustees
and committees and true, correct and complete copies of such
documents with respect to meetings occurring after January 1, 2001,
have been delivered to Buyer.
(iii) (A) Seller has delivered to Parent copies of each
Advisory Agreement in effect on the date hereof between Safeco Asset
Management Company and each Registered Investment Company; (B) each
such Advisory Agreement and any subsequent renewal has been duly
authorized, executed and delivered by Safeco Asset Management
Company, and, to the knowledge of Seller, the Registered Investment
Company party thereto; and is a valid and legally binding agreement,
enforceable against Safeco Asset Management Company and, to the
knowledge of Seller, each other party thereto (subject to (i) the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors'
rights and remedies generally, and (ii) the effect of equitable
principles (regardless of whether enforceability is considered in a
proceeding in equity or at law)); and (C) in the case of each
Advisory Agreement with a Registered Investment Company has been
adopted in compliance with Section 15 of the Investment Company Act,
and if applicable, Rule 12b-1 thereunder.
35
(iv) Each current prospectus (which term, as used in this
Agreement, shall include any related statement of additional
information), as amended or supplemented, relating to each
Registered Investment Company has been delivered to Parent. Each
Registered Investment Company has timely filed all prospectuses,
annual information forms, registration statements, proxy statements,
financial statements, notices on Form 24f-2, other forms, reports,
sales literature and advertising materials and any other documents
required to be filed with any Governmental Entity, and any
amendments thereto (the "FUND REPORTS"), and has timely paid all
fees and interest required to be paid in connection therewith. The
Fund Reports (i) have been prepared in accordance with the
requirements of applicable Law, and (ii) did not at the time they
were filed, and with respect to any prospectus, proxy statement,
sales literature or advertising material, did not during the period
of its authorized use, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light
of the circumstances under which they were or are made, not
misleading.
(v) None of the Advisory Agreements between a Registered
Investment Company or any of its Subsidiaries and Safeco Asset
Management Company contains any undertaking by such entity to cap
fees or to reimburse any or all fees thereunder except, as of the
date hereof, as may be disclosed in the applicable Investment
Company Financial Statements.
(vi) Part 2.21(b)(vi) of the Seller Disclosure Letter
sets forth all of the investment advisory agreements, sub-advisory
agreements and distribution or underwriting contracts or plans
adopted pursuant to Rule 12b-1 under the Investment Company Act (a
"12b-1 PLAN") or arrangements for the payment of service fees (as
such term is defined in Rule 2830 of the NASD Conduct Rules), and
all administrative services and other services agreements, if any
(collectively, the "FUND AGREEMENTS"), to which any Registered
Investment Company is a party and which are in effect on the date of
this Agreement. True, correct and complete copies of the Fund
Agreements have been delivered to Parent prior to the date hereof.
As to each Registered Investment Company (other than any Registered
Separate Account that is not a management investment company), there
has been in full force and effect an investment advisory agreement
and a distribution or underwriting agreement at all times since
inception of such Registered Investment Company. Each Fund Agreement
was duly approved in accordance with the applicable provisions of
the Investment Company Act and all payments due since December 31,
2002 under each distribution or principal underwriting agreement to
which any Registered Investment Company is a party have been made in
compliance with the related 12b-1 Plan; and the operation of each
such 12b-1 Plan complies with Rule 12b-1 under the Investment
Company Act.
36
(vii) Each of the Registered Investment Companies has
issued its shares, units or other interests and operated in
compliance in all material respects with its investment objectives
and policies and with Law, including Section 17 of the Investment
Company Act; and each Board of a Registered Investment Company has
been established and operates in conformity with the requirements
and restrictions of Sections 9, 10 and 16 of the Investment Company
Act. All shares of each Registered Investment Company have been duly
authorized, are validly issued, fully-paid and non-assessable and
have been sold in compliance with the Securities Act. With respect
to each Registered Investment Company, all registration or
qualification statements or notices of offering to sell or sales
under which shares of such Registered Investment Company have been
sold have, at all times when such registration statement,
qualification statement or notice has been effective, complied in
all material respects with the requirements of the Investment
Company Act, the Securities Act and any other applicable Law then in
effect. No stop order suspending the effectiveness of any such
registration or qualification statement or notice has been issued
and no proceedings for that purpose have been instituted or, to the
knowledge of Seller, are contemplated with respect to any Registered
Investment Company.
(viii) As of the Closing Date, each Investment Company
Board of a Registered Investment Company having such a Board has
taken such action required to be taken to approve new Advisory
Agreements with Safeco Asset Management Company and to constitute
itself in each case so as to comply with the provisions of Section
15 of the Investment Company Act and Rule 12b-1 thereunder.
(ix) Except as contemplated by Sections 4.9 and 4.10, no
further action of the Investment Company Board of any Registered
Investment Company having such a Board or of the shareholders of any
such Registered Investment Company is required in connection with
the transactions contemplated by this Agreement.
(x) Each of (1) the proxy solicitation materials to be
distributed to the shareholders of any Registered Investment Company
in connection with the approvals described in Sections 4.9 and 4.10
and (2) the materials provided to the Boards of any Registered
Investment Companies in connection with the approvals of the Board
resolutions have provided and will provide all information necessary
in order to make the disclosure of information therein satisfy the
requirements of Section 14 of the Exchange Act, Sections 15 and 20
of the Investment Company Act and the rules and regulations
thereunder and such materials and information (except to the extent
supplied by Parent or its Affiliates) will be complete in all
respects and will not contain (at the time such materials or
information are distributed, filed or provided, as the case may be)
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were
made, not misleading or necessary to correct any statement or any
earlier communication with respect to the solicitation of a proxy
for the same meeting or subject matter which has become false or
misleading.
37
(xi) As of the date hereof, no exemptive orders or no
action letters from any Governmental Entity have been obtained, nor
are any requests pending therefor, with respect to any Registered
Investment Company under any of the Securities Laws except for
exemptive orders issued pursuant to Section 6(c) of the Investment
Company Act for regular operations in the ordinary course of
business listed on Part 2.21(b)(xi) of the Seller Disclosure Letter.
(xii) No Acquired Company nor any of their Subsidiaries or
Affiliates has any express or implied understanding or arrangement
which would impose an unfair burden on any of the Registered
Investment Companies or would in any way violate Section 15(f) of
the Investment Company Act as a result of the transactions set forth
in Section 1.1.
(xiii) Neither the Seller nor any "affiliated person" (as
defined in the Investment Company Act) of the Seller or any
Registered Investment Company receives or is entitled to receive any
compensation directly or indirectly (i) from any Person in
connection with the purchase or sale of securities or other property
to, from or on behalf of any Registered Investment Company, other
than bona fide ordinary compensation as principal underwriter for
such Registered Investment Company or as broker in connection with
the purchase or sale of securities in compliance with Section 17(e)
of the Investment Company Act or (ii) from any Registered Investment
Company or its security holders for other than bona fide investment
advisory, administrative or other services. Disclosure of any such
compensation arrangements has been made in the registration
statement of each Registered Investment Company filed with the SEC
to the extent such disclosure is required by applicable Law.
(xiv) Since the dates of the most recent audited financial
statements included in the Investment Company Financial Statements
of each Registered Investment Company, such Registered Investment
Company has not, except for such actions expressly required under
this Agreement to be taken in connection with the transactions
contemplated hereby:
(1) declared, set aside, made or paid any dividend
or other distribution in respect of its equity
interests or otherwise purchased or redeemed,
directly or indirectly, any of its equity interests,
except in the ordinary course of its business;
(2) adopted, or amended in any material respect,
any deferred compensation or other plan, agreement,
trust, fund or arrangement for the benefit of any
trustees;
(3) amended its Constituent Documents;
(4) changed in any material respect its accounting
practices, policies or principles, except as may be
required under applicable Law or GAAP; or
38
(5) operated its business in any manner other than
in the ordinary course.
(xv) Each Registered Investment Company has in full force
and effect such insurance and fidelity bonds as may be required by
the Investment Company Act. Part 2.21(b)(xv) of the Seller
Disclosure Letter sets forth all policies of insurance in effect
with each Registered Investment Company and with each Investment
Adviser Subsidiary relating to the Asset Management Business, and
true and correct copies of such policies of insurance have
previously been delivered to Parent.
(xvi) Notwithstanding any other provision in this
Agreement to the contrary, Sections 2.21(b)(xvii) through
2.21(b)(xx) contain the only representations that Seller makes with
respect to the Tax treatment of any Registered Investment Company
and each such representation is subject to the dispute rights of
Section 4.10(f).
(xvii) All Tax Returns of each Registered Investment
Company that are required to be filed by it for taxable periods
ending on or prior to the Closing Date (with due regard to any
extensions) have been duly and timely filed. All such Tax Returns
are true, correct and complete in all material respects. All Taxes
of any Registered Investment Company for any Pre-Closing Tax Period
have been duly and timely paid in full (or adequate provision for
such has been made in its financial statements in accordance with
GAAP).
(xviii) Each Registered Investment Company has complied with
all laws relating to the payment and withholding of Taxes and has,
within the time and the manner prescribed by law, paid over to the
proper taxing authorities all amounts required to be so withheld and
paid over.
(xix) Each Registered Investment Company that has elected
to be a "regulated investment company" pursuant to Section 851(b)(1)
of the Code has satisfied the relevant requirements of the Code for
all taxable years, or parts thereof, of such Registered Investment
Company ending on or prior to the Closing Date as to its status as a
regulated investment company as defined in Section 851 of the Code.
Neither Seller, any Affiliate of Seller nor, to the knowledge of
Seller, any Registered Investment Company or any other agent of any
Registered Investment Company has received any notice or other
communication from any Governmental Entity relating to or affecting
any Registered Investment Company's compliance with any of these
relevant requirements.
39
(xx) With respect to each Registered Investment Company,
to the knowledge of Seller, no claims have been or are being
asserted by any Governmental Entity with respect to any Taxes and
there are no threatened claims for Taxes. None of the Registered
Investment Companies has ever entered into a closing agreement
pursuant to Section 7121 of the Code or otherwise. There has not
been any audit by any Governmental Entity of any Tax period of any
Registered Investment Company, and, to the knowledge of Seller, no
such audit is in progress and no Registered Investment Company has
been notified by any Governmental Entity that any such audit is
contemplated or pending. Except with respect to any extension
granted pursuant to Internal Revenue Service Form 7004 (or any
predecessor), no extension of time with respect to any date on which
a Tax Return was or is to be filed by any Registered Investment
Company is in force, and no waiver or agreement by any Registered
Investment Company is in force for the extension of time for the
assessment or payment of any Taxes.
40
(xxi) No Registered Investment Company, Investment Adviser
Subsidiary, or Broker/Dealer Subsidiary (including any officer,
director, or employee of any of them) has entered into, or
acquiesced in, any agreement, arrangement or understanding to permit
any person to engage in improper "market timing" or "late trading"
activity (as such terms are commonly used in the securities
industry) with respect to any Registered Investment Company or
Separate Account. No Registered Investment Company, Investment
Adviser Subsidiary, or Broker/Dealer Subsidiary (including any
officer, director, or employee of any of them) has agreed to waive,
modify, or otherwise not to enforce, any limitation or requirement
in the then-current prospectus or statement of additional
information or other constituent documents of a Registered
Investment Company or Separate Account, the effect of which waiver,
modification, or failure to enforce would be to permit or facilitate
improper "market timing" or "late trading" activities with respect
to such Registered Investment Company or Separate Account. No access
person (as such term is defined in Rule 17j-1 under the Investment
Company Act) of any Registered Investment Company or employee of any
Investment Adviser Subsidiary or Broker/Dealer Subsidiary has
engaged in any improper "market timing" or improper "late trading"
activities with respect to any Registered Investment Company or
Separate Account. Each Registered Investment Company has established
procedures (i) to prevent patterns of transactions characteristic of
improper "market timing" strategies, (ii) regarding the fair-value
pricing and determination of the net asset value ("NAV") of fund
shares in connection with purchase and redemption orders by
investors in each Registered Investment Company (including policies
and procedures to deter improper "late trading"), (iii) to prevent
the improper or illegal disclosure of its portfolio holdings to any
person and to prevent disclosure of its portfolio holdings in a
manner that might reasonably be expected to facilitate improper
market timing activities in respect of its shares or other improper
or illegal activities in respect of it and (iv) reasonably designed
to monitor and ensure that investors obtain the proper "breakpoint"
discount with respect to purchases of shares of each Registered
Investment Company with front-end sales loads (collectively, the
procedures described in clauses (i)-(iv), the "RIC PROCEDURES").
Each Investment Adviser Subsidiary and each Registered Investment
Company is and has at all times since January 1, 2003 been in
compliance in all material respects with all such procedures. No
Investment Adviser Subsidiary, Registered Investment Company or
Broker/Dealer Subsidiary has acted, directly or indirectly, to
facilitate purchase and redemption orders for fund shares received
after the NAV has been determined for a particular day at that day's
NAV, nor is any Investment Adviser Subsidiary, Registered Investment
Company or Broker/Dealer Subsidiary aware of such activities
occurring in connection with the operations of any Registered
Investment Company, except with respect to the Safeco Resource
Series Trust, as permitted by NEW YORK LIFE FUND, INC., SEC
no-action letter published May 6, 1971 and as provided for in the
Participation Agreements filed with the SEC as exhibits to
registration statements (which in each case requires that the
beneficial owner of any fund shares shall have provided the relevant
purchase or sale order
41
or instruction to the relevant intermediary prior to the time as of
which such NAV is determined for the day in question). The parties
agree that, in the event that any Governmental Entity asserts in any
context, or any other Person asserts in a Proceeding, that any
specified activity prior to the Closing constituted or might have
constituted improper "market timing" or improper "late trading,"
then for the purposes of determining whether any of the
representations in this Section 2.21(b)(xxi) has been breached, as
between the parties the activity in question will be assumed to have
constituted improper "market timing" or "late trading," as the case
may be, regardless of whether Seller believes that the activity in
question was in fact improper or constituted "market timing" or
"late trading" activity.
(xxii) Each Registered Investment Company has at all times
disclosed in its prospectus and statement of additional information
to the extent required by applicable Law, any and all arrangements
in place between each Investment Adviser Subsidiary or Registered
Investment Company and a financial intermediary pursuant to which a
financial intermediary is compensated, directly or indirectly, by
such entity or an affiliate of such entity, with cash payments or
other incentives in connection with its sale of shares of the
Registered Investment Company. Such arrangements are and at all
times have been in compliance in all material respects with
applicable Law (including the Securities Act, the Investment
Advisers Act, the Investment Company Act, ERISA and the NASD
Regulations).
(xxiii) Each Investment Advisory Subsidiary has selected
broker-dealers to execute portfolio transactions for each Registered
Investment Company in accordance with the policies of each such
Registered Investment Company disclosed in each such Registered
Investment Company's registration statement and applicable
requirements to seek best execution consistent with the Conduct
Rules of the NASD.
(xxiv) Each Investment Adviser Subsidiary and each
Registered Investment Company has at all times disclosed in its
prospectus and statement of additional information to the extent
required by applicable Law, any and all arrangements under which
products or services other than execution of securities transactions
are obtained by either entity from or through a broker-dealer in
exchange for the direction by the Investment Adviser Subsidiary of
client brokerage transactions to the broker-dealer. Such
arrangements are and at all times have been in compliance in all
material respects with applicable Law (including but not limited to
the Securities Act, the Investment Advisers Act, the Investment
Company Act, ERISA and the NASD Regulations).
SECTION 2.22 INSURANCE PRACTICES.
42
(a) Except as otherwise, individually or in the aggregate, would
not reasonably be expected to result in, a Material Adverse Effect on the
Acquired Companies, all policies, binders, slips, certificates, annuity
contracts and participation agreements and other agreements of insurance,
whether individual or group, that are in effect (including all
applications, supplements, endorsements, riders and ancillary agreements in
connection therewith) and that have been issued by the Insurance
Subsidiaries and any and all marketing materials, are, to the extent
required under Law, on forms approved by applicable insurance regulatory
authorities which have been filed and not objected to by such authorities
within the period provided for objection (the "COMPANY FORMS"). The Company
Forms comply in all material respects with the insurance statutes,
regulations and rules applicable thereto and, as to premium rates
established by Seller or any Insurance Subsidiary which are required to be
filed with or approved by insurance regulatory authorities, the rates have
been so filed or approved, the premiums charged conform thereto and such
premiums comply in all material respects with the insurance statutes,
regulations and rules applicable thereto.
(b) To the knowledge of the Seller, at the time any Insurance
Subsidiary paid commissions to any broker or agent since January 1, 2001 in
connection with the sale of Life & Annuity Contracts, each such broker or
agent was duly licensed as an insurance broker (for the type of business
sold by such broker) or agent in the particular jurisdiction in which such
broker or agent sold such business for any Insurance Subsidiary. To the
knowledge of Seller, since January 1, 1999 no such broker or agent violated
(or with or without notice or lapse of time or both would have violated) in
any material respect any Law or any other requirement of any Governmental
Entity or arbitrator applicable to the sale or servicing of Life & Annuity
Contracts. Neither the manner in which any Insurance Subsidiary compensates
any Person involved in the sale or servicing of Life & Annuity Contracts
that is not registered as a broker-dealer or insurance agent, as
applicable, nor, to the knowledge of the Seller, the conduct of any such
Person, renders such Person a broker-dealer or insurance agent under any
applicable federal or state law, and the manner in which any Insurance
Subsidiary compensates each Person involved in the sale or servicing of
Life & Annuity Contracts is in compliance in all material respects with all
applicable Law.
43
(c) Notwithstanding any other provision in this Agreement to the
contrary, Section 2.22(c) contains the only representations with respect to
the policyholder Tax treatment that Seller makes with respect to any
annuity policy or other insurance policy issued by any Insurance Subsidiary
(a "POLICY"), including any benefits or other amounts provided by such a
Policy, and each such representation is subject to the remediation and
mitigation provisions of Section 4.10(g). The Tax treatment under the Code
of any Policy (whether developed or administered by or reinsured with an
unrelated party) issued or sold prior to or on the Closing Date is, and at
all times through the Closing Date has been, the same or more favorable to
the owner of such Policy (the "POLICY OWNER") or the intended beneficiaries
thereof than the Tax treatment under the Code for which such Policy
purported to qualify at the time of such Policy's issuance. For purposes of
this Section 2.22(c), the provisions of the Code relating to the Tax
treatment of such Policy shall refer to Code Sections 72, 79, 101, 104,
105, 106, 125, 130, 264, 401, 403, 404, 408, 408A, 412, 415, 419, 419A,
457, 501, 505, 817, 817A, 818, 1035, 7702, 7702A and 7702B. For any such
variable Policy such Insurance Subsidiary is, and at all times through the
Closing Date has been, treated as the owner for Tax purposes under the Code
of the assets in any segregated asset account of such Insurance Subsidiary
that relate to such Policy. Any such Policy that is a modified endowment
contract under Code Section 7702A (a "MEC") has been marketed as such at
any relevant time prior to its issuance, or its Policy Owner has consented
to such MEC status.
(d) OTHER INSURANCE PRACTICE REPRESENTATIONS.
(i) To Seller's knowledge, there is no pending or
threatened audit or other proceeding with the IRS or in any court
with respect to the Tax treatment of any Policy to the Policy Owner
under the Code.
(ii) To the knowledge of the Seller, there are no "hold
harmless," tax sharing, indemnification, or similar arrangements
regarding the Tax qualification or treatment of any Life & Annuity
Contracts.
(iii) All contracts issued by any Insurance Subsidiary
(whether developed or administered by or reinsured with any
unrelated party) that are subject to Section 817 of the Code and the
Treasury Regulations promulgated thereunder have met the
diversification requirements applicable thereto since the issuance
of the contracts.
(iv) All annuity contracts issued by any Insurance
Subsidiary (whether developed or administered by or reinsured with
any unrelated party) that are subject to Section 72(s) of the Code
contain all of the necessary provisions of Section 72(s) of the
Code.
44
(v) Each Life Insurance Contract (whether developed or
administered by or reinsured with any unrelated party) that was
issued after December 31, 1984 complies with the requirements of
Section 7702 of the Code and qualifies as a "life insurance
contract" within the meaning of Section 7702(a) of the Code. Each
Life Insurance Contract (whether developed or administered by or
reinsured with any unrelated party)that was issued before January 1,
1985 (i) complies with the requirements of Section 7702 of the Code
to the extent applicable to such Life Insurance Contract and
qualifies as a "life insurance contract" within the meaning of
Section 7702(a) to such extent or (ii) to the extent Section 7702 of
the Code is inapplicable to such Life Insurance Contract and such
Life Insurance Contract is a flexible premium contract within the
meaning of Section 101(f) of the Code, complies with the
requirements of such Section 101(f).
(e) Except as would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect on the Acquired
Companies, (i) each separate account maintained by an Insurance Subsidiary
(a "SEPARATE ACCOUNT") is duly and validly established and maintained under
the laws of its state of formation and is either excluded from the
definition of investment company or exempt from registration under the
Investment Company Act or is duly registered as an investment company under
the Investment Company Act, and (ii) each such Separate Account is
operated, and each contract issued by an Insurance Subsidiary under which
Separate Account assets are held has been duly and validly issued, offered
and sold. Seller has delivered to Buyer true, correct and complete copies
of the annual statements of the Separate Accounts as filed with applicable
state insurance regulatory authorities for the year ended December 31,
2002. Each such annual statement complied in all material respects with all
applicable Laws when so filed and was timely filed with all required
Governmental Entities. No material deficiencies have been asserted by any
Governmental Entity with respect to any such annual statement. Each
statutory financial statement of the Separate Accounts contained in any
such annual statement fairly presents in all material respects, in
accordance with applicable SAP, the financial condition of the applicable
Separate Account and such Separate Account's summary of operations and
surplus account for and during the respective periods covered by such
financial statements. Each Insurance Subsidiary and each of its
predecessors, if any, has at all times operated such Separate Accounts in
material compliance with the terms of any and all agreements relating to
such Separate Accounts and applicable Law.
(f) [INTENTIONALLY OMITTED].
(g) The separate accounts maintained by an Insurance Subsidiary
which are required to register as an investment company under the
Investment Company Act (each, a "REGISTERED SEPARATE ACCOUNT") are and have
been operated and registered in compliance with the Investment Company Act
in all material respects and the applicable Insurance Subsidiary has filed
all reports and amendments to its registration statement required to be
filed, and has been granted all exemptive relief necessary for the
operation of the Registered Separate Accounts, except as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on the Acquired Companies.
45
(h) There are no Contracts or Other Agreements to which any
Insurance Subsidiary is a party, or which is binding upon any Insurance
Subsidiary, that restrict the right of any Insurance Subsidiary to change
the crediting rates and other non-guaranteed elements under the Life &
Annuity Contracts, other than pursuant to the terms of the Life & Annuity
Contracts. Except as set forth in its statutory reports filed prior to the
date hereof and delivered to Buyer, and except as required by Laws of
general applicability and the insurance permits, grants or licenses
maintained by the Insurance Subsidiaries, there are no written agreements,
memoranda of understanding, commitment letters or similar undertakings
binding on any Insurance Subsidiary to which such Insurance Subsidiary is a
party, on one hand, and any Governmental Entity is a party or addressee, on
the other hand, or orders or directives by, or supervisory letters from,
any Governmental Entity specifically with respect to any Insurance
Subsidiary, which (A) limit the ability of the Insurance Subsidiary or any
of its Subsidiaries to issue Life & Annuity Contracts, (B) require any
investments of the Insurance Subsidiary or any of its Subsidiaries to be
treated as nonadmitted assets, (C) require any divestiture of any
investments of the Insurance Subsidiary or any of its Subsidiaries, (D) in
any manner relate to the capital adequacy (including the maintenance of any
National Association of Insurance Commissioners Insurance Regulatory
Information System Ratio, reserves or surplus), credit policies or
management of the Insurance Subsidiary or any of its Subsidiaries or the
ability of the Insurance Subsidiary or any of its Subsidiaries to pay
dividends or other distributions or (E) otherwise restrict the conduct of
business of the Insurance Subsidiary or any of its Subsidiaries in any
material respect.
(i) All Life & Annuity Contracts were issued in conformity in
all material respects with the applicable Insurance Subsidiary's
underwriting standards.
(j) Seller has delivered to Buyer all correspondence between any
Insurance Subsidiary and any Governmental Entity (other than any Taxing
authority) since January 1, 2002, regarding any alleged material violation
of Laws.
(k) (i) To the extent that any Insurance Subsidiary is legally
responsible therefor, (A) the terms of each Qualified Contract and the
administration and operation thereof and of any plan or arrangement funded
in whole or in part through any such Qualified Contract comply, and at all
relevant times have complied, in all material respects with the applicable
provisions of the Code and ERISA and (to the extent such plan is intended
by the contract holder to limit fiduciary responsibility in accordance with
section 404(c) of ERISA) comply, and at all relevant times have complied,
in all material respects with all applicable requirements for limiting
fiduciary responsibility under section 404(c) of ERISA; (B) contributions
or payments to each such Qualified Contract that are intended to be
nontaxable are not taxable; and (C) plan or contract loans made under such
Qualified Contracts were neither prohibited transactions nor taxable when
made or at any time thereafter, except with respect to taxable defaults in
repayment of such plan or contracts loans; and
(ii) each Insurance Subsidiary is in material compliance with all
provisions of ERISA which apply to the design or administration of Life &
Annuity Contracts or to the
46
investment of assets of employee benefit plans subject to ERISA which are
held under Life & Annuity Contracts.
(l) Each Insurance Subsidiary has at all times since January 1,
2003 in its marketing and sales materials, to the extent required by
applicable Law, disclosed any and all arrangements in place between each
Insurance Subsidiary and a financial intermediary pursuant to which a
financial intermediary is compensated, directly or indirectly, by such
entity or an affiliate of such entity, with cash payments or other
incentives in connection with its sale of annuity and/or insurance products
(collectively, "FINANCIAL INTERMEDIARY ARRANGEMENTS"). Such arrangements
are and at all times since January 1, 2003 have been in compliance in all
material respects with applicable Law.
(m) No Insurance Subsidiary has acted, directly or indirectly,
to facilitate purchase and redemption orders for shares in any Registered
Investment Company or interests in any Separate Account received after the
NAV has been determined for a particular day at that day's NAV and no such
activities have occurred in connection with the operations of any
Registered Separate Account, except with respect to the Safeco Resource
Series Trust, as permitted by NEW YORK LIFE FUND, INC., SEC no-action
letter published May 6, 1971 and as provided for in the Participation
Agreements filed with the SEC as exhibits to registration statements (which
in each case requires that the beneficial owner of any fund shares shall
have provided the relevant purchase or sale order or instruction to the
relevant intermediary prior to the time as of which such NAV is determined
for the day in question).
47
(n) No Insurance Subsidiary (including any officer, director, or
employee of any Insurance Subsidiary) has entered into, or acquiesced in,
any agreement, arrangement or understanding to permit any person to engage
in improper "market timing" or improper "late trading" activity (as such
terms are commonly used in the securities industry) with respect to any
Separate Account or Registered Investment Company. No Insurance Subsidiary
has agreed to waive, modify, or otherwise not to enforce, any limitation or
requirement adopted or implemented by it or by such Separate Account
(including without limitation in any prospectus or other offering document
relating to any Separate Account or in any other constituent document
relating to any Separate Account), the effect of which waiver,
modification, or failure to enforce would be to permit or facilitate
improper "market timing" or improper "late trading" activities with respect
to such Separate Account. Each Insurance Subsidiary has established
procedures to prevent patterns of transactions characteristic of improper
"market timing" strategies in its Separate Accounts. Each Insurance
Subsidiary and each Separate Account is and has at all times since such
procedures were adopted been in compliance in all material respects with
such procedures. The parties agree that, in the event that any Governmental
Entity asserts in any context, or any other Person asserts in a Proceeding,
that any specified activity prior to the Closing constituted or might have
constituted improper "market timing" or improper "late trading," then for
the purposes of determining whether any of the representations in this
Section 2.22(n) have been breached, as between the parties the activity in
question will be assumed to have constituted improper "market timing" or
improper "late trading," as the case may be, regardless of whether Seller
believes that the activity in question was in fact improper or constituted
"market timing" or "late trading" activity.
(o) Each Insurance Subsidiary to which the Health Insurance
Portability and Accountability Act and the regulations promulgated
thereunder (including 45 C.F.R. parts 160, 162 and 164) (collectively,
"HIPAA") are applicable has implemented a plan or plans designed to ensure
compliance by such Insurance Subsidiary, with any applicable state or
federal privacy laws or regulations (including HIPAA) governing the
privacy, security and electronic data transfer standards relating to health
information to the extent such laws or regulations are in effect as of the
date hereof, and has taken reasonable steps to formulate and implement a
plan or plans designed to ensure compliance with such laws and regulations
by no later than the applicable mandated compliance dates to the extent
such laws and regulations are not in effect as of the date hereof. These
plans, as in effect on the date hereof, are referred to collectively as the
"INSURANCE SUBSIDIARY HIPAA/PRIVACY PLAN". The Insurance Subsidiary
HIPAA/Privacy Plan is based upon advice of legal counsel competent as to
the matter concerning: (i) the application of HIPAA and other state and
federal privacy laws and regulations to each Insurance Subsidiary and (ii)
the measures that must be taken to attain compliance with such laws and
regulations by their mandated compliance dates. The Seller reasonably
believes that the objectives set forth in the Insurance Subsidiary
HIPAA/Privacy Plan for any laws and regulations that are not in effect as
of the date hereof are attainable in the manner and within the time periods
set forth therein (which time periods have been established to ensure full
compliance by the applicable compliance dates imposed by HIPAA and other
applicable state and federal privacy laws and regulations).
48
SECTION 2.23 THIRD PARTY REINSURANCE CONTRACTS. Part 2.23 of the Seller
Disclosure Letter lists all agreements pursuant to which any Insurance
Subsidiary cedes or retrocedes risks assumed under the Life & Annuity Contracts
(the "THIRD PARTY REINSURANCE CONTRACTS"). No Insurance Subsidiary is currently
a party to any surplus relief contract or treaty, whether called a reinsurance
contract or agreement or otherwise denominated, or any other similar contract or
agreement other than any contract or treaty set forth in Part 2.23 of the Seller
Disclosure Letter. All of the Third Party Reinsurance Contracts are in full
force and effect and valid and binding upon the Insurance Subsidiaries (to the
extent a party thereto, subject to (i) the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditors' rights and remedies generally, and (ii) the effect of equitable
principles (regardless of whether enforceability is considered in a proceeding
in equity or at law)) and, to the knowledge of the Seller, upon each of the
other parties thereto, and none of the Insurance Subsidiaries and, to the
knowledge of the Seller, none of the other parties to the Third Party
Reinsurance Contracts, is in material default under, and no event has occurred
which, with the passage of time or giving of notice or both, would result in any
of the Insurance Subsidiaries or, to the knowledge of the Seller, any of the
other parties to the Third Party Reinsurance Contracts, being in material
default under, any of the terms of the Third Party Reinsurance Contracts. None
of the Insurance Subsidiaries has received any written notice of the initiation
of bankruptcy, liquidation, receivership, insolvency or similar proceedings with
respect to any other party to a Third Party Reinsurance Contract. None of the
Insurance Subsidiaries has been prohibited under the applicable SAP or
applicable insurance Laws from taking financial statement credit for the
reinsurance provided by the Third Party Reinsurance Contracts and any
reinsurance recoverables more than thirty days past due have been previously
disclosed to Buyer. The Closing of the transactions contemplated by this
Agreement will not give rise to any termination or recapture rights under the
Third Party Reinsurance Contracts. All Life & Annuity Contracts that are
reinsured or retroceded in whole or in part conform in all material respects to
the standards agreed to with reinsurers in the related reinsurance, retrocession
or other similar contracts other than such deviations that are immaterial,
individually or in the aggregate.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND BUYER
Parent and Buyer represent and warrant to Seller and GAC as of the
date of this Agreement and, unless such representations and warranties address a
matter only as of a certain date, as of the Closing Date as follows:
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SECTION 3.1 ORGANIZATION. Each of Parent and Buyer has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each of Parent and Buyer is duly
qualified to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it make such qualification necessary, except for such failures to be so duly
qualified and in good standing that, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on Parent or
Buyer, as the case may be. Buyer is a newly formed, direct wholly owned
subsidiary of Parent and, except for activities incident to the acquisition of
the Shares and the other transactions contemplated under the Transaction
Documents, Buyer has not engaged in any business activities of any type or kind
whatsoever.
SECTION 3.2 AUTHORIZATION; BINDING AGREEMENT. Each of Parent and Buyer
has all requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction Documents to which each is a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the other Transaction Documents to which each
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of each of Parent and Buyer. This Agreement has been duly and
validly executed and delivered by each of Parent and Buyer and (assuming the
accuracy of the representations and warranties in Section 2.3) constitutes a
legally valid and binding agreement of each of Parent and Buyer, enforceable
against each of them in accordance with its terms, subject to (i) the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors' rights and remedies generally, and (ii)
the effect of equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).
SECTION 3.3 NONCONTRAVENTION. Neither the execution and delivery of this
Agreement and the other Transaction Documents nor the consummation of the
transactions contemplated hereby and thereby will conflict with or result in any
breach of any provision of, or require any consent or approval (other than
consents and approvals described in Section 3.4 below) under, or constitute
(with or without notice or lapse of time or both) a violation or default (or
give rise to any right of termination, cancellation or acceleration or to any
loss of a material benefit) under, or result in the creation of any Lien upon
the properties or assets of Parent or Buyer under, any of the terms, conditions
or provisions of (i) the Constituent Documents of either Parent or Buyer, (ii)
any Contracts and Other Agreements to which Parent or Buyer is a party or by
which any of them or any portion of their properties or assets may be bound or
(iii) any Law or Order applicable to Parent or Buyer or any portion of their
properties or assets, other than in the case of the foregoing clauses (ii) and
(iii), any such items that, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on Parent or
Buyer.
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SECTION 3.4 APPROVALS. No license, permit, consent, approval, order,
certificate, authorization of, declaration of or filing with, any Governmental
Entity on the part of either Parent or Buyer that has not been obtained or made
is required in connection with the execution or delivery by Parent or Buyer of
this Agreement or the other Transaction Documents or the consummation by Parent
or Buyer of the transactions contemplated hereby and thereby, other than (a)
filings and other applicable requirements under the HSR Act, (b) approvals,
filings and/or notices required under any applicable state or federal banking
laws or any applicable state or federal laws related to the sale or operation of
insurance, investment companies, investment advisers or broker-dealers set forth
in Part 2.5 of the Seller Disclosure Schedule, or (c) consents, approvals,
authorizations, declarations or filings that, if not obtained or made, would not
reasonably be expected to result in a Material Adverse Effect on Parent or Buyer
or prevent Parent or Buyer from consummating the transactions contemplated
hereby.
SECTION 3.5 FINDERS AND INVESTMENT BANKERS. None of Parent or Buyer or
any of their respective officers, directors or Affiliates has employed any
investment banker, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement or incurred any liability for any
investment banking, business consultancy, financial advisory, brokerage or
finders' fees or commissions in connection with the transactions contemplated
hereby.
SECTION 3.6 FINANCING. Parent has firm financing commitments that are
sufficient to enable it to consummate the transactions contemplated in this
Agreement. True and correct copies of such commitments have been delivered to
Seller. The financing required to consummate the transactions contemplated in
this Agreement is referred to in this Agreement as the "FINANCING". As of the
date of this Agreement, Parent does not have any reason to believe that any of
the conditions to the Financing will not be satisfied or that the Financing will
not be available to Parent on a timely basis to consummate the transactions
contemplated in this Agreement, including the payment of the Closing
Consideration as set forth in Section 1.3(b)(i).
SECTION 3.7 COMPLIANCE WITH SECTION 15(f) OF THE INVESTMENT COMPANY ACT.
Neither Buyer nor any of its Affiliates has any express or implied understanding
or agreement which would impose an unfair burden on any Investment Company that
would otherwise preclude satisfaction of the safe harbor provided by Section
15(f) of the Investment Company Act as a result of the transactions contemplated
hereby.
SECTION 3.8 INVESTMENT INTENT. The Shares will be acquired by Buyer for
its own account and not for the purpose of a distribution. Buyer will refrain
from transferring or otherwise disposing of any of the Shares acquired by it, or
any interest therein, in such manner as to violate any registration provision of
the Securities Act, or any applicable state securities law regulating the
disposition thereof. Buyer agrees that the certificates representing the Shares
may bear legends to the effect that the Shares have not been registered under
the Securities Act, or such other state securities laws, and that no interest
therein may be transferred or otherwise disposed of in violation of the
provisions thereof.
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SECTION 3.9 NO DISQUALIFICATION. None of Parent, Buyer, or any Person
"associated" (as such term is defined in the Investment Advisers Act) with
Parent or Buyer has been convicted of any crime or is subject to any
disqualification that would be a basis for denial, suspension, or revocation of
registration of an investment adviser under Section 203(e) of the Investment
Advisers Act or Rule 206(4)-4(b) thereunder. None of Parent, Buyer or any
"associated person" of Parent or Buyer is subject to a "statutory
disqualification" (as such terms are defined in the Exchange Act) or subject to
a disqualification that would be a basis for censure, limitations on the
activities, functions or operations of, or suspension or revocation of the
registration of a broker-dealer under the Exchange Act.
ARTICLE IV.
COVENANTS
SECTION 4.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated
by this Agreement, during the period commencing on the date hereof and ending at
the Closing, Seller shall, and shall cause GAC to, conduct the operations of the
Acquired Companies according to the ordinary course of business of the Acquired
Companies, consistent with past practice, and Seller shall, and shall cause GAC
to, use commercially reasonable efforts to preserve intact the business
organization of the Acquired Companies and to maintain satisfactory
relationships with the customers, suppliers and employees and others with which
the Acquired Companies have business relationships. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement, prior to the Closing, neither Seller nor GAC will, without the prior
written consent of Parent:
(a) amend or propose to amend the Constituent Documents of any
Acquired Company;
(b) authorize for issuance, issue, sell, pledge, deliver or
agree or commit to issue, sell, pledge or deliver (whether through the
issuance or granting of any options, warrants, calls, subscriptions, stock
appreciation rights or other rights or other agreements) any capital stock
of any class or any securities convertible into or exchangeable for shares
of capital stock of any class of any Acquired Company;
(c) permit or cause any Acquired Company to declare or pay any
dividend or make any other distribution to its stockholders whether or not
upon or in respect of any shares of its capital stock; PROVIDED, HOWEVER,
that Parent and Buyer acknowledge that Seller may make a one-time cash
dividend (an "EXCESS CAPITAL DIVIDEND") from the Insurance Subsidiaries at
any time during the period beginning on May 31, 2004 and ending on June 30,
2004, if and to the extent that Seller has determined in good faith that
the June Adjusted Statutory Book Value, if calculated as of the date of
such dividend, would be in excess of the Target Statutory Book Value (but
in no event shall the amount of any such Excess Capital Dividend be greater
than $75,000,000); PROVIDED, FURTHER, HOWEVER, that Seller shall provide
Buyer with two (2) Business Days' prior written notice of its intent to
make an Excess Capital Dividend, and shall set forth within such notice the
intended amount of such Excess Capital Dividend;
52
(d) except as otherwise contemplated by this Agreement or as
required to ensure that any Plan is not then out of compliance with
applicable Law or to comply with any Contract and Other Agreement or Plan
entered into prior to the date hereof and heretofore delivered to Buyer,
(A) adopt, enter into, terminate or amend any collective bargaining
agreement or Plan or any Contract and Other Agreement or other plan or
policy involving any current or former employees of an Acquired Company or
any Bank Channel Employee, (B) increase in any manner the compensation,
bonus or fringe or other benefits of, or pay any bonus of any kind or
amount whatsoever to, any current or former employees of an Acquired
Company or any Bank Channel Employee, except for any planned salary
increases and payment of bonuses, each as described in Part 2.8(c) of the
Seller Disclosure Letter, (C) pay any benefit or amount not required under
any Plan or Contract and Other Agreement as in effect on the date of this
Agreement, other than as contemplated in the foregoing clause (B), (D)
grant or pay any severance or termination pay or increase in any manner the
severance or termination pay of any current or former employees of an
Acquired Company or any Bank Channel Employee, (E) grant any awards under
any bonus, incentive, performance or other Plan, Contract and Other
Agreement or otherwise, other than as contemplated in the foregoing clause
(B), (F) take any action to fund or in any other way secure the payment of
compensation or benefits under any Plan or Contract and Other Agreement,
(G) take any action to accelerate the vesting or payment of any
compensation or benefit under any Plan or Contract and Other Agreement or
(H) materially change any actuarial or other assumption used to calculate
funding obligations with respect to any Acquired Company Plan or change the
manner in which contributions to any Acquired Company Plan are made or the
basis on which such contributions are determined;
(e) enter into any Contract or Other Agreement that would
constitute a Material Contract, other than in the ordinary course of
business of the Acquired Companies consistent with past practice; provided,
however, that in no event shall any of the Acquired Companies incur or
assume any long-term indebtedness for borrowed money;
(f) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other means, any business or any corporation, partnership, joint
venture, association, or other business organization or division thereof;
(g) permit any Insurance Subsidiary voluntarily to forfeit,
abandon, modify, waive, terminate or otherwise change any of its insurance
licenses, except (i) as may be required in order to comply with Law or (ii)
such forfeitures, abandonments, terminations, changes, modifications or
waivers of insurance licenses as would not, individually or in the
aggregate, restrict the business or operations of such Insurance Subsidiary
in any material respect;
(h) permit, allow or suffer any of the Shares to become
subjected to any Lien of any nature whatsoever, except for Liens arising
under operation of Law;
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(i) except in the ordinary course of business consistent with
past practice, permit any Acquired Company to sell, lease, license or
otherwise dispose of any material assets (and other than acquisitions and
dispositions of investments in the Investment Portfolio in accordance with
the Investment Guidelines in the ordinary course of business consistent
with past practice);
(j) permit any Acquired Company to enter into any lease of real
property, except (i) any renewals of existing leases in the ordinary course
of business and consistent with past practice or (ii) as expressly
contemplated in any Transaction Document;
(k) except for (i) intercompany transactions in the ordinary
course of business (all of which shall be unwound by June 30, 2004, in
accordance with Section 4.13), (ii) Related Contracts and (iii) the payment
of the Excess Capital Dividend, permit any Acquired Company to pay, loan or
advance any amount to, or sell, transfer or lease any of its assets to, or
enter into any Contract or Other Agreement with, Seller or any of its
Affiliates (other than another Acquired Company);
(l) permit any Acquired Company to make any material change in
its underwriting or claims management practices, pricing practices,
reserving practices, reinsurance practices, marketing practices or
investment policies or practices or Investment Guidelines, except in each
case as required by Law or SAP or in the ordinary course of business
consistent with past practice;
(m) permit any Broker/Dealer Subsidiary or Investment Adviser
Subsidiary voluntarily to forfeit, abandon, amend, modify, waive, terminate
or otherwise change any of its registrations, licenses, qualifications with
any Governmental Entity or its memberships in any self-regulatory
organizations, securities exchanges, boards of trade, commodities
exchanges, clearing organizations or trade organizations, except (i) as may
be required in order to comply with Law or (ii) such forfeitures,
abandonments, amendments, terminations, changes, modifications or waivers
as would not, individually or in the aggregate, restrict the business or
operations of such Subsidiary in any material respect;
(n) permit any Acquired Company to sell, assign, transfer or
convey any Acquired Company Proprietary Right;
(o) permit any Acquired Company to make any material change in
fiscal year, accounting methods or principles used for GAAP or statutory
reporting purposes, except for changes which are required by Law, SAP or
GAAP of all enterprises in the same business;
54
(p) with respect to the Investment Adviser Subsidiaries and
their Clients, permit any Investment Adviser Subsidiary to (i) enter into
any new, or modify or terminate any existing, investment advisory contracts
with any existing Clients, (ii) form any new Registered Investment
Companies or terminate, merge or liquidate any existing Registered
Investment Companies, (iii) enter into any new, or modify or terminate any
existing, contracts with Registered Investment Companies or (iv) fail to
use commercially reasonable efforts to cause each Registered Investment
Company (subject to the authority of the board of trustees or directors of
such Registered Investment Company) to operate its business only in the
ordinary course of business and in a manner comporting with the standards
of portfolio management and service quality heretofore met by it and to
comply with applicable Law (including but not limited to the Securities
Act, the Investment Advisers Act, the Investment Company Act and ERISA);
(q) permit any Acquired Company to make any material Tax
election or settle or compromise any material Tax liability;
(r) permit any Acquired Company to revalue any properties or
assets, including writing off notes or accounts receivable, other than in
the ordinary course of the business of the applicable Acquired Company, or
as required by applicable Law, SAP or GAAP;
(s) permit any Acquired Company to make any loan, advance,
guarantee or capital contribution to any Person (other than another
Acquired Company), other than under a Related Contract;
(t) permit any Acquired Company to adopt any plan of complete or
partial liquidation, dissolution, rehabilitation, restructuring,
recapitalization, re-domestication or other reorganization;
(u) permit any Acquired Company to enter into any joint venture,
partnership or similar Contract or Other Agreement with any Person;
(v) permit any of the Insurance Subsidiaries to take any action
intended to cause lapses, conversions or the terminations of any Life &
Annuity Contract or to encourage any agents of an Insurance Subsidiary to
roll over any Life & Annuity Contract, other than with respect to Equity
Indexed Annuity contracts (it being agreed that actions permitted pursuant
to clause (l) of this Section 4.1 do not violate this covenant);
(w) fire or otherwise terminate the employment of any Business
Employee, except for cause in accordance with past practice;
(x) permit any Acquired Company to launch or introduce any
material new product or service;
55
(y) take or fail to take any action or permit any Acquired
Company to take or fail to take any action, in each case for the purpose of
either (i) shifting statutory income or surplus from the period following
June 30, 2004 to the period preceding June 30, 2004 or (ii) increasing
statutory income or surplus with the intent of increasing the June Adjusted
Statutory Book Value or increasing the Closing Consideration to the
detriment of Buyer and Parent; PROVIDED, HOWEVER, that Parent and Buyer
agree that any action taken by Seller, to the extent necessary to ensure
that an independent auditor's opinion will be unqualified after an issue as
to ability to give an unqualified opinion is raised by such auditor, shall
not be deemed to be a breach of this Section 4.1(y);
(z) modify, amend or terminate either (i) the letter agreement
between Seller and Safeco Life Insurance Company dated as of March 1, 2004
relating to the use of the "EXPRESS" xxxx or (ii) the letter agreements
between Seller and Safeco Life Insurance Company dated as of March 1, 2004
relating to the use of certain marks containing "SAFE" by Safeco Life
Insurance Company (such letters, the "IP SIDE LETTERS"); or
(aa) agree, commit or arrange to do any of the foregoing.
SECTION 4.2 ACCESS AND INFORMATION.
(a) PRE-CLOSING. Between the date of this Agreement and the
Closing, Seller shall, and shall cause the Acquired Companies to, afford
Parent and its authorized representatives (including its financing sources
and accountants, financial advisors and legal counsel) upon one (1)
Business Day's prior written notice, reasonable access during normal
business hours to all of the properties, personnel, Contracts and Other
Agreements and other books and records of the Acquired Companies and shall
promptly deliver or make available to Parent such other information
concerning the business, properties, assets and personnel of the Acquired
Companies as Parent may from time to time reasonably request. Parent shall
hold, and shall cause its representatives (as provided for in the letter
agreement dated October 21, 2003 (the "CONFIDENTIALITY AGREEMENT") between
Seller and Parent) to treat all such information as Evaluation Material (as
defined in the Confidentiality Agreement) and to hold such information in
confidence in accordance with the terms of the Confidentiality Agreement
and, in the event of the termination of this Agreement for any reason,
Parent promptly shall return or destroy all Evaluation Material (including
such information) in accordance with the terms of the Confidentiality
Agreement.
(b) POST-CLOSING.
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(i) Following the Closing Date, Buyer shall, and shall
cause the Acquired Companies to, allow Seller, upon one (1) Business
Day's prior written notice and during normal business hours, through
its affiliates, employees and representatives, (x) the right to
examine and make copies, at Seller's expense, of the books and
records of the Acquired Companies, and (y) reasonable access to
Buyer's and the Acquired Companies' employees, in the case of either
clause (x) or (y), for the preparation and review of the June
Financial Statements and any other action or inquiry related to the
procedures set forth in Section 1.4, regulatory and statutory
filings, earnings releases, statistical supplements, financial
statements (including, but not limited to, the timely preparation
pursuant to Seller's then-current schedule and filing of Seller's
current, quarterly and annual reports on Forms 8-K, 10-Q and 10-K
for any post-closing period) and the conduct of any third-party
litigation. Parent and Buyer shall cause their, and the Acquired
Companies', affiliates, employees and representatives to (A)
reasonably cooperate with Seller in connection with the foregoing
and (B) under the supervision of Seller, prepare the June Financial
Statements, to the extent not yet prepared and finalized as of the
Closing Date, in the ordinary course of the performance of their
responsibilities. Buyer shall, and shall cause the Acquired
Companies to, maintain the books and records of the Acquired
Companies for examination and copying by Seller for a period of not
less than six (6) years following the Closing Date or any longer
period as mandated by applicable Law, after which, Buyer or the
Acquired Companies may destroy such records in their sole
discretion. Access to such records shall not unreasonably interfere
with the business operations of Buyer, any Acquired Company or any
of their respective successors.
(ii) Following the Closing Date, Seller shall allow
Buyer, upon one (1) Business Day's prior written notice and during
normal business hours, through its affiliates, employees and
representatives, the right to (x) examine and make copies, at
Buyer's expense, of the books and records of Seller retained by
Seller and maintained by Seller after the Closing Date; but only to
the extent that such books and records relate to the Acquired
Companies; and (y) reasonable access to any of Seller's employees,
in the case of either clause (x) or (y), for the review of the June
Financial Statements, and any other action or inquiry related to the
procedures set forth in Section 1.4, regulatory and statutory
filings, earnings releases, statistical supplements, financial
statements and the conduct of any third-party litigation. Seller
shall cause its affiliates, employees and representatives to
reasonably cooperate with Parent and Buyer in connection with the
foregoing. Seller shall maintain such books and records for
examination and copying by Buyer for a period of not less than six
(6) years following the Closing Date or any longer period as
mandated by applicable Law, after which, Seller may destroy such
records in its sole discretion. Access to such records shall not
unreasonably interfere with the business operations of Seller or any
of its successors.
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SECTION 4.3 COMMERCIALLY REASONABLE EFFORTS; ADDITIONAL ACTIONS. Upon
the terms and subject to the conditions of this Agreement, each of the parties
hereto shall use their respective commercially reasonable efforts to take, or
cause to be taken, all action, and to do or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and the other Transaction Documents,
including using their respective commercially reasonable efforts to (i) effect
promptly all necessary or appropriate registrations and filings with
Governmental Entities (including filings under the HSR Act), (ii) effect
promptly and prosecute diligently (including responding to all requests for
supplemental information) all approvals, filings and/or notices required under
any applicable insurance laws for the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents and (iii)
fulfill or cause the fulfillment of the conditions to Closing set forth in
Article V.
SECTION 4.4 NOTIFICATION OF CERTAIN MATTERS. (a) Seller shall give
notice to Parent, and Parent and Buyer shall give notice to Seller, promptly
upon becoming aware of any occurrence, or failure to occur of any event that, if
existing or known at the date of this Agreement, (i) would have been required to
be set forth or described in the Seller Disclosure Letter or (ii) which would
reasonably be expected to cause any representation or warranty in this Agreement
to be untrue or inaccurate in any material respect at any time after the date
hereof and prior to the Closing; PROVIDED, HOWEVER, that for the purposes of the
rights and obligations of the parties hereunder, any such notice shall have no
effect for the purpose of determining the satisfaction of the conditions set
forth in Article V or for purposes of determining whether any Person is entitled
to indemnification pursuant to Article VII.
(b) Parent shall give notice to Seller, promptly upon becoming aware
of any occurrence, or failure to occur, of any event that, if existing or known
at the date of this Agreement, would reasonably be expected to cause Parent's
representation and warranty in Section 3.6 of this Agreement to be untrue or
inaccurate in any material respect at any time after the date hereof and prior
to the Closing. Parent shall also promptly provide Seller with copies of every
material commitment letter modification or material amendment and all other
material notices or correspondence with respect to the Financing.
SECTION 4.5 PUBLIC ANNOUNCEMENTS. The initial press release or releases
with respect to the transactions contemplated by this Agreement shall be in the
form agreed to by Parent and Seller. Thereafter, for as long as this Agreement
is in effect, Parent and Buyer, on the one hand, and Seller, on the other hand,
shall not, and shall cause their subsidiaries and Affiliates not to, issue or
cause the publication of any press release or any other announcement (including
without limitation announcements to employees, agents or policyholders) with
respect to the transaction set forth in Section 1.1, this Agreement or the other
transactions contemplated hereby without the consent of the other, except where
such release or announcement is required by applicable Law or pursuant to any
listing agreement with, or the rules or regulations of, any securities exchange
or any other regulatory requirements, in which case the party required to make
the release or announcement shall allow the other party reasonable time to
comment on such release or announcement in advance of such issuance. Schedule
4.5 hereto sets forth the representatives of Parent and Seller authorized to
provide the consent contemplated by the preceding sentence.
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SECTION 4.6 CERTAIN EMPLOYEE MATTERS.
(a) Seller and the Acquired Companies shall take such action as
is necessary such that the Acquired Companies shall, as of the Closing
Date, cease being "participating employers" and shall cease any
co-sponsorship and participation in each Seller Plan that is jointly
adopted, sponsored or maintained by Seller and an Acquired Company. Except
as otherwise expressly provided in this Section 4.6, the Acquired Companies
shall have no further liability and Seller shall retain all liabilities
with respect to claims incurred under any such Seller Plan prior to the
Closing Date, whether such claims are made prior to, on or after the
Closing Date. For this purpose claims under any medical, dental, vision, or
prescription drug plan, generally will be deemed to be incurred on the date
that the service giving rise to such claim is performed and not when such
claim is made; PROVIDED, HOWEVER, that with respect to claims relating to
hospitalization the claim will be deemed to be incurred on the first day of
such hospitalization and not on the date that such services are performed.
Claims for disability under any long or short term disability plan shall be
incurred on the date the employee or former employee is first absent from
work because of the condition giving rise to such disability and not when
the employee or former employee is determined to be eligible for benefits
under the applicable Seller Plan. Notwithstanding anything to the contrary
herein, Seller shall retain all liabilities under all Seller Plans, except
as otherwise expressly provided in Section 4.6. For the avoidance of doubt,
Seller shall retain all liabilities with respect to equity or equity-based
awards under any Plan. Seller shall provide any continuation coverage
required under Section 4980B of the Code, Part 6 of Title I of ERISA or
applicable state Law ("COBRA") to each "qualified beneficiary" as that term
is defined in COBRA whose first "qualifying event" (as defined in COBRA)
occurs on or prior to the Closing Date. The Acquired Companies shall retain
responsibility for all accrued but unused vacation pay for each of their
respective Acquired Company Employees (other than any Bank Channel
Employees who become Acquired Company Employees). As soon as practicable,
but in any event within five (5) Business Days following the Closing Date,
Seller shall provide Buyer with a list setting forth, with respect to each
Acquired Company Employee (other than any Bank Channel Employee who becomes
an Acquired Company Employee) the number of days of accrued but unused
vacation as of the Closing Date.
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(b) For a period of one (1) year following the Closing Date,
Buyer shall provide or cause to be provided to Acquired Company Employees
(other than Xxxxxxx Xxxxxx, Xxxxx Xxxxxx and their respective management
direct reports) who remain employees with Buyer and its Subsidiaries, (i)
compensation that is comparable in the aggregate (without regard to any
equity or equity-based compensation) to that provided to them immediately
prior to Closing, PROVIDED that equity or equity-based compensation
provided to such Acquired Company Employees prior to Closing shall be
disregarded in determining whether compensation is comparable in the
aggregate; PROVIDED, FURTHER, that Buyer in its sole discretion shall
determine the portion of compensation to be provided to such Acquired
Company Employees that is in the form of equity or equity-based
compensation (it being understood that Buyer is under no obligation to
provide any equity or equity-based compensation); PROVIDED, FURTHER, that
during such one (1) year period the base salary of such Acquired Company
Employees shall not be less than that in effect immediately prior to the
Closing and (ii) employee benefits (including severance benefits but
excluding retiree health and life benefits) that are comparable in the
aggregate to that provided to them immediately prior to Closing.
(c) Effective as of the Closing Date, Buyer or the Acquired
Companies shall adopt or otherwise provide a savings plan or plans with a
cash or deferred arrangement that is qualified under Section 401(a) of the
Code pursuant to which the Acquired Company Employees may participate
("BUYER'S RETIREMENT PLAN"). Acquired Company Employees who are
participants in any Plan which is a retirement plan qualified under Section
401(a) of the Code ("SELLER'S RETIREMENT PLAN") shall be allowed to
rollover their distributable benefits, including, to the extent permitted
by Seller's Retirement Plans and Buyer's Retirement Plans, any notes
representing participant loans, from Seller's Retirement Plans into Buyer's
Retirement Plan. Seller shall fully vest (to the extent not already fully
vested) as of the Closing each Acquired Company Employee in his or her
accrued benefits under each Seller Retirement Plan.
(d) Seller shall continue to provide retiree health and life
benefits to each former employee of an Acquired Company who is eligible for
retiree health and life benefits under any Seller Plan that is a group
health and life plan ("SELLER'S RETIREE PLANS") whose termination of
employment occurs on or prior to the Closing Date. Following the Closing
Date, Buyer or the Acquired Companies shall adopt a group health plan and
group term life plan in which the Acquired Company Employees and their
dependents may participate ("BUYER'S GROUP WELFARE PLANS").
(e) For purposes of determining eligibility to participate and
vesting (and for benefit accrual purposes in the case of vacation and
severance plans) where length of service is relevant under any employee
benefit plan or arrangement of Buyer and its subsidiaries (or of Parent and
its subsidiaries, to the extent an Acquired Company Employee shall become
eligible to participate therein), Acquired Company Employees shall receive
service credit for service with Seller and any of its Subsidiaries to the
same extent such service was credited under similar employee benefit plans
and arrangements of Seller and its Subsidiaries; PROVIDED, HOWEVER, that
such service need not be credited to the extent that it would result in a
duplication of benefits.
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(f) Parent, Buyer, the Acquired Companies and their respective
Subsidiaries will (i) use their commercially reasonable efforts to cause
any third party insurers to waive, and will waive with respect to
self-insured benefits, all limitations as to preexisting conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to Acquired Company Employees under any new welfare
benefit plans that such employees may be eligible to participate in after
the Closing Date, other than limitations or waiting periods that are
already in effect with respect to such employees and that have not been
satisfied as of the Closing Date under any welfare plan maintained for
Acquired Company Employees immediately prior to the Closing Date, and (ii)
provide each Acquired Company Employee with credit for any co-payments and
deductibles paid prior to the Closing Date in respect of the year in which
the Closing occurs in satisfying any applicable deductible or out-of-pocket
requirements under any welfare plans for such year that such employees are
eligible to participate in after the Closing Date.
(g) No provision of this Section 4.6 shall create any third
party beneficiary or other rights in any Acquired Company Employee or
former employee (including any beneficiary or dependent thereof) of Seller
in respect of continued employment (or resumed employment) with Buyer,
Parent or their respective subsidiaries including the Acquired Companies
and no provision of this Section 4.6 shall create any such rights in any
such persons in respect of any benefits that may be provided, directly or
indirectly, under any Plans or any such similar plan or arrangement which
may be established by Parent, Buyer, or any of their respective
subsidiaries for Acquired Company Employees.
(h) At least thirty (30) days prior to the anticipated Closing
Date, Buyer shall identify in writing those Bank Channel Employees that it
desires to employ after the Closing Date. Buyer shall offer employment to
all such identified Bank Channel Employees upon such terms and conditions
as it determines in its sole discretion (subject to Buyer's obligations
under the other provisions of this Section 4.6) and Seller shall cause
Talbot Financial, Inc. to terminate the employment of such identified Bank
Channel Employees as of the Closing Date. Each identified Bank Channel
Employee who accepts Buyer's offer of employment shall be treated as an
Acquired Company Employee. With respect to each Bank Channel Employee who
becomes an Acquired Company Employee, Buyer shall be solely responsible for
any severance or similar benefits that may be payable, if any, to such
Acquired Company Employee in respect of his or her termination of
employment following the Closing with Buyer and its Affiliates. Except as
set forth in the preceding sentence, any liability, obligation or
commitment of Seller, GAC or any other Subsidiary of Seller or GAC that
relates to, or that arises out of, the employment or the termination of the
employment with any such person of any Bank Channel Employee (including as
a result of the transactions contemplated by this Agreement) shall be the
responsibility of the Seller or such Subsidiary (including any accrued but
unused vacation, severance or similar benefits that may be payable, if any,
to Bank Channel Employees in respect of their termination of employment
with Seller and its Affiliates as of the Closing) and none of Parent, Buyer
or any Acquired Company shall have any liability therefor.
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SECTION 4.7 INVESTMENT PORTFOLIO. Seller shall cause the investments of
the Acquired Companies to be maintained, and shall not permit any sales or
other dispositions of investments, other than in the ordinary course of business
and in accordance with the Investment Guidelines. From the date hereof to the
Closing Date, Seller shall deliver to Buyer, within ten (10) Business Days after
the end of each calendar month, a true and correct list of (a) all investments
constituting the Investment Portfolio as of the end of such month, the issuer of
such investments, the nominal amount owned and the market value with respect to
public investments (or book value with respect to private investments) of such
investments as of the end of such month and (b) all investments sold or
otherwise disposed of at any time prior to the end of such month, the sale or
disposition price, the carrying value of such investments for statutory
accounting purposes immediately prior to the sale or disposition, and any gain
or loss for statutory accounting purposes.
SECTION 4.8 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Buyer and Seller for certain Tax
matters:
(a) SELLER RESPONSIBILITY.
(i) Seller will timely file the U.S. federal income Tax
Returns of the Affiliated Group and any Combined Returns (taking
into account extensions thereto) for all periods (including any
Pre-Closing Tax Period) and will pay any Taxes with respect thereto.
The parties agree that they will treat the Acquired Companies as if
they ceased to be part of the Affiliated Group, and any comparable
or similar group of state, local or foreign laws or regulations, as
of the close of business on the Closing Date. Seller will provide
Buyer with copies of the separate company pro-forma portion
(including only information related to the Acquired Companies) of
such Pre-Closing Tax Period Tax Returns (other than Tax Returns
filed for estimated Tax payments) filed after the Closing Date
pursuant to this Section 4.8(a)(i) within fifteen (15) days after
filing of such Tax Returns.
(ii) Seller shall prepare and timely file or shall cause to
be prepared and timely filed all other Tax Returns of the Acquired
Companies due after the Closing Date for Pre-Closing Tax Periods
that do not include a Straddle Period. Seller shall permit Parent
and Buyer to review and comment on any Tax Return (other than any
Tax Returns filed for estimated Tax payments) prepared pursuant to
this Section 4.8(a)(ii).
(iii) All Tax Returns prepared pursuant to this Section
4.8(a) shall be prepared on a basis consistent with the past
practices of the Seller and the Acquired Companies and, if Seller
has a choice between positions that are consistent with past
practices, Seller shall act in a manner that does not distort
taxable income (E.G., by deferring income or accelerating
deductions).
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(b) BUYER RESPONSIBILITY. Parent and Buyer shall prepare or
cause to be prepared and filed or cause to be filed all Tax Returns of the
Acquired Companies that relate to Post-Closing Tax Periods and Straddle
Periods. All Tax Returns prepared pursuant to this Section 4.8(b) that
relate to Straddle Periods shall be prepared on a basis consistent with the
past practices of the Acquired Companies and, if Buyer has a choice between
positions that are consistent with past practices, Buyer shall act in a
manner that does not distort taxable income. Parent and Buyer shall permit
Seller to review and comment on each such Tax Return that includes a
Pre-Closing Tax Period prior to filing and shall make such revisions to
such Tax Returns as are reasonably requested by Seller. The Seller shall
reimburse Buyer for any Taxes attributable to the portion of the Straddle
Period related to the Pre-Closing Tax Period not reserved or otherwise
expensed on the June Financial Statements (other than interest or penalties
due solely to a failure or delay in filing a required Tax Return or in
paying a required Tax not otherwise caused by Seller) as soon as
practicable after the date paid by the Buyer. Buyer shall reimburse Seller
for any Straddle Period Taxes reserved or otherwise expensed on the June
Financial Statements (other than interest or penalties solely from a
failure or delay in filing a required Tax Return or in paying a required
Tax not otherwise caused by Seller) in excess of the amount of Taxes
attributable to the portion of the Straddle Period related to the
Pre-Closing Tax Period as soon as practicable after the date paid by the
Buyer.
(c) STRADDLE PERIODS. For purposes of this Agreement, in the
case of any Taxes that are imposed on a periodic basis over a Straddle
Period, the portion of such Tax that relates to the Pre-Closing Tax Period
shall be deemed to be the amount of such Tax for the entire Straddle Period
multiplied by a fraction the numerator of which is the number of days in
the Tax period ending on the Closing Date and the denominator of which is
the number of days in the entire Straddle Period. In the case of any Tax
based upon income or receipts, the portion allocable to the Pre-Closing Tax
Period shall include operations through the Closing Date (i.e., with
respect to operations, based on an interim closing of the books on the
Closing Date).
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(d) TAX AUDITS OF CONSOLIDATED/COMBINED RETURNS. Seller shall be
solely responsible for and shall control all proceedings with respect to
any audit of the consolidated federal income Tax Return of the Affiliated
Group and any Combined Returns or any Tax claim relating to Taxes solely
with respect to a Pre-Closing Tax Period, PROVIDED, that Seller shall
promptly furnish written notice to Buyer of such audit and Buyer shall have
the right to provide non-binding advice to Seller, who shall consult and
act in good faith with respect to such audit, in each case, to the extent
the audit relates to the Acquired Companies. Without the written consent of
Parent or Buyer, which shall not be unreasonably withheld, Seller shall not
settle any audit of a consolidated federal income Tax Return of the
Affiliated Group or a Combined Return to the extent that such return
related to the Acquired Companies in a manner which would
disproportionately adversely affect the Acquired Companies after the
Closing Date (e.g., a disproportionately adverse Tax treatment to the
Acquired Companies after the Closing Date as compared to the effect to the
Acquired Companies before the Closing Date) or if Seller favorably settles
a Tax issue for members of the Affiliated Group other than the Acquired
Companies in return for an adjustment that adversely affects the Acquired
Companies only after the Closing Date, Seller shall be deemed to have
settled such Tax issue in a manner which disproportionately adversely
affects the Acquired Companies after the Closing Date). Otherwise, Seller
shall have the sole discretion to settle any audit of a U.S. federal income
Tax Return of the Affiliated Group or a Combined Return. Buyer shall
control all proceedings with respect to all Tax audits or claims related
solely to a Post-Closing Tax Period.
(e) TAX INDEMNITY PROCEDURES.
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(i) Except as otherwise provided, if (a) a claim for Taxes
is made against Parent or Buyer, (b) Parent or Buyer intends to seek
indemnity with respect thereto under Section 7.5 and (c) such claim
relates to Taxes with respect to a Pre-Closing Tax Period (other
than a Straddle Period), Parent and Buyer shall promptly furnish
written notice to Seller and GAC of such claim. Seller and GAC shall
have the shorter of (x) forty-five (45) days after receipt of such
notice or (y) fifteen (15) days less than the number of days before
a response to the relevant taxing authority is required, but in no
event shall Seller and GAC have less than fifteen (15) days, to
decide whether to undertake, conduct, and control (through counsel
of its own choosing and at its own expense) the settlement or
defense thereof, and Parent, Buyer and the Acquired Companies and
their respective Affiliates shall cooperate with it in connection
therewith. Seller and GAC shall permit Parent, Buyer and the
Acquired Companies to participate in such settlement or defense
through counsel chosen by Parent and Buyer (but the fees and
expenses of such counsel shall be paid by Parent, Buyer or the
Acquired Companies). Seller and GAC shall not pay or settle any such
claim without the prior written consent of Buyer, which consent
shall not be unreasonably withheld to the extent such settlement
adversely effects any Acquired Company in a Post-Closing Tax Period.
If within the shorter of (x) forty-five (45) days after the receipt
of Parent's or Buyer's notice of a claim of indemnity hereunder or
(y) fifteen (15) days less than the number of days before a response
to the relevant taxing authority is required, but in no event shall
Seller and GAC have less than fifteen (15) days, Seller and GAC do
not notify Parent and Buyer that Seller and GAC elect (at their cost
and expense) to undertake the defense thereof, or gives such notice
and thereafter fails to contest such claim in good faith or to
prevent action to foreclose a lien against or attachment of Buyer's
property as contemplated above, Parent and Buyer shall have the
right to contest, settle, or compromise such claim and Parent and
Buyer shall not thereby waive any right to indemnity for such claim
under this Agreement; provided, however, none of Parent, Buyer or
the Acquired Companies shall pay or settle any such claim without
the prior written consent of Seller and GAC, which consent shall not
be unreasonably withheld.
(ii) If (a) a claim for Taxes is made against Parent or
Buyer, (b) Parent or Buyer intends to seek indemnity with respect
thereto under Section 7.5 and (c) such claim relates to a Straddle
Period, Parent and Buyer shall promptly furnish written notice to
Seller and GAC of such claim. Parent, Buyer and the Acquired
Companies shall undertake, conduct, and control the settlement or
defense thereof. Parent, Buyer or the Acquired Companies shall not
pay or settle any such claim without the prior written consent of
Seller and GAC, which consent shall not be unreasonably withheld.
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(f) Buyer and the Acquired Companies, on one hand, and Seller,
on the other hand, shall cooperate fully, as and to the extent reasonably
requested by the other, in connection with the filing of Tax Returns
pursuant to this Section 4.8 and any audit, litigation or other proceeding
with respect to Taxes. In that regard, Seller, Buyer and the Acquired
Companies shall, at their own expense, maintain such Tax information or Tax
records relating to the Acquired Companies as are regularly maintained by
such party or as may be required by Law to be maintained. Such Tax records
or Tax information shall be made available upon written request by the
Seller or the Buyer or the Acquired Companies, as the case may be, within
10 Business Days of such request. If the requesting party, in its
reasonable judgment, shall determine that it is necessary that any such Tax
records or Tax information be made available before 10 Business Days from
such request, the other party shall use commercially reasonable efforts to
make such Tax records or Tax information available (or cause such Tax
records or Tax information to be made available) within such shorter
period, but in no event upon less than two (2) Business Days' prior written
notice from the requesting party. Subject to the confidentiality
requirements of Section 4.2(a), the non-requesting party shall, upon
request by the requesting Party, promptly furnish the requesting party with
a copy of such Tax records or Tax information. Notwithstanding the
foregoing, Seller and Buyer shall only be obligated to provide that portion
of their federal consolidated Tax Returns or Combined Tax Returns (and
accompanying Tax records or Tax Returns) that directly relates to the
Acquired Companies. In any event, the provision of access to such Tax
records or Tax information shall not unreasonably interfere with the
business operations of the non-requesting party.
(g) REFUNDS AND TAX BENEFITS. (i) Any income tax refunds that
are received by Parent, Buyer or the Acquired Companies, and any amounts
credited against Taxes to which Buyer or the Acquired Companies become
entitled, that relate to Pre-Closing Tax Periods shall be for the account
of Seller, and Buyer shall pay over to Seller any such refund or the amount
of any such credit within fifteen (15) days after receipt of such refund or
use of such credit. In addition, to the extent that a claim for refund or a
proceeding results in a payment or credit against income Tax by a taxing
authority to Parent, Buyer or the Acquired Companies of any amount accrued
on the June Financial Statements, Buyer shall pay such amount to Seller
within fifteen (15) days after receipt of such refund or use of such
credit.
(ii) Notwithstanding the foregoing, any cash refunds less any associated costs
(including, but not limited to, administrative costs, an adverse economic impact
(including the economic impact of an adverse accounting treatment) and
additional Taxes) from the carryback of capital losses of the Acquired Companies
shall be for the account of Buyer to the extent that such refunds are
attributable to a Tax period beginning after the Closing Date (or the portion of
any Straddle Period that begins after the Closing Date). Seller shall pay such
cash received by Seller to Buyer within fifteen (15) days after the receipt of
such cash refund. For the avoidance of doubt, Buyer shall be entitled to such
cash refund under this Section 4.8(g)(ii) solely to the extent that such cash
refund (taking into account only capital loss carrybacks of the Acquired
Companies after the Closing Date) is greater than the sum of (a) the refund that
would have resulted had there been no such carryback and (b) any costs incurred
by Seller as a result of such carryback. In the event Seller's use of the
carryback of such losses is disallowed after the payment to Buyer by
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Seller under this Section 4.8(g)(ii) or Seller is able to carryback its own
capital losses, Seller shall notify Buyer of the portion of the tax refund not
allowed to Seller or that is deemed replaced by Seller's capital losses and
Buyer shall reimburse Seller for the amount allocable to Buyer within 15 days of
such notice. To the extent that Seller receives any Tax benefit as a result of
the carryback of capital losses of the Acquired Companies in respect of which
Buyer has not received payment pursuant to the immediately preceding sentences,
Seller shall pay to Buyer an amount equal to the economic benefit of such Tax
benefit (less any associated costs) within 15 days of utilizing such Tax
benefit, subject to reimbursement as set forth in this Section 4.8(g)(ii). To
the extent the amount of any refund or Tax benefit is reduced by associated
costs pursuant to this Section 4.8(g)(ii) (including a later request for
reimbursement of such costs), Seller shall provide Buyer with a description of
such associated costs.
(h) AMENDED RETURNS AND REFUND CLAIMS. Parent and Buyer shall
not file an amended Tax Return or any claim for refund for any Pre-Closing
Tax Period without the written consent of Seller, which consent shall not
be unreasonably withheld. Any carryback of losses or credits to any period
ending on or prior to the Closing Date shall be subject to Section 4.8(g).
(i) TAX SHARING AGREEMENTS. Any Tax sharing agreement or similar
arrangement, agreement or practice between any of the Acquired Companies
and any other Person (including Seller) is terminated as of the Closing
Date and shall have no further effect for any taxable year (whether the
current year, a future year or a past year).
(j) NO FOREIGN STATUS. Seller shall deliver to Buyer at closing
a certificate certifying that the transactions contemplated hereby are exempt
from withholding under Section 1445 of the Code.
SECTION 4.9 CONSENTS.
(a) To the extent that the consummation of the transactions
contemplated by this Agreement requires the consent or approval of another
party to any Contract or Other Agreement with an Acquired Company
(including, if applicable, any consent required from a financier pursuant
to a 12b-1 financing arrangement between such financier and any of the
Registered Investment Companies), Seller shall use its commercially
reasonable efforts to obtain, and to cause GAC and the Acquired Companies,
to use commercially reasonable efforts to obtain, such consents or
approvals. Seller agrees to cooperate with Buyer and use commercially
reasonable efforts to cause each Registered Investment Company that is a
management investment company to enter into an "interim advisory contract"
within the meaning of, and pursuant to, Rule 15a-4 under the Investment
Company Act, if necessary.
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(b) Without limiting the generality of the foregoing, Seller
shall, as promptly as practicable, cause the Acquired Companies to (i) use
their commercially reasonable efforts to cause (A) the consideration and
due approval by the Investment Company Board of each Registered Investment
Company having such a Board at a duly called meeting of such Board and (B)
to the extent required by the Investment Company Act, the consideration and
due approval by such Registered Investment Company's shareholders or
unitholders at a duly called meeting of such shareholders, of (x) a new
Investment Company Advisory Agreement (or, where permitted, approval of
continuation of the existing Investment Company Advisory Agreement) with
the same investment adviser, to become effective upon the Closing, (y)
where applicable, an amended Rule 12b-1 distribution plan, in each case on
the same material terms as in effect on the date hereof, (z) where
applicable, new sub-advisory, fund accounting/administration and transfer
agency agreements and (aa) at the Buyer's sole discretion, the approval of
new independent trustees reasonably satisfactory to the Buyer to the
Investment Company Board of each Registered Investment Company having such
a Board, (ii) use their commercially reasonable efforts to cause each
Registered Investment Company to prepare and file with the SEC and all
other Governmental Entities having jurisdiction thereover, as promptly as
practicable after the date hereof, all proxy solicitation materials
required to be distributed to shareholders or unitholders of such
Registered Investment Company with respect to the actions recommended for
their approval by the Investment Company Boards, (iii) use their
commercially reasonable efforts to cause each Registered Investment Company
to respond promptly to any comments made by the SEC and all other
Governmental Entities having jurisdiction thereover, with respect to the
proxy solicitation materials, and (iv) use their commercially reasonable
efforts, promptly after the completion of the actions described in clauses
(ii) and (iii) above, to mail such proxy solicitation materials to such
shareholders or unitholders and cause to be submitted to a meeting of
shareholders or unitholders of such Registered Investment Company as soon
as practicable after such mailing the proposals described in clause (i),
above, all such consents and such proxy solicitation to be in form and
substance reasonably satisfactory to Parent and in compliance with Section
2.21(b)(x).
(c) Parent and Buyer shall provide such information and data as
may be reasonably requested by Seller for inclusion in the proxy
solicitation materials referred to in Section 4.9(b). Such information and
data shall not contain any untrue statement of a material fact, or omit to
state any material fact required to make the statements therein, in light
of the circumstances in which they were made, not misleading.
SECTION 4.10 INVESTMENT COMPANY MATTERS.
(a) Prior to the Closing, each of the parties hereto shall use
its commercially reasonable efforts to ensure compliance with Section 15(f)
of the Investment Company Act, so that the transaction set forth in Section
1.1 will be in compliance at the Closing with such Section 15(f),
including, to assure that on the Closing Date at least seventy-five percent
(75%) of the board of directors or trustees of each Registered Investment
Company are not "interested persons" (as defined in the Investment Company
Act) of the Acquired Companies, Parent or Buyer.
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(b) Following Closing, Parent and Buyer agree to use their
commercially reasonable efforts to assure compliance with the conditions of
Section 15(f) of the Investment Company Act with respect to any Registered
Investment Company. Without limiting the foregoing, Buyer agrees that: (i)
for a period of at least three (3) years after the Closing Date, Buyer
shall use commercially reasonable efforts to cause at least seventy-five
percent (75%) of the members of the board of directors or trustees of each
Registered Investment Company not to be "interested persons" (as defined in
the Investment Company Act) of Buyer (or an Affiliate of Buyer which acts
as adviser or subadviser to the Registered Investment Companies), or of the
predecessor investment adviser of the relevant Registered Investment
Company; and (ii) for a period of at least two (2) years after the Closing
Date, Buyer (or any Affiliate of Buyer which acts as adviser to any
Registered Investment Company), shall use commercially reasonable efforts
not to impose, or have any express or implied understanding, arrangement or
intention to impose, an "unfair burden" on such Registered Investment
Company (as such term is interpreted under the Investment Company Act) as a
result of the transactions contemplated herein. For the purposes of clause
(i) above, "commercially reasonable efforts" means that the Buyer:
(i) causes to be distributed to the trustees of each
Registered Investment Company that enters into a new Investment
Company Advisory Agreement with Safeco Asset Management on at least
an annual basis, a questionnaire containing questions reasonably
designed to elicit information pertaining to the status of such
directors as "interested persons" (for purposes of Section
15(f)(1)(A) of the Investment Company Act) of Buyer or its
Affiliates or of Seller or its Affiliates (collectively, the
"RELEVANT ENTITIES");
(ii) requests the members of the board of trustees of each
Registered Investment Company that enters into a new Investment
Company Advisory Agreement with Safeco Asset Management to promptly
notify Buyer of any change in their status under Section 15(f)(1)(A)
of the Investment Company Act; and
(iii) at such time as it learns of a change in the status of
a trustee that would cause more than 25% of the members of the board
of trustees of any Registered Investment Company that enters into a
new Investment Company Advisory Agreement with Safeco Asset
Management to be "interested persons" of Relevant Entities, takes
reasonable steps to correct such situation as promptly as
practicable, including causing any trustees affiliated with Buyer or
any of its Affiliates to resign from the board of trustees of such
Registered Investment Company to the extent required to correct such
situation.
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(c) Prior to the Closing, Seller shall use, and shall cause GAC
and the Acquired Companies to use, subject to any fiduciary duties to the
Registered Investment Companies, their commercially reasonable efforts to
ensure that the Registered Investment Companies take no action that would
(i) prevent any Registered Investment Company from qualifying as a
"regulated investment company," within the meaning of Section 851 of the
Code or (ii) be inconsistent with any Registered Investment Company's
prospectus or other offering document and other offering, advertising and
marketing materials. Prior to the Closing, Seller shall use, and shall
cause GAC and the Acquired Companies to use, subject to any fiduciary
duties to the Separate Accounts, their commercially reasonable efforts to
ensure that neither any Separate Account nor any Insurance Subsidiary with
respect to a Separate Account, takes any action that would be inconsistent
with the Separate Account's prospectus or other offering document and other
offering, advertising and marketing materials.
(d) Seller will deliver to the Buyer at the same time as the
filing thereof a complete copy of each SEC Document filed by each
Investment Adviser Subsidiary on or after the date hereof and on or prior
to the Closing Date.
(e) For purposes of this Section 4.10, "Registered Investment
Company" will not include any Registered Separate Account.
(f) In the event that Buyer or any Affiliate of Buyer (including
the Acquired Companies after the Closing) acts as agent or representative
of any regulated investment company within the meaning of Section 851 of
the Code with respect to any Tax matter relating to any Tax period ending
prior to or including the Closing Date, then, to the extent permissible,
Buyer shall (i) promptly provide Seller with written notice of the
circumstances relating to such matter and copies of all relevant
correspondence and documents, (ii) consult with Seller regarding the proper
resolution of such matter and (iii) upon Seller's written notice, permit
Seller to the greatest extent possible to assume responsibility for and
control such matter (it being understood that Seller shall not have control
of such matter unless Seller in its written notice acknowledges its
responsibility to indemnify Buyer pursuant to Section 7.5 for any Losses
that arise out of such matter, as mitigated or increased by Seller's
control of such matter; it being further understood that, notwithstanding
Seller's written notice, Buyer may continue to control the matter to the
extent and if required or directed to do so by applicable law or any
applicable judicial or administrative authority, and if Buyer has given
Seller a reasonable opportunity (to the extent practical taking into
account the exigencies of the situation) to cooperate with Buyer in
approaching the applicable authority with the objective of persuading such
authority that Seller may maintain control over such matter). Buyer shall
cooperate with, and take such actions reasonably requested by, Seller in
implementing this provision and shall be entitled to reimbursement from
Seller for all reasonable out-of-pocket expenses incurred by Buyer in
providing such cooperation. The procedures contained in this Section
4.10(f) are in addition to those set forth in Section 7.4.
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(g) In the case of any breach or potential breach of any
representation made by Seller in Sections 2.19(d)(ii), 2.22(c) or 2.22(d)
(which shall include, but not be limited to, any proposed action to
mitigate any potential Losses from the breach or potential breach of such
representations and warranties) for which any Buyer Indemnified Party would
be entitled to indemnity pursuant to Section 7.5, Seller shall have the
right (before Buyer or Parent notifies the IRS, any Policy Owner or any
person other than the Seller of such breach or potential breach or takes
any action to remedy such potential breach, mitigate any potential Losses
therefrom or make any claim under this Agreement therefor, except that
Buyer or Parent may make any such notification or take any such action if
(x) required or directed to do so by applicable law or any applicable
judicial or administrative authority and (y) after notifying Seller of the
notification or action that Buyer is so required or directed to take and
giving Seller a reasonable opportunity (to the extent practical taking into
account the exigencies of the situation) to cooperate with Buyer in
approaching the applicable authority with the objective of persuading such
authority that such notification or action is not necessary, the Buyer
continues to be required or directed to make such notification or take such
action):
(i) to be notified in writing by Buyer or Parent of such
breach or potential breach, if Seller has not previously notified
Buyer in writing of such breach or potential breach;
(ii) within 30 days after such a written notice about such
potential breach, to notify Buyer in writing that Seller proposes to
develop, at Seller's expense, a plan to remediate or mitigate any
potential adverse Tax consequences or Losses resulting from such
potential breach (a "REMEDIATION PLAN"), which may or may not
involve corrective proceedings with the IRS (it being understood
that Seller shall not have exclusive control over the development
and implementation of the Remediation Plan unless Seller in such
notice acknowledges its responsibility to indemnify Buyer pursuant
to Section 7.5 for any Losses that in fact ultimately result from
such breach or potential breach, as mitigated or increased by the
implementation of the Remediation Plan);
(iii) to have exclusive control over the development and
implementation of such a Remediation Plan;
(iv) to have a reasonable time (not to exceed six (6)
months) to develop such a Remediation Plan; and
(v) to have a reasonable time (not to exceed twelve (12)
months) to implement such a Remediation Plan after Seller notifies
Buyer in writing that it has been developed, which reasonable time
shall be extended for any corrective proceedings with the IRS and
any corrective time period allowed by the IRS and any time period
during which Buyer and Seller have any reasonable disagreement about
such implementation or during which Buyer is acting unreasonably.
Buyer and Parent shall reasonably cooperate with Seller (and cause
the appropriate Insurance Subsidiary to cooperate) in taking any corrective
action under such
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Remediation Plan, including the preparation and filing of any documents for any
IRS corrective proceedings, and shall be entitled to reimbursement from Seller
for all reasonable out-of-pocket expenses incurred by Buyer or Parent in
providing such cooperation. The procedures contained in this Section 4.10(g) are
in addition to those set forth in Section 7.4. For avoidance of doubt, in the
event that the development or implementation of any Remediation Plan has the
effect of increasing the Losses incurred by any Buyer Indemnified Party as a
result of any breach of any representation made by Seller in Sections
2.19(d)(ii), 2.22(c) or 2.22(d), the appropriate Buyer Indemnified Party shall
be entitled to indemnification with respect to such Losses in such increased
amount under Section 7.5.
SECTION 4.11 PROSPECTUS STICKER. As promptly as practicable on or after
the date of this Agreement, Seller will cause, at its own expense, the
preparation and filing on behalf of each Registered Investment Company of a
prospectus sticker or amendment in form and substance reasonably satisfactory to
Parent and Seller for the purpose of describing the proposed changes to the
operations of such Registered Investment Company as contemplated by this
Agreement, including the new Investment Company Advisory Agreement and any
proposed new trustees or directors.
SECTION 4.12 ADVISORY AGREEMENTS. Unless otherwise previously agreed to
by Parent, each Investment Adviser Subsidiary shall notify each of its Clients,
subject to Section 4.9 with respect to the Registered Investment Companies, of
the transaction set forth in Section 1.1 and shall use its commercially
reasonable efforts to obtain, prior to the Closing Date, the consent of each
such Client to the "assignment" (as such term is used in the Investment Advisers
Act) of its Advisory Agreement as a result of the transaction set forth in
Section 1.1 in accordance with the Investment Advisers Act, which consent, other
than with respect to Clients that are Registered Investment Companies, may be
obtained in accordance with the so-called "negative consent" or "no objection
received" process permitted under interpretations of the consent process by the
SEC. Seller shall cooperate and consult with Parent regarding material written
communications with Clients concerning the obtaining of such consents.
SECTION 4.13 INTERCOMPANY OBLIGATIONS. At least two (2) Business Days
before June 30, 2004, Seller will furnish Buyer with a complete list and
description of all liabilities and receivables between the Acquired Companies
and Seller or any other Affiliate of Seller (including any liability or reserves
of the Acquired Companies under any Tax allocation or Tax sharing agreement)
which would otherwise be outstanding on the Closing Date. Except as specifically
provided below with respect to Tax sharing agreements, or as otherwise expressly
contemplated in this Agreement, all such liabilities will be paid in full at or
before June 30, 2004. On June 30, 2004, Seller will terminate and will cause its
Affiliates to terminate each contract, other than Related Contracts, between or
among the Acquired Companies and Seller or any other Affiliate of Seller based
on a good faith estimate of amounts owed as of that date, and Buyer and Seller
agree to each make appropriate payment by August 15, 2004 as required to settle
any differences between the good faith estimates and actual amounts owed between
the Acquired Companies and Seller or any other Affiliate of Seller. Buyer and
Seller agree that from July 1, 2004 through the Closing, the services to be
provided from Seller to the Acquired Companies shall be provided by Seller (or a
Subsidiary of Seller) to the Acquired Companies on the same terms and conditions
(including pricing) as are currently being provided.
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SECTION 4.14 NAMES.
(a) Notwithstanding any inference contained herein or prior
course of conduct to the contrary, except as expressly provided in the
Transitional Trademark License, the Buyer Intellectual Property License or
the IP Side Letters, in no event shall Buyer or any of its Affiliates
(including without limitation the Acquired Companies) have any right to
use, nor shall Buyer or any of its Affiliates (including without limitation
the Acquired Companies) use, any of the corporate names, trade names,
service marks, logos, designs, acronyms, domain names, vanity telephone
numbers or other Proprietary Rights of Seller or any of its Affiliates in
any jurisdiction, including without limitation the names and service marks
"SAFECO," "SAFECO NOW" and any other name, xxxx or telephone number
containing the word "SAFE" (including, as applicable the corporate or trade
names of the Acquired Companies), or any application or registration
therefore, owned by, licensed to or used by Seller or any of its
Affiliates, or any other name, xxxx, logo, design, acronym, domain name or
vanity telephone number containing the word "SAFE" or that is confusingly
similar to the corporate names, trade names, service marks, logos, designs,
acronyms, domain names or vanity telephone numbers of Seller or any of its
Affiliates. Except as expressly provided in the Transitional Trademark
License, as soon as reasonably practicable after the Closing Date, Buyer
shall cause the Acquired Companies to change their names, and file the
appropriate documents with the relevant governmental agencies to effectuate
such change of names, to the extent necessary to remove such corporate
names, trade names, service marks, logos or acronyms (i) of Seller and its
Affiliates or (ii) containing the word "SAFE." Following the Closing Date,
other than as expressly set forth in the Transitional Trademark License,
the Buyer Intellectual Property License or the IP Side Letters, no license
or other agreement to use any corporate names, trade names, service marks,
logos, designs, acronyms, domain names, vanity telephone numbers or other
Proprietary Right of Seller or any of its Affiliates shall be deemed to
exist between Seller, or any of its Affiliates, and any of the Acquired
Companies by operation of law, past practice or otherwise, and any such
license or other agreement currently in effect shall terminate at Closing.
(b) The parties hereto acknowledge that any damage caused to
Seller or any of its Affiliates by reason of the breach by Buyer or any of
its Affiliates of this Section 4.14 would cause irreparable harm that could
not be adequately compensated for in monetary damages alone; therefore,
each party agrees that, in addition to any other remedies at law or
otherwise, Seller and any of its Affiliates shall be entitled to an
injunction issued by a court of competent jurisdiction restraining and
enjoining any violation by Buyer or any of its Affiliates of this Section
4.14 and Buyer further agrees that it will stipulate to the fact that
Seller or any of its Affiliates, as applicable, has been irreparably harmed
by such violation and not oppose the granting of such injunctive relief.
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SECTION 4.15 ASSET SALE. (a) Seller agrees that prior to Closing, the
Acquired Companies will sell to Seller or a third party designated by Seller or
on the open market up to $225 million in Fair Value of the assets (as specified
in writing to Seller prior to March 31, 2004) identified on Schedule 4.15 (the
"SOLD ASSETS"). Buyer and Seller acknowledge that any and all accounting effect
of the asset sales described in this Section 4.15(a) shall be excluded from the
calculation of June Adjusted Statutory Book Value for purposes of Section 1.4,
regardless of whether such impact would have the effect of increasing or
decreasing June Adjusted Statutory Book Value. For the avoidance of doubt, the
preceding sentence will be interpreted to mean that June Adjusted Statutory Book
Value will be calculated as if the sale of the Sold Assets never occurred.
(b) With regard to the Sold Assets, (i) if the Sale Price of the Sold
Assets exceeds the Fair Value of the Sold Assets, then 65% of any excess of (A)
the Sale Price of the Sold Assets over (B) the Fair Value of the Sold Assets
will be paid by the applicable Acquired Companies to Seller within five (5)
Business Days after the sale of all the Sold Assets is completed and (ii) if the
Fair Value of the Sold Assets exceeds the Sale Price of the Sold Assets, then
65% of any excess of (A) the Fair Value of the Sold Assets over (B) the Sale
Price of the Sold Assets will be paid by Seller to the applicable Acquired
Companies within five (5) Business Days after the sale of all the Sold Assets is
completed. Buyer and Seller acknowledge that any and all accounting effect of
any payment described in this Section 4.15(b) shall be excluded from the
calculation of June Adjusted Statutory Book Value for purposes of Section 1.4,
regardless of whether such impact would have the effect of increasing or
decreasing June Adjusted Statutory Book Value. For the avoidance of doubt, the
preceding sentence will be interpreted to mean that June Adjusted Statutory Book
Value will be calculated as if no such payment ever occurred. Any intercompany
obligations relating to the payments required pursuant to this Section 4.15(b)
shall be exempted from the covenant to unwind intercompany obligations set forth
in Section 4.13.
SECTION 4.16 OTHER TRANSACTIONS. From the date of this Agreement to the
earlier of (i) the termination of this Agreement and (ii) the Closing, none of
Seller, any Subsidiary of Seller or any other Affiliate of Seller shall, nor
shall they permit any of their respective agents, directors, officers,
employees, advisors (including their financial, legal and accounting advisors)
or other representatives to, directly or indirectly, encourage, solicit,
initiate or participate in discussions or negotiations with, or provide any
information or assistance to, or enter into any agreement with, any Person or
group (other than Buyer and its representatives), concerning any merger,
consolidation, sale of securities, share exchange or any other business
combination, reorganization, recapitalization or similar transaction involving
the Acquired Companies or any sale, lease, exchange, transfer or other
disposition of over 5% of the assets of the Acquired Companies, it being
understood that this covenant shall not apply to any securities held in the
Investment Portfolio. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
officer, director, stockholder or other representative of Seller, any Subsidiary
of Seller or any other Affiliate of Seller, whether or not such person is
purporting to act on behalf of Seller, any Subsidiary of Seller, any other
affiliate of Seller or otherwise, shall be deemed to be a breach of this Section
4.16 by Seller. From the date of this Agreement to the earlier of (i) the
termination of this Agreement and (ii) the Closing, in the event that Seller any
Subsidiary of Seller or any other Affiliate of Seller receives a proposal
relating to any such transaction, Seller shall promptly notify Buyer of such
proposal and deliver a copy of such proposal to Buyer.
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SECTION 4.17 RESIGNATIONS. On the Closing Date, Seller shall cause to be
delivered to Buyer (i) duly signed resignations (from the applicable board of
directors), effective immediately after the Closing, of all directors of each
Acquired Company and (ii) to the extent requested by Buyer, duly signed
resignations of those persons who are interested persons (as that term is
defined in the Investment Company Act) of an Investment Adviser Subsidiary and
serve as directors or trustees of Registered Investment Companies advised by an
Investment Adviser Subsidiary or Registered Separate Accounts maintained by an
Insurance Subsidiary, and shall take such other action as is necessary to
accomplish the foregoing.
SECTION 4.18 FURTHER ASSURANCES. From time to time, as and when requested
by any party, each party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions (subject to Section 4.3), as such other
party may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement and the other Transaction Documents. Such actions
shall include (i) in the case of Seller and GAC, (A) executing and delivering to
Buyer such assignments, deeds, bills of sale, consents and other instruments as
Buyer or its counsel may reasonably request as necessary or desirable for such
purpose and (B) reasonably cooperating with Buyer in its initial preparation of
audited financial statements of the Acquired Companies for Exchange Act filing
purposes and (ii) in the case of Buyer, (A) reasonably cooperating with Seller
in the initial preparation of the June Financial Statements and (B) using
commercially reasonable efforts to facilitate the making of the Excess Capital
Dividend.
SECTION 4.19 NO SOLICITATION.
(a) For a period of three (3) years from the Closing, Seller
shall not, and shall cause its Subsidiaries not to, directly or indirectly,
solicit for employment or employ any Business Employee, without the prior
written consent of Buyer; PROVIDED, that: (i) the placing of an
advertisement of a position available to a member of the public generally,
and the hiring of any Business Employee in response to such an
advertisement shall not constitute a breach of this Section 4.19(a); and
(ii) this obligation shall not prevent Seller or any of its Subsidiaries
from employing, mandating or otherwise engaging any Business Employee (A)
whose employment with Buyer or its relevant Subsidiaries has been
terminated by Buyer or any of its Subsidiaries or (B) who has resigned from
employment with Buyer or any of its Subsidiaries, provided that such
employee has not been contacted by or engaged in any discussions with
Seller or any of its Subsidiaries regarding employment prior to such
employee's notifying his or her employer of his or her intent to resign.
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(b) For a period of three (3) years from the Closing, Buyer
shall not, and shall cause its Subsidiaries not to, directly or indirectly,
solicit for employment or employ any employee of Seller or its
Subsidiaries, without the prior written consent of Seller; PROVIDED, that:
(i) the placing of an advertisement of a position available to a member of
the public generally, and the hiring of any employee of Seller or its
Subsidiaries in response to such an advertisement shall not constitute a
breach of this Section 4.19(b); and (ii) this obligation shall not prevent
Buyer or any of its Subsidiaries from employing, mandating or otherwise
engaging any employee of Seller or its Subsidiaries (A) whose employment
with Seller or its relevant Subsidiaries has been terminated by Seller or
any of its Subsidiaries or (B) who has resigned from employment with Seller
or any of its Subsidiaries, provided that such employee has not been
contacted by or engaged in any discussions with Buyer or any of its
Subsidiaries regarding employment prior to such employee's notifying his or
her employer of his or her intent to resign.
SECTION 4.20 NON-COMPETITION.
(a) For a period of five (5) years from the Closing, Seller
shall not, and shall cause each of its Affiliates not to, (i) directly or
indirectly, develop, market or sell products in the United States similar
in type to the Life & Annuity Contracts and the type of products sold by
the Investment Adviser Subsidiaries or Broker/Dealer Subsidiaries
immediately prior to the Closing Date, (ii) establish in the United States
any new business which engages in the activities described in the preceding
clause (i) or (iii) license, transfer or otherwise convey in the United
States any trademark of Seller or any of its Affiliates used by the
Acquired Companies prior to the Closing to any person that has indicated an
intention to or is reasonably likely to engage in such activities (the
activities described in clauses (i)-(iii), "COMPETITIVE ACTIVITIES").
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(b) Notwithstanding anything to the contrary contained in this
Section 4.20, Buyer hereby agrees that the foregoing covenant shall not be
deemed to be breached as a result of: (i) the development, marketing or
sale of products of a type not sold by the Acquired Companies (including
the Investment Adviser Subsidiaries and Broker/Dealer Subsidiaries) at the
time of the Closing; (ii) Competitive Activities conducted by Talbot
Financial Corporation and its subsidiaries at the time of the Closing;
(iii) any activities (whether Competitive Activities or otherwise) by any
Person or business that merges with or acquires Seller or any of its
Affiliates or any interest in either, whether through merger (whether
forward, reverse or reverse triangular in structure), stock purchase, asset
purchase or otherwise, so long as for the first year following the
consummation of any such transaction, the directors of the Seller and its
Affiliates (or any Persons designated by the Seller or its Affiliates) do
not constitute a majority of the board of directors of the acquirer or the
surviving company; (iv) the acquisition by Seller or its Affiliates of any
Person or business that is engaged in Competitive Activities, so long as
the Competitive Activities accounted for less than 35% of the consolidated
revenues of such Person or business for the 12 months prior to such
acquisition; or (v) the ownership by Seller or any of its Affiliates of (A)
less than an aggregate of 5% of any class of stock of a Person engaged,
directly or indirectly, in Competitive Activities; PROVIDED, that such
stock is listed on a national securities exchange or is quoted on the
National Market System of NASDAQ; (B) less than 5% in value of any
instrument of indebtedness of a Person engaged, directly or indirectly, in
Competitive Activities; or (C) a Person or any interest in a Person that
engages, directly or indirectly, in Competitive Activities if such
Competitive Activities account for less than 35% of such Person's
consolidated annual revenues.
(c) The parties hereto acknowledge that any damage caused to
Buyer or any of its Affiliates by reason of the breach by Seller or any of
its Affiliates of this Section 4.20 would cause irreparable harm that could
not be adequately compensated for in monetary damages alone; therefore,
each party agrees that, in addition to any other remedies at law or
otherwise, Buyer and any of its Affiliates shall be entitled to an
injunction issued by a court of competent jurisdiction restraining and
enjoining any violation by Seller or any of its Affiliates of this Section
4.20 and Seller further agrees that it will stipulate to the fact that
Buyer or any of its Affiliates, as applicable, has been irreparably harmed
by such violation and not oppose the granting of such injunction relief.
SECTION 4.21 ASSIGNMENT OF CONFIDENTIALITY AGREEMENTS. Prior to or at the
Closing, Seller shall cause any confidentiality agreements entered into by
Seller or any of its Affiliates since September 1, 2003 relating to the Acquired
Companies or any properties, assets, liabilities or activities of any Acquired
Company in connection with a sale or disposition that are not agreements to
which an Acquired Company is a party, to be assigned to an Acquired Company
unless expressly prohibited by the terms of such confidentiality agreement.
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SECTION 4.22 ACTIONS AFFECTING JUNE ADJUSTED STATUTORY BOOK VALUE. After
the Closing, neither Buyer nor Parent will take or fail to take any action or
permit any Acquired Company to take or fail to take any action, in each case for
the purpose of either (i) shifting statutory income or surplus from the period
before June 30, 2004 to the period following June 30, 2004 or (ii) decreasing
statutory income or surplus with the intent of decreasing the June Adjusted
Statutory Book Value or decreasing the Closing Consideration to the detriment of
Seller.
ARTICLE V.
CONDITIONS
SECTION 5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the transactions set forth in Section 1.1
shall be subject to the fulfillment or waiver at or prior to the Closing of the
following conditions:
(a) no Law, Order or other legal restraint or prohibition
enacted, entered, promulgated or enforced by any Governmental Entity
(collectively, "RESTRAINTS") shall be pending, threatened or in effect
challenging or seeking to restrain, prevent or prohibit the consummation of
the transactions contemplated in this Agreement;
(b) all material consents, authorizations, orders and approvals
of (or filings or registrations with) any Governmental Entity required in
connection with the execution, delivery and performance of this Agreement
or necessary for the consummation of the transactions contemplated in this
Agreement shall have been obtained or made (as the case may be), except for
any documents required to be filed after the Closing; and
(c) any waiting period applicable to the transaction set forth
in Section 1.1 under the HSR Act shall have expired or been terminated.
SECTION 5.2 CONDITIONS TO OBLIGATION OF PARENT AND BUYER. The obligation
of Parent and Buyer to effect the transactions set forth in Section 1.1 shall be
subject to the fulfillment or waiver at the Closing of the following additional
conditions:
(a) Seller and GAC shall have performed or complied with in all
material respects all covenants and obligations that are required to be
performed or complied with by them under this Agreement on or prior to the
Closing;
(b) each of the representations and warranties of Seller and GAC
in this Agreement (disregarding all qualifications and exceptions therein
relating to materiality or Material Adverse Effect) shall be true and
correct as of the date of this Agreement and as of the Closing Date as if
they were made on and as of the Closing Date (other than such
representations and warranties that expressly address matters only as of a
certain date, which need only be true and correct as of such certain date),
except where the failure of such representations and warranties to be true
and correct, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect on the Acquired Companies,
taken as a whole;
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(c) Parent shall have received certificates signed by the chief
executive officer and chief financial officer of Seller to the effect of
Sections 5.2(a) and (b);
(d) Seller shall have executed and delivered each of the
Transaction Documents; and
(e) Parent and Buyer shall have received proceeds from sources
of Financing in an amount sufficient to pay the Closing Consideration and
to pay all fees and expenses required to be paid by Parent and Buyer in
connection with the transactions contemplated in this Agreement and the
other Transaction Documents.
SECTION 5.3 CONDITIONS TO OBLIGATION OF SELLER AND GAC. The obligation
of Seller and GAC to effect the transactions set forth in Section 1.1 shall be
subject to the fulfillment or waiver at the Closing of the following additional
conditions:
(a) Parent and Buyer shall have performed or complied with in
all material respects all covenants and obligations that are required to be
performed or complied with by them under this Agreement on or prior to the
Closing;
(b) each of the representations and warranties of Parent and
Buyer in this Agreement (disregarding all qualifications and exceptions
therein relating to materiality or Material Adverse Effect) shall be true
and correct as of the date of this Agreement and as of the Closing Date as
if they were made on and as of the Closing Date (other than such
representations and warranties that expressly address matters only as of a
certain date, which need only be true and correct as of such certain date),
except where the failure of such representations and warranties to be true
and correct, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect on Parent or Buyer;
(c) Seller shall have received a certificate signed by the chief
executive officer and chief financial officer of each of Parent and Buyer
to the effect of Sections 5.3(a) and (b);
(d) at the Closing Date: (i) at least seventy-five percent (75%)
of the members of the Investment Company Boards of any Registered
Investment Company which has approved a new investment advisory contract
shall not be "interested persons" (as such term is defined in the
Investment Company Act) of that Acquired Company Subsidiary that will act
as investment adviser to such Investment Companies following the Closing
Date, or the Acquired Companies or of any of their Affiliates that was the
investment adviser of any such Investment Company immediately preceding the
Closing Date; and (ii) the requirements of Section 15(f)(1)(B) of the
Investment Company Act shall have been complied with in that no "unfair
burden" shall have been imposed on any of the Registered Investment
Companies that are management investment companies as a result of this
Agreement, the transactions contemplated hereunder, new Investment Company
Advisory Agreements or otherwise; and
(e) Parent and/or Buyer, as applicable, shall have executed and
delivered each of the Transaction Documents.
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ARTICLE VI.
TERMINATION
SECTION 6.1 TERMINATION. This Agreement may be terminated and the
transactions set forth in Section 1.1 contemplated hereby may be abandoned at
any time prior to the Closing:
(a) by the mutual written consent of Parent, Buyer and Seller;
(b) by Parent, Buyer or Seller, if a court of competent
jurisdiction or other Governmental Entity shall have issued an Order or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions set forth in Section 1.1 and such Order or
other action shall have become final and nonappealable;
(c) by Parent or Buyer, if Seller or GAC shall have materially
breached or failed to perform any of their respective representations,
warranties, covenants or other agreements contained in this Agreement,
which breach or failure to perform (A) would give rise to the failure of a
condition set forth in Section 5.2(a) or Section 5.2(b) and (B) is
incapable of being cured, or is not cured, by Seller or GAC, as applicable,
within thirty (30) calendar days following receipt of written notice of
such breach or failure to perform from Parent or Buyer;
(d) by Seller, if Parent or Buyer shall have materially breached
or failed to perform any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition set
forth in Section 5.3(a) or Section 5.3(b) and (B) is incapable of being
cured, or is not cured, by Parent or Buyer, as applicable, within thirty
(30) calendar days following receipt of written notice of such breach or
failure to perform from Seller; or
(e) by Parent or Seller, if the Closing shall not have occurred
on or before the nine month anniversary of the date of this Agreement;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 6.1(e) shall not be available to any party whose failure to fulfill
materially any covenant or obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before
such date.
SECTION 6.2 PROCEDURE FOR AND EFFECT OF TERMINATION. In the event that
this Agreement is terminated and the transactions set forth in Section 1.1 are
abandoned by Parent or Buyer, on the one hand, or by Seller, on the other hand,
pursuant to Section 6.1, written notice of such termination and abandonment
shall forthwith be given to the other parties and this Agreement shall terminate
and the transactions set forth in Section 1.1 shall be abandoned without any
further action. If this Agreement is terminated as provided herein, no party
hereto shall have any liability or further obligation to any other party under
the terms of this Agreement except (i) with respect to the willful breach by any
party hereto, and (ii) this Section 6.2, the second sentence of Section 4.2(a),
Section 4.5, Article VII and Section 8.5 shall survive the termination of this
Agreement.
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ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION BY SELLER AND GAC. Subject to the
limitations set forth in Section 7.3, from and after the Closing, Seller and
GAC, jointly and severally, shall indemnify, defend and hold harmless Parent,
Buyer, each of their respective Affiliates and each of their respective
officers, directors, employees, agents and representatives (the "BUYER
INDEMNIFIED PARTIES") from and against any and all claims, losses, damages,
liabilities, obligations or expenses, including reasonable legal fees and
expenses (collectively, "LOSSES"), as incurred, payable promptly upon written
request, to the extent arising or resulting from or relating to any of the
following (except for any items relating to Taxes, which shall be governed
exclusively by Section 7.5):
(a) any breach of any representation or warranty of Seller or
GAC contained in this Agreement (it being agreed and acknowledged by the
parties that for purposes of Parent and Buyer's right to indemnification
pursuant to this Section 7.1 the representations and warranties of Seller
and GAC (except for the representations and warranties set forth in (i) the
second and fourth sentences in Section 2.7(a)(ii), (ii) clause (C) of the
first sentence of Section 2.7(a)(iii) and (iii) the next to last sentence
of Section 2.22(e)) shall be deemed not qualified by any references therein
to materiality generally or to whether or not any breach results or may
result in a Material Adverse Effect);
(b) any breach of any covenant of Seller and GAC contained in
this Agreement;
(c) any failure by an Investment Adviser Subsidiary or a
Registered Investment Company to be, or at any time since their adoption to
have been, in compliance with its respective RIC Procedures; or
(d) any failure (i) by an Insurance Subsidiary to disclose in
its marketing and sales materials, to the extent required by applicable
Law, any of its Financial Intermediary Arrangements or (ii) of any such
Financial Intermediary Arrangement to comply, or at any time to have
complied, with applicable Law.
SECTION 7.2 INDEMNIFICATION BY PARENT, BUYER AND THE ACQUIRED COMPANIES.
Subject to the limitations set forth in Section 7.3, from and after the Closing,
Parent, Buyer and the Acquired Companies shall indemnify, defend and hold
harmless Seller, GAC, each of their respective Affiliates and each of their
respective officers, directors, employees, agents and representatives (the
"SELLER INDEMNIFIED PARTIES") from and against any and all Losses, as incurred,
payable promptly upon written request, to the extent arising or resulting from
or relating to any of the following:
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(a) any breach of any representation or warranty of Parent or
Buyer contained in this Agreement (it being agreed and acknowledged by the
parties that for purposes of Seller and GAC's right to indemnification
pursuant to this Section 7.2 the representations and warranties of Parent
and Buyer shall be deemed not qualified by any references therein to
materiality generally or to whether or not any breach results or may result
in a Material Adverse Effect); or
(b) any breach of any covenant of Parent or Buyer contained in
this Agreement.
SECTION 7.3 LIMITATIONS ON INDEMNITY.
(a) None of the Buyer Indemnified Parties shall be entitled to
assert any right to indemnification under Section 7.1(a) until (i) each
individual amount of Losses otherwise due the Buyer Indemnified Parties
exceeds $250,000 (the "DE MINIMIS AMOUNT") (PROVIDED, that (X) the term
"individual amount of Losses" shall mean each individual breach of a
particular warranty and not the aggregation of individual breaches of a
particular warranty into a single breach (e.g., if Seller failed to
disclose five contracts under a particular warranty, and the failure to
disclose any one of those contracts would be a breach, then the five
contracts together would be considered multiple breaches, of which each
such undisclosed contract would be an "individual amount of Loss") and (Y)
for purposes of the calculation of the Loss with respect to such individual
breach, a series of separate Losses caused by or resulting from the same
individual breach shall be aggregated (e.g., if an individual breach causes
or results in two separate Losses of $200,000 each, such Losses shall be
aggregated to a sum of $400,000 for purposes of determining whether the
"Loss" with respect to such individual amount is less than $250,000)) and
(ii) the aggregate amount of all the Losses actually suffered by the Buyer
Indemnified Parties exceeds 3.0% of the Purchase Price (the "DEDUCTIBLE
AMOUNT"), and then only to the extent such Losses exceed, in the aggregate,
the Deductible Amount. For the avoidance of doubt, indemnification for
Losses arising from breaches of any of Sections 2.7(a)(v),
2.21(b)(xxi)-(xxiv) and 2.22(1)-(n) shall not be subject to either the De
Minimis Amount or to the Deductible Amount, and all such Losses shall be
indemnified beginning with the first dollar of Loss. Anything in this
Agreement to the contrary notwithstanding, in no event shall Seller or GAC
be required to indemnify Parent, Buyer, any Acquired Company or the Buyer
Indemnified Parties for Losses pursuant to Section 7.1(a) in any amount
exceeding 65% of the Purchase Price (the "CAP"); PROVIDED, that the Cap
shall not apply to Seller's and GAC's requirement to indemnify Parent,
Buyer, any Acquired Company or the Buyer Indemnified Parties for Losses
pursuant to Section 7.1(a) with respect to a breach of the representations
and warranties set forth in Sections 2.1, 2.2, 2.3, 2.7(a)(v),
2.21(b)(xxi)-(xxiv) or 2.22(l)-(n), and any indemnified Losses in respect
of such representations and warranties shall not count against the Cap.
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(b) None of the Seller Indemnified Parties shall be entitled to
assert any right to indemnification under Section 7.2(a) until (i) each
individual amount of Losses otherwise due the Seller Indemnified Party
exceeds the De Minimis Amount (PROVIDED, that (X) the term "individual
amount of Losses" shall mean each individual breach of a particular
warranty and not the aggregation of individual breaches of a particular
warranty into a single breach (e.g., if Buyer failed to disclose five
contracts under a particular warranty, and the failure to disclose any one
of those contracts would be a breach, then the five contracts together
would be considered multiple breaches, of which each such undisclosed
contract would be an "individual amount of Loss") and (Y) for purposes of
the calculation of the Loss with respect to such individual breach, a
series of separate Losses caused by or resulting from the same individual
breach shall be aggregated (e.g., if an individual breach causes or results
in two separate Losses of $200,000 each, such Losses shall be aggregated to
a sum of $400,000 for purposes of determining whether the "Loss" with
respect to such individual amount is less than $250,000))and (ii) the
aggregate amount of all the Losses actually suffered by the Seller
Indemnified Parties exceeds the Deductible Amount, and then only to the
extent such Losses exceed, in the aggregate, the Deductible Amount.
Anything in this Agreement to the contrary notwithstanding, in no event
shall Buyer be required to indemnify Seller, GAC or the Seller Indemnified
Parties for Losses pursuant to Section 7.2(a) in any amount exceeding the
Cap; PROVIDED, HOWEVER, that no such limitations (A) shall affect Parent's
and Buyer's obligation to pay the Purchase Price or (B) apply to Parent's
and Buyer's obligations to indemnify Seller, GAC or the Seller Indemnified
Parties for Losses pursuant to Section 7.2(a) (solely with respect to a
breach of the representations and warranties set forth in Sections 3.1 or
3.2).
(c) No party hereto shall be liable to the others for indirect,
special, incidental, consequential or punitive damages claimed by such
other party or parties, as the case may be, resulting from such first
party's breach of its representations, warranties or covenants hereunder.
(d) No Buyer Indemnified Party shall be entitled to
indemnification (i) with respect to any particular Loss to the extent
specific provision or reserve for such matter is made in the June Financial
Statements or in the notes thereto or in an Adjustment Memorandum, as
applicable or (ii) with respect to any matter that has been decided by the
Accounting Expert (and which is expressly addressed as having been decided
in the written findings of the Accounting Expert).
(e) Each party shall have the right to retain copies of all
documents delivered or made available by or to such party or its Affiliates
in connection with the transactions contemplated hereby to the extent
reasonably required for the purpose of defending any claim against it under
this Agreement or enforcing its rights hereunder (including making any
claims or counterclaims against third parties pursuant to Section 7.4).
SECTION 7.4 INDEMNIFICATION PROCEDURES.
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(a) PROCEDURES RELATING TO INDEMNIFICATION OF THIRD PARTY
CLAIMS. Except as otherwise provided in this Agreement, if any party (the
"INDEMNIFIED PARTY") receives written notice of the commencement of any
action or proceeding or the assertion of any claim by a third party or the
imposition of any penalty or assessment for which indemnity may be sought
under Section 7.1 or 7.2 (a "THIRD PARTY CLAIM"), and such Indemnified
Party intends to seek indemnity pursuant to this Article VII, the
Indemnified Party shall promptly provide the other party or parties, as
applicable (the "INDEMNIFYING PARTY") with written notice of such Third
Party Claim, stating the nature, basis and the amount thereof, to the
extent known, along with copies of the relevant documents evidencing such
Third Party Claim and the basis for indemnification sought. Failure of the
Indemnified Party to give such notice will not relieve the Indemnifying
Party from liability on account of this indemnification, except if and to
the extent that the Indemnifying Party is actually prejudiced thereby. The
Indemnifying Party will have thirty (30) days from receipt of any such
notice of a Third Party Claim to give notice to assume the defense thereof.
If notice to the effect set forth in the immediately preceding sentence is
given by the Indemnifying Party, the Indemnifying Party will have the right
to assume the defense of the Indemnified Party against the Third Party
Claim with counsel of its choice. The Indemnifying Party shall be liable
for the fees and expenses of counsel employed by the Indemnified Party for
any period during which the Indemnifying Party has not assumed the defense
thereof after notice to the Indemnified Party. So long as the Indemnifying
Party has assumed the defense of the Third Party Claim in accordance
herewith, (i) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim, (ii) the Indemnified Party will not file any papers or consent to
the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnifying
Party and (iii) the Indemnifying Party will not (A) admit to any wrongdoing
or (B) consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim to the extent such judgment or
settlement provides for equitable relief, in each case, without the prior
written consent of the Indemnified Party (such written consent will not be
withheld or delayed unreasonably). The parties will use commercially
reasonable efforts to minimize Losses from Third Party Claims and will act
in good faith in responding to, defending against, settling or otherwise
dealing with such claims. The parties will also cooperate in any such
defense and give each other reasonable access to all information relevant
thereto. Whether or not the Indemnifying Party has assumed the defense,
such Indemnifying Party will not be obligated to indemnify the Indemnified
Party hereunder for any settlement entered into or any judgment that was
consented to without the Indemnifying Party's prior written consent.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled
to assume the defense of any Third Party Claim (and shall be liable for the
reasonable fees and expenses of counsel incurred by the Indemnified Party
in defending such Third Party Claim) if the Third Party Claim seeks an
order, injunction or other equitable relief or relief for other than money
damages against the Indemnified Party that the Indemnified Party reasonably
determines, after conferring with its outside counsel, cannot be separated
from any related claim for money damages. If such equitable relief or other
relief portion of the Third Party Claim can be so separated from that for
money damages,
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the Indemnifying Party shall be entitled to assume the defense of the
portion relating to money damages.
(b) PROCEDURES FOR NON-THIRD PARTY CLAIMS. Except as otherwise
provided in this Agreement, the Indemnified Party will notify the
Indemnifying Party in writing promptly of its discovery of any matter that
does not involve a Third Party Claim being asserted against or sought to be
collected from the Indemnified Party, giving rise to the claim of indemnity
pursuant hereto. The failure so to notify the Indemnifying Party shall not
relieve the Indemnifying Party from liability on account of this
indemnification, except only if and to the extent that the Indemnifying
Party is actually prejudiced thereby. The Indemnifying Party will have
thirty (30) days from receipt of any such notice to give notice of dispute
of the claim to the Indemnified Party. The Indemnified Party will
reasonably cooperate and assist the Indemnifying Party in determining the
validity of any claim for indemnity by the Indemnified Party and in
otherwise resolving such matters. Such assistance and cooperation will
include providing reasonable access to and copies of information, records
and documents relating to such matters, furnishing employees to assist in
the investigation, defense and resolution of such matters and providing
legal and business assistance with respect to such matters. If the
Indemnifying Party does not notify the Indemnified Party within such thirty
(30) day period that the Indemnifying Party disputes its liability to the
Indemnified Party under Section 7.1 or 7.2, such claim specified by the
Indemnified Party in such notice shall be conclusively deemed a liability
of the Indemnifying Party under Section 7.1 or 7.2 and the Indemnifying
Party shall pay the amount of such liability to the Indemnified Party on
demand or, in the case of any notice in which the amount of the claim (or
any portion thereof) is estimated, on such later date when the amount of
such claim (or such portion thereof) becomes finally determined.
(c) For purposes of this Article VII, all Losses (x) shall be
computed net of (i) any Tax benefit resulting therefrom to the Indemnified
Party, (ii) any amounts actually recovered by the Indemnified Party under
insurance policies with respect thereto and (iii) any amounts actually
recovered from third parties based on claims the Indemnified Party has
against such third parties which reduce the Losses sustained by such
Indemnified Party; PROVIDED, HOWEVER, that, in all cases, the timing of the
receipt or realization of insurance proceeds or Tax benefits or Tax costs
or recoveries from third parties shall be taken into account in determining
the amount of reduction of Losses that is not considered a purchase price
adjustment, and (y) shall be increased to take account of any net Tax cost
incurred by the Indemnified Party arising from the receipt of indemnity
payments hereunder (grossed up for such increase).
(d) Each party shall cooperate with the other with respect to
resolving any claim or liability with respect to which one party is
obligated to indemnify the other party hereunder, including by using
commercially reasonable efforts to mitigate or resolve any such claim or
liability; PROVIDED, HOWEVER, that such party shall not be required to make
such efforts if they would be detrimental in any material respect to such
party.
(e) Buyer and Parent agree that prior to any Buyer Indemnified
Party submitting a claim for indemnification for Losses arising or
resulting from or relating to
85
any breach of the representations set forth in any of (i) the second or
fourth sentences of Section 2.7(a)(ii), (ii) clause (C) of the first
sentence of Section 2.7(a)(iii) or (iii) the next to last sentence of
Section 2.22(e) (collectively, the "SAP REPS")) pursuant to Section 7.1:
(A) the parties shall mutually agree upon an accounting professional
with significant experience in the life insurance company accounting field
(the "REVIEWER"), or if the parties cannot mutually agree upon a Reviewer
the parties will mutually request that the American Arbitration Association
(the "AAA") select an appropriate reviewer for them (and the parties shall
share equally any fees of the AAA and the Reviewer resulting from such
request);
(B) Buyer shall submit to the Reviewer and Seller within 15 days
after the selection of the Reviewer a written letter summarizing why it
reasonably believes that there has been a breach of a SAP Rep by Seller or
GAC;
(C) At its option, Seller may submit to the Reviewer and Buyer
within a time period to be selected by the Reviewer (but in no event longer
than 30 days after the selection of the Reviewer) a written letter
summarizing its position in response to Buyer's letter;
(D) the Reviewer shall review the bases for the Buyer's claim that
there has been a breach of a SAP Rep and shall within a reasonable time
(but in no event more than 20 days after submission of any letter by
Seller) issue a written statement (the "REVIEWER CONCLUSION") stating
whether the Reviewer believes that it is reasonably likely that there has
been a breach by Seller or GAC of a SAP Rep.
If the Reviewer Conclusion states that the Reviewer believes that it
is reasonably likely that there has been a breach by Seller or GAC of a SAP
Rep, then the applicable Buyer Indemnified Party may submit its claim for
indemnification for Losses arising or resulting from or relating to such
breach pursuant to Section 7.1.
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SECTION 7.5 TAX INDEMNITY. Notwithstanding anything in this Agreement to
the contrary, Seller and GAC shall, jointly and severally, indemnify, defend and
hold harmless the Buyer Indemnified Parties from (i) all liability for Taxes of
the Acquired Companies with respect to any Pre-Closing Tax Period, (ii) all
liability for Taxes of any person with whom any of the Acquired Companies or
their Subsidiaries joins or has ever joined in filing any affiliated,
consolidated, combined or unitary Tax Return prior to the Closing Date, (iii)
all Losses with respect to the breaches of representations and warranties set
forth in Sections 2.19, 2.21(b)(xvii) through 2.21(b)(xx), 2.22(c) and 2.22(d)
and the covenants set forth in Sections 4.8, 4.10(f) and 4.10(g) and (iv) all
liability for reasonable legal fees and expenses attributable to any item
described in clauses (i) through (iii). It is agreed and acknowledged by the
parties that for purposes of Seller and GAC's right to indemnification pursuant
to clause (iii) of the preceding sentence of this Section 7.5, the
representations and warranties of Seller and GAC set forth in Section 2.19 shall
be deemed not qualified by any references therein to materiality generally or to
whether or not any breach results or may result in a Material Adverse Effect.
For the avoidance of doubt, the limitations set forth in Section 7.3 shall not
apply to indemnification under this Section 7.5; PROVIDED, HOWEVER, that no
Buyer Indemnified Party shall be entitled to indemnification pursuant to this
Section 7.5 (i) with respect to any Tax to the extent specific provision or
reserve for such Tax is made in the June Financial Statements or in the notes
thereto or in an Adjustment Memorandum, as applicable or (ii) with respect to
any matter that has been decided by the Accounting Expert (and which is
expressly addressed as having been decided in the written findings of the
Accounting Expert).
SECTION 7.6 SURVIVAL AND TIME LIMITATION. The representations,
warranties and other terms and provisions of this Agreement and any certificate
delivered pursuant hereto shall survive the Closing of the transactions
contemplated hereunder. Notwithstanding the foregoing, after Closing, any
assertion by Parent or Buyer or any Buyer Indemnified Party that Seller or GAC
is liable to Parent, Buyer or any Buyer Indemnified Party for indemnification
under Section 7.1(a) of this Agreement must be made in writing and must be given
to Seller and GAC (or not at all) on or prior to the 12 month anniversary of the
Closing Date, except (a) for indemnification for matters addressed in Sections
2.7(a)(v), 2.18, 2.19, 2.20, 2.21(b)(xxi)-(xxiv), 2.22(1)-(n) and 7.5, which
must be made in writing and must be given to Seller and GAC (or not at all) on
or prior to the date that is ninety (90) days after the date on which the
applicable statute of limitations expires with respect to the matters covered
thereby and (b) for indemnification for breaches of the representations and
warranties contained in Sections 2.1, 2.2 and 2.3, which must be made in writing
and may be given to Seller and GAC at any time after the Closing Date without
limitation. After Closing, any assertion by Seller or GAC or any Seller
Indemnified Party that Parent or Buyer is liable to Seller, GAC or any Seller
Indemnified Party for indemnification under Section 7.2(a) of this Agreement or
the certificate delivered in respect of Section 5.2(a) of this Agreement must be
made in writing and must be given to Buyer and Parent (or not at all) on or
prior to the 12 month anniversary of the Closing Date, except for
indemnification for breaches of the representations and warranties contained in
Sections 3.1 and 3.2, which must be made in writing and may be given to Buyer
and Parent at any time after the Closing Date without limitation.
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SECTION 7.7 SOLE AND EXCLUSIVE REMEDY. EXCEPT IN ALL CASES FOR CLAIMS
OF, OR CAUSES OF ACTION ARISING FROM, FRAUD, BAD FAITH OR WILLFUL MISCONDUCT,
FROM AND AFTER THE CLOSING, THE INDEMNIFICATION PROVISIONS OF THIS ARTICLE VII
SHALL BE THE SOLE AND EXCLUSIVE RIGHT AND REMEDY OF EACH PARTY (INCLUDING THE
SELLER INDEMNIFIED PARTIES AND THE BUYER INDEMNIFIED PARTIES) (I) FOR ANY BREACH
OF THE OTHER PARTY'S REPRESENTATIONS, WARRANTIES, COVENANTS, OR AGREEMENTS
CONTAINED IN THIS AGREEMENT OR (II) OTHERWISE WITH RESPECT TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY, AND THE PARTIES WAIVE THE RIGHT TO ALL
OTHER REMEDIES; PROVIDED, HOWEVER, THAT NOTHING SET FORTH IN THIS SECTION 7.7
SHALL BE DEEMED TO PROHIBIT OR OTHERWISE LIMIT EITHER PARTY'S RIGHT AT ANY TIME
BEFORE, ON OR AFTER THE CLOSING DATE, TO SEEK INJUNCTIVE OR EQUITABLE RELIEF FOR
THE FAILURE OF THE OTHER PARTY TO PERFORM ANY COVENANT OR AGREEMENT SET FORTH
HEREIN.
SECTION 7.8 TREATMENT OF INDEMNIFICATION PAYMENTS. All indemnification
payments made pursuant to this Article VII shall be treated by the parties as
adjustments to the Purchase Price unless otherwise required by applicable law.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented, only by a written agreement signed by each of the
parties hereto.
SECTION 8.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or
Buyer, on the one hand, or Seller, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by Seller or
Parent or Buyer, respectively, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
8.2.
SECTION 8.3 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopier (with a confirmed receipt thereof) or registered or
certified mail (postage prepaid, return receipt requested), and on the next
Business Day when sent by overnight courier service, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent, to:
White Mountains Insurance Group, Ltd.
00 Xxxxx Xxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx, General Counsel
Facsimile: 000-000-0000
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and with a copy to:
Xxxxxxx Xxxxxx & Xxxxx LLP
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxxx and Xxxxx X. Xxxxx
Facsimile: 212-474-3700
(b) if to Buyer, to:
Occum Acquisition Corp.
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx, Treasurer
Facsimile: 000-000-0000
with a copy to:
White Mountains Insurance Group, Ltd.
00 Xxxxx Xxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx, General Counsel
Facsimile: 000-000-0000
and with a copy to:
Xxxxxxx Xxxxxx & Xxxxx LLP
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxxx and Xxxxx X. Xxxxx
Facsimile: 212-474-3700
(c) if to Seller or GAC to:
Safeco Corporation
Safeco Plaza
0000 Xxxxxxxx Xxxxxx XX
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Senior Vice President
and General Counsel
Facsimile: 000-000-0000
with a copy to:
Xxxxxx & Xxxxxxx LLP
Sears Tower -- Suite 5800
000 Xxxxx Xxxxxx Xxxxx
00
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
Facsimile: 000-000-0000
SECTION 8.4 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties;
PROVIDED, HOWEVER, that the rights (but not the obligations) of Buyer may be
transferred to any direct or indirect wholly owned subsidiary of Parent with an
appropriate amendment to this Agreement.
SECTION 8.5 EXPENSES. Whether or not the transactions set forth in
Section 1.1 are consummated, all fees, charges and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees, charges or expenses, except as set forth
in the following sentence. The Seller shall pay the following costs and expenses
of the transactions contemplated hereby to the extent incurred prior to the
Closing: (i) any third-party assignment penalties or premiums (whether imposed
in the form of fees, penalties, assessments, loss of servicing income, or
otherwise) and (ii) all other external costs incurred in securing third party
consents, including all costs related to the preparation (including, but not
limited to, legal fees), printing and mailing of proxies and all proxy
solicitation expenses with respect to the Registered Investment Companies.
SECTION 8.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the state of New York
applicable to agreements made and to be performed entirely within such state,
without regard to the choice of law principles thereof.
SECTION 8.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.8 INTERPRETATION.
(a) The article and section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. The parties are sophisticated, represented by counsel and jointly
have participated in the negotiation and drafting of this Agreement and there
shall be no presumption or burden of proof favoring or disfavoring any party by
virtue of the authorship of any provision of this Agreement.
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(b) (i) Seller and Buyer acknowledge that all references to specific
line items within any of the definitions referred to in the defined term "June
Adjusted Statutory Book Value" (other than the defined term "Book Value of
Certain Non-Admitted Assets" and the definitions referred to in such defined
term) were created on the basis of line items set forth in the audited statutory
statement of the applicable Insurance Company as of December 31, 2003. In the
event that the title of any line item in the audited statutory statements of the
Insurance Companies as of June 30, 2004 has changed from the titling in the
audited statutory statements of one or more Insurance Companies as of December
31, 2003, a parallel change shall be deemed to have been made in all line item
references described in the preceding sentence to which such labeling change
would be applicable, with the intent that the values and amounts described by
such line item references shall remain consistent between the two sets of
audited statutory statements.
(ii) Seller and Buyer acknowledge that all references to specific
line items within any of the definitions referred to in the defined term "Book
Value of Certain Non-Admitted Assets" were created on the basis of line items
set forth in the statutory annual statement of the applicable Insurance Company
as of December 31, 2003. In the event that the title of any line item in the
quarterly statutory statements of the Insurance Companies as of June 30, 2004
has changed from the titling in the December 31, 2003 annual statements of one
or more Insurance Companies, a parallel change shall be deemed to have been made
in all line item references described in the preceding sentence to which such
labeling change would be applicable, with the intent that the values and amounts
described by such line item references shall remain consistent between the two
sets of statements.
SECTION 8.9 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits, documents or instruments referred to herein), the other Transaction
Documents and the Confidentiality Agreement embody the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof and
thereof and supersede all prior agreements and understandings, both written and
oral, among the parties, or between any of them, with respect to the subject
matter hereof and thereof. There are no restrictions, promises, representations,
warranties, agreements or undertakings whatsoever with respect to the
transactions contemplated by this Agreement, the other Transaction Documents or
the Confidentiality Agreement, other than those expressly set forth herein or
therein.
SECTION 8.10 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to, and does not, create any rights or benefits of any party other than the
parties hereto.
SECTION 8.11 SEVERABILITY. If any provision of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any Person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other Persons or circumstances. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
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SECTION 8.12 CONSENT TO JURISDICTION. Each party irrevocably submits to
the exclusive jurisdiction of (a) the New York State Supreme Court sitting in
the borough of Manhattan, and (b) the United States District Court for the
Southern District of New York sitting in the borough of Manhattan, for the
purposes of any suit, action or other proceeding arising out of this Agreement,
any Transaction Document or any transaction contemplated hereby or thereby. Each
of Parent, Buyer, Seller and GAC further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in New York with respect to any matters to which it has
submitted to jurisdiction in this Section 8.12. Each of Parent, Buyer, Seller
and GAC irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement, any
Transaction Document or the transactions contemplated hereby and thereby in (i)
the New York State Supreme Court sitting in the borough of Manhattan, or (ii)
the United States District Court for the Southern District of New York sitting
in the borough of Manhattan, and hereby and thereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 8.13 WAIVER OF JURY TRIAL. EACH PARTY HERETO KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING OR STATEMENT (WHETHER VERBAL OR WRITTEN)
RELATING TO THE FOREGOING. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES HERETO TO ENTER INTO THIS AGREEMENT.
ARTICLE IX.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them in this Article IX:
"AAA" is defined in Section 7.4(e).
"ACCOUNTING EXPERT" is defined in Section 1.4(d).
"ACQUIRED COMPANY" is defined in the recitals.
"ACQUIRED COMPANY EMPLOYEE" means each (i) employee of an Acquired
Company on the Closing Date, whether or not such employee is actively at work on
such day including any employees who are on military leave, disability, worker's
compensation or any other leave of absence, whether or not paid, and (ii) each
Bank Channel Employee who actually becomes an employee of Buyer or an Acquired
Company pursuant to Section 4.6(h).
"ACQUIRED COMPANY PLANS" means each Plan that is maintained or
sponsored solely by an Acquired Company for its current and/or former employees.
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"ACQUIRED COMPANY PROPRIETARY RIGHTS" means all Proprietary Rights
owned by the Acquired Companies.
"ADJUSTMENT MEMORANDUM" is defined in Section 1.4(c).
"ADJUSTMENT NOTE" is defined in Section 1.4(g).
"ADMITTED STATUTORY DEFERRED TAX ASSET" means the total of the
values set forth as 'Net deferred tax asset' in the audited statutory statement
as of June 30, 2004 of each of Safeco Life Insurance Company, American States
Life Insurance Company, Safeco National Life Insurance Company and First Safeco
National Life Insurance Company of New York.
"ADVISORY AGREEMENT" means, with respect to any Person, each
Contract or Other Agreement relating to its rendering of investment management,
investment advisory, management, administration or any other services to a
Client, including any sub-advisory or similar agreement.
"AFFILIATE," with respect to any Person, shall mean any Person
controlling, controlled by or under common control with such Person and shall
also include any Person 10% or more of whose outstanding voting power is owned
by the specified Person either directly or indirectly through subsidiaries.
"AFFILIATED GROUP" means Seller, the Acquired Companies and each
other member of the affiliated group of corporations that includes Seller within
the meaning of Section 1504 of the Code.
"AGREED ACCOUNTING POLICIES" is defined in Section 1.4(a).
"AGREEMENT" is defined in the preamble.
"ASSET MANAGEMENT BUSINESS" means the business conducted by those
Acquired Companies that are Investment Advisor Subsidiaries or Broker/Dealer
Subsidiaries.
"ASSET VALUATION RESERVE" means the total of the values set forth as
'Asset valuation reserve' in the audited statutory statements as of June 30,
2004 of each of Safeco Life Insurance Company, American States Life Insurance
Company, Safeco National Life Insurance Company and First Safeco National Life
Insurance Company of New York.
"BANK CHANNEL EMPLOYEE" means each employee set forth on Schedule
4.6(h).
"BOOK VALUE OF CERTAIN NON-ADMITTED ASSETS" is the total of the
values of all non-admitted assets as of June 30, 2004 as reflected in the
Quarterly Statutory Statement, Page 2, Column 2 of each of Safeco Life Insurance
Company, Safeco National Life Insurance Company and First Safeco National Life
Insurance Company of New York, but excluding (i) Intangible Assets and (ii) the
Non-Admitted Statutory Deferred Tax Asset.
"BROKER/DEALER SUBSIDIARIES" is defined in Section 2.7(b).
93
"BUSINESS DAY" means any day which is not a Saturday, Sunday, or
legal holiday recognized by the United States of America.
"BUSINESS EMPLOYEE" means each employee of an Acquired Company and
each Bank Channel Employee.
"BUYER" is defined in the preamble.
"BUYER INDEMNIFIED PARTIES" is defined in Section 7.1.
"BUYER INTELLECTUAL PROPERTY LICENSE" is defined in Section 1.3(a)
(iii).
"BUYER'S GROUP WELFARE PLANS" is defined in Section 4.6(d).
"BUYER'S RETIREMENT PLAN" is defined in Section 4.6(c).
"CAP" is defined in Section 7.3(a).
"CLIENT" means, with respect to any Person, each Investment Company
and each other Person for which such Person or any of its Subsidiaries is a
Service Provider.
"CLIENT CONTRACTS" is defined in Section 2.21(a)(ii).
"CLOSING" is defined in Section 1.2.
"CLOSING CONSIDERATION" is defined in Section 1.3(b)(i).
"CLOSING DATE" is defined in Section 1.2.
"COBRA" is defined in Section 4.6(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMBINED RETURN" is a Seller Tax Return for any Taxes imposed by a
state, local or foreign Tax authority for which Seller or any Affiliate of
Seller other than the Acquired Companies files with any of the Acquired
Companies on a consolidated, combined or unitary basis.
"COMMONLY CONTROLLED ENTITY" is defined in Section 2.20(a).
"COMPANY FORMS" is defined in Section 2.22(a).
"COMPETITIVE ACTIVITIES" is defined in Section 4.20(a).
"CONFIDENTIALITY AGREEMENT" is defined in Section 4.2(a).
"CONSTITUENT DOCUMENTS" means, with respect to any corporation, its
charter and by-laws; with respect to any partnership, its certificate of
partnership and partnership agreement; with respect to any limited liability
company, its certificate of formation and limited liability
94
company or operating agreement; with respect to any trust, its declaration or
agreement of trust; and with respect to each other Person, its comparable
constitutional instruments or documents; together in each case, with all
material consents and other instruments delegating authority pursuant to such
Constituent Documents.
"CONTRACTS OR OTHER AGREEMENTS" is defined in Section 2.4.
"DE MINIMIS AMOUNT" is defined in Section 7.3(a).
"DECEMBER FINANCIAL STATEMENTS" is defined in Section 1.4(a).
"DEDUCTIBLE AMOUNT" is defined in Section 7.3(a).
"DELIVERED" shall include delivery by means of computer disk,
CD-ROM, electronic mail, facsimile, hand deliveries, messenger or other courier
service.
"ENVIRONMENTAL CLAIM" means any and all administrative, regulatory
or judicial actions, suits, orders, demands, directives, claims, liens,
investigations, proceedings or written notices of violation by or from any
Person alleging liability of whatever kind or nature arising out of, based on or
resulting from (y) the presence or release of, or exposure to, any Hazardous
Materials at any location; or (z) the failure to comply with any Environmental
Law.
"ENVIRONMENTAL LAWS" means all applicable federal, state, local and
foreign laws, rules, regulations, orders, decrees, judgments, legally binding
agreements or Environmental Permits issued, promulgated or entered into by or
with any Governmental Entity, relating to pollution, natural resources or
protection of endangered or threatened species, human health or the environment
(including ambient air, surface water, groundwater, land surface or subsurface
strata).
"ENVIRONMENTAL PERMIT" means all permits, licenses and governmental
authorizations pursuant to Environmental Law.
"EQUITY INTEREST" means, with respect to any Person, any share of
capital stock of, general, limited or other partnership interest, membership
interest or similar ownership interest under the laws of a jurisdiction outside
the United States, in such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA PLANS" is defined in Section 2.7(c).
"EXCESS CAPITAL DIVIDEND" is defined in Section 4.1(c).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FAIR VALUE" of an asset shall be the value for such asset
calculated by Seller using assumptions and methodologies consistent with those
assumptions and methodologies utilized to calculate the amounts included in
SCHEDULE 4.15, with the exception that instead of
95
using the December 31, 2003 yield curve for such calculation, the treasury yield
curve as of the date of the sale will be used in the calculation.
"FAIR VALUE OF THE SOLD ASSETS" is defined as the total of the Fair
Value amounts calculated at the time of sale for each Sold Asset.
"FINANCIAL INTERMEDIARY ARRANGEMENTS" is defined in Section 2.22(l).
"FINANCING" is defined in Section 3.6.
"FUND AGREEMENTS" is defined in Section 2.21(b)(vi).
"FUND REPORTS" is defined in Section 2.21(b)(iv).
"GAAP" shall mean generally accepted accounting principles in the
United States in effect as of the date of the most recent balance sheet included
within the GAAP Financial Statements delivered to Parent and Buyer.
"GAAS" is defined in Section 1.4(a).
"GAC" is defined in the preamble.
"XXXXXXX XXXXX" is defined in Section 2.11.
"GOVERNMENTAL ENTITY" means any foreign, federal, state, municipal,
local or other governmental department, commission, board, bureau, agency or
instrumentality or court of competent jurisdiction or any governmental or
non-governmental self-regulatory organization, agency or authority (including
the National Association of Securities Dealers, Inc., the Commodities and
Futures Trading Commission, the National Futures Association and the National
Association of Insurance Commissioners.
"HAZARDOUS MATERIALS" means (y) any petroleum or petroleum products,
radioactive materials or wastes, asbestos in any form and polychlorinated
biphenyls; and (z) any other chemical, material, substance or waste that in
relevant form or concentration is prohibited, limited or regulated under any
Environmental Law.
"HIPAA" is defined in Section 2.22(o).
"HSR ACT" is defined in Section 2.5.
"INCLUDING" shall, unless the context clearly requires otherwise,
mean including but not limited to the items or things following such term.
"INDEMNIFIED PARTY" is defined in Section 7.4(a).
"INDEMNIFYING PARTY" is defined in Section 7.4(a).
"INITIAL ADJUSTMENT AMOUNT" is defined in Section 1.4(g).
96
"INSURANCE SUBSIDIARIES" is defined in Section 2.7(a)(i).
"INSURANCE SUBSIDIARIES HIPAA/PRIVACY PLAN" is defined in Section
2.22(o).
"INSURANCE SUBSIDIARY STATEMENTS" shall mean (a) audited statutory
financial statements (including any exhibits or schedules thereto) filed in each
Insurance Subsidiary's state of domicile for the year 2003 and (b) the annual
and quarterly statutory financial statements (including any exhibits or
schedules thereto) filed in each Insurance Subsidiary's state of domicile for
all years and quarters ending thereafter and prior to the Closing for each
Insurance Subsidiary.
"INTANGIBLE ASSETS" means the total of the values set forth as
'Intangible Assets' included as an Aggregate Write-in on Page 2, Column 2, line
2302 of the Quarterly Statutory Statement as of June 30, 2004 of each of Safeco
Life Insurance Company, American States Life Insurance Company, Safeco National
Life Insurance Company and First Safeco National Life Insurance Company of New
York.
"INVESTMENT ADVISER SUBSIDIARY" is defined in Section 2.7(c).
"INVESTMENT ADVISERS ACT" means the Investment Advisers Act of 1940,
as amended, and the rules and regulations promulgated thereunder.
"INVESTMENT COMPANY" means an investment company, as such term is
defined in the Investment Company Act (including any entity that, although an
investment company, is exempt from registration as an investment company under
such Act). When used herein without reference to a specified Person, "Investment
Company" refers to any Investment Company for which any of the Acquired
Companies acts as a Service Provider.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
as amended, and the rules and regulations promulgated thereunder.
"INVESTMENT COMPANY ADVISORY AGREEMENT" means any Advisory Agreement
to which an Investment Company is a party.
"INVESTMENT COMPANY BOARD" or "BOARD" means the board of directors
or trustees (or persons performing similar functions) of an Investment Company.
"INVESTMENT COMPANY FINANCIAL STATEMENTS" is defined in Section
2.21(b)(ii).
"INVESTMENT GUIDELINES" means the Safeco Corporation Investment
Policies and Guidelines adopted as of November 5, 2001, effective as of January
1, 2002, as amended and restated on August 7, 2002, as delivered to Buyer prior
to the date of this Agreement.
"INVESTMENT PORTFOLIO" means all investments, including stocks,
bonds, cash and limited partnership interests, owned, directly or indirectly, by
the Affiliated Group for the benefit of the Acquired Companies, other than
shares in any Acquired Company.
"IP SIDE LETTERS" is defined in Section 4.1(z).
97
"IRS" means the Internal Revenue Service.
"JUNE ADJUSTED STATUTORY BOOK VALUE" is the total of (i) Statutory
Capital and Surplus plus (ii) the Asset Valuation Reserve minus (iii) the
Admitted Statutory Deferred Tax Asset plus (iv) the Book Value of Certain
Non-Admitted Assets plus (v) a Xxxx to Market Adjustment.
"JUNE FINANCIAL STATEMENTS" is defined in Section 1.4(a).
"KNOWLEDGE" with respect to Seller, shall mean the actual knowledge
of Xxxxxxxxx Xxxx, Xxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxxx, Xxxxxxx Xxxxxx and
Xxxxxxx Xxxxxx.
"LAW" means any applicable statute, law (including common law),
ordinance, regulation, rule, ruling, order, writ, injunction, decree, or other
official enactment of or by any Governmental Entity.
"LEASE" is defined in Section 2.16(b).
"LEASE AGREEMENT" is defined in Section 1.3(a)(v).
"LEASED PROPERTY" is defined in Section 2.16(b).
"LIEN" means any lien, security interest, charge, claim, mortgage,
deed of trust, warrant, purchase right, lease, or other encumbrance.
"LIFE AND ANNUITY CONTRACTS" means all group health and medical,
life insurance, annuity and endowment contracts and other contracts and
agreements typically considered part of the group health and medical or life
lines of insurance, which contracts and agreements shall have been sold,
arranged delivered, issued for delivery, assumed, coinsured, whether on a
modified coinsurance basis or otherwise, or reinsured by any Acquired Company at
any time prior to the Closing, including without limitation all group life and
health contracts, all individual and group term, whole, universal, variable,
universal variable and other life insurance policies, all individual and group
endowment and modified endowment contracts, all individual and group disability
insurance products, all individual and group fixed, variable and other annuity
contracts, all guaranteed investment contracts, all funding agreements, all
other agreements issued by, against or funded by the general or separate account
of any life insurance company which is an Acquired Company, and, with respect to
the aforesaid group insurance and annuity contracts, all certificates and
employer participation agreements in effect and issued under such policies, and
all reinstatements of such policies, contracts, certificates and agreements
required to be made at any time after the Closing, and all such policies,
contracts, certificates and agreements sold, arranged, delivered, issued,
assumed, coinsured or reinsured by any Acquired Company after the Closing
pursuant to the exercise of options or operation of agreements or arrangements
in effect prior to the Closing (including, in each case, all supplements,
endorsements, riders and ancillary agreements in connection therewith).
"LIFE INSURANCE CONTRACT" means all individual and group term,
whole, universal, variable, universal variable and other life insurance
policies.
98
"LOSSES" is defined in Section 7.1.
"XXXX TO MARKET ADJUSTMENT" is defined as 3% of the sum of (i)
Statutory Capital and Surplus PLUS (ii) the Asset Valuation Reserve.
"MATERIAL ADVERSE EFFECT," with respect to the Acquired Companies,
means any (i) change, (ii) effect, (iii) event, (iv) occurrence or (v)
development or developments, which individually or in the aggregate, would
reasonably be expected to result in any change or effect, that (A) is materially
adverse to the business, financial condition, properties, assets, liabilities
(contingent or otherwise) or results of operations of the Acquired Companies,
taken as a whole, or (B) would reasonably be expected to prevent or materially
delay the consummation by Seller or GAC, as applicable, of the transactions
contemplated by this Agreement and the other Transaction Documents; PROVIDED,
HOWEVER, that none of the following shall be deemed, either alone or in
combination, to constitute, and none of the following shall be taken into
account in determining whether there has been or will be, a Material Adverse
Effect: (i) changes in Laws, rules or regulations of general applicability or
interpretations thereof by Governmental Entities, in each case after the date
hereof, (ii) changes, after the date hereof, in applicable GAAP or SAP, (iii)
actions or omissions of a party to this Agreement taken with the prior written
consent of the other party to this Agreement and (iv) changes, after the date
hereof, generally affecting (x) any of the industries in which the Acquired
Companies conduct their business, so long as the changes in such industries do
not disproportionately impact (other than as a result of the volume of business
transacted) the Acquired Companies or (y) general economic and financial market
conditions in the United States (including movements in interest rates).
"MATERIAL ADVERSE EFFECT," with respect to Parent or Buyer, means
any (i) change, (ii) effect, (iii) event, (iv) occurrence or (v) development or
developments, which, individually or in the aggregate, would reasonably be
expected to prevent or materially delay the consummation by Parent or Buyer, as
applicable, of the transactions contemplated by this Agreement and the other
Transaction Documents.
"MATERIAL CONTRACT" is defined in Section 2.10(b).
"MEC" is defined in Section 2.22(c).
"MILLIMAN" is defined in Section 2.11.
"MULTIEMPLOYER PLAN" is defined in Section 2.20(f).
"NASD" is defined in Section 2.7(b).
"NASD REGULATIONS" means the Conduct Rules of the NASD (Rules 2000
through 3420).
"NAV" is defined in Section 2.21(b)(xxi).
"NON-ADMITTED STATUTORY DEFERRED TAX ASSET" means the total of the
values set forth in Page 2, Column 2, line 15.2 of the Quarterly Statutory
Statement as of June 30, 2004 of each of Safeco Life Insurance Company, American
States Life Insurance Company, Safeco
99
National Life Insurance Company and First Safeco National Life Insurance Company
of New York.
"NON-INSURANCE FINANCIAL STATEMENTS" is defined in Section 2.6.
"OBJECTION PERIOD" is defined in Section 1.4(b).
"OBJECTION NOTICE" is defined in Section 1.4(b).
"ORDERS" is defined in Section 2.9.
"PARENT" is defined in the preamble.
"PBGC" is defined in Section 2.20(g).
"PENSION PLAN" is defined in Section 2.20(a).
"PERSON" shall mean and include an individual, a partnership, a
joint venture, a limited liability company, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"PLANS" is defined in Section 2.20(a).
"POLICY" is defined in Section 2.22(c).
"POLICY OWNER" is defined in Section 2.22(c).
"POST-CLOSING ADJUSTMENT AMOUNT" is defined in Section 1.4(f).
"POST-CLOSING TAX PERIOD" means any Tax Period beginning after the
Closing Date and the portion of any Straddle Period beginning after the Closing
Date.
"PRE-CLOSING TAX PERIOD" means any Tax period ending on or before
the Closing Date and the portion ending on the Closing Date of any Straddle
Period including operations through the Closing Date.
"PROCEEDING" is defined in Section 2.9.
"PROPRIETARY RIGHTS" means patents, registered and common law
trademarks, trade secrets, and registered and unregistered copyrights.
"PURCHASE PRICE" is defined in Section 1.4(f).
"QUALIFIED CONTRACT" means a Life & Annuity Contract issued in
connection with a plan or arrangement intended to qualify for tax treatment
under Section 401(a), 403(a), 403(b), 408, 408A or 457 of the Code.
100
"QUARTERLY STATUTORY STATEMENT" means the quarterly statutory
financial statements of the named entity as filed with the applicable state
insurance regulator for the quarter ending June 30, 2004.
"REGISTERED INVESTMENT COMPANY" means an Investment Company
registered under the Investment Company Act.
"REGISTERED SEPARATE ACCOUNT" is defined in Section 2.22(g).
"RELATED CONTRACTS" means a Life and Annuity Contract or other
contract, in each case entered into in the ordinary course of business, that is
used in conjunction with a Life and Annuity Contract and that is (i) a surety
bond guaranteeing performance of Safeco Assigned Benefits Service Company; (ii)
a qualified assignment between Safeco Assigned Benefits Service Company and
various Safeco Property & Casualty Subsidiaries; (iii) a non-qualified
assignment between Safeco National Life Insurance Company and various Safeco
Property & Casualty Subsidiaries; (iv) a single premium immediate annuity
purchased from Safeco Life Insurance Company by various Safeco Property &
Casualty Subsidiaries; (v) an Administrative Agreement between Safeco Life
Insurance Company and various Safeco Property & Casualty Subsidiaries allowing
Safeco Life Insurance Company to make certain administrative decisions and take
certain actions on unassigned structured settlement annuity contracts owned by
the Safeco Property & Casualty Subsidiaries; or (vi) a single premium group
annuity purchased by Safeco Corporation from Safeco Life Insurance Company
designed to provide periodic payments to certain retirees of American States
Insurance Company.
"RELEVANT ENTITIES" is defined in Section 4.10(b)(i).
"REMEDIATION PLAN" is defined in Section 4.10(g)(ii).
"REQUIRED LICENSES" is defined in Section 2.17 (a).
"RESTRAINTS" is defined in Section 5.1(a).
"REVIEWER" is defined in Section 7.4(e).
"REVIEWER CONCLUSION" is defined in Section 7.4(e).
"RIC PROCEDURES" is defined in Section 2.21(b)(xxi).
"SALE PRICE OF THE SOLD ASSETS" is defined as the net proceeds from
the sale of the Sold Assets received by the Acquired Companies, without
reflecting the impact of any taxes due or paid as a result of such sale.
"SAP" is defined in Section 2.7(a)(ii).
"SAP REPS" is defined in Section 7.4(e).
"SEC" means the Securities and Exchange Commission, and any
successor thereto.
101
"SEC DOCUMENTS" is defined in Section 2.7(c).
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SECURITIES LAWS" means the Securities Act, the Exchange Act, the
Investment Company Act, the Investment Advisors Act and the state "blue sky"
laws, and the rules and regulations promulgated thereunder.
"SELLER" is defined in the preamble.
"SELLER DISCLOSURE LETTER" is defined in Article II.
"SELLER INDEMNIFIED PARTIES" is defined in Section 7.2.
"SELLER PLAN" means each Plan other than an Acquired Company Plan.
"SELLER'S RETIREE PLANS" is defined in Section 4.6(d).
"SELLER'S RETIREMENT PLANS" is defined in Section 4.6(c).
"SERVICE PROVIDER" means any Person who acts as investment manager,
administrator, general partner, managing member or similar controlling person,
investment advisor, subadviser or distributor or provider of other services.
"SEPARATE ACCOUNT" is defined in Section 2.22(e).
"SHARES" is defined in the recitals.
"SIS" means Safeco Investment Services, Inc., a Washington
corporation and a wholly owned subsidiary of GAC.
"SOLD ASSETS" is defined in Section 4.15(a).
"STATUTORY CAPITAL AND SURPLUS" means the value set forth as 'Total
capital and surplus' in the audited statutory financial statements as of June
30, 2004 of Safeco Life Insurance Company.
"STRADDLE PERIOD" means any Tax period beginning before and ending
after the Closing Date.
"SUBSIDIARY," with respect to any Person, shall mean any corporation
50% or more of the outstanding voting power of which, or any partnership, joint
venture, limited liability company or other entity 50% or more of the total
equity interest of which, is directly or indirectly owned by such Person. For
purposes of this Agreement, all references to "Subsidiaries" of a Person shall
be deemed to mean "Subsidiary" if such Person has only one subsidiary.
"TARGET STATUTORY BOOK VALUE" means $1.15 billion.
102
"TAXES" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, value added, property or
windfall profits taxes, customs, duties or similar fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts imposed by any governmental authority, domestic or
foreign.
"TAX RETURN" shall mean any return, report or statement required to
be filed with any governmental authority with respect to Taxes.
"THIRD PARTY CLAIM" is defined in Section 7.4(a).
"THIRD PARTY REINSURANCE CONTRACTS" is defined in Section 2.23.
"TRANSACTION DOCUMENTS" is defined in Section 1.3(b)(iv).
"TRANSFER TAXES" is defined in Section 1.5.
"TRANSITION SERVICES AGREEMENT" is defined in Section 1.3(a)(ii).
"TRANSITIONAL TRADEMARK LICENSE" is defined in Section 1.3(a)(iv).
"12b-1 PLAN" is defined in Section 2.21(b)(vi).
"WELFARE PLAN" is defined in Section 2.20(a).
* * *
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IN WITNESS WHEREOF, Parent, Buyer, Seller and GAC have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
WHITE MOUNTAINS INSURANCE
GROUP, LTD.
--------------------------------------
By:
Its:
OCCUM ACQUISITION CORP.
--------------------------------------
By:
Its:
SAFECO CORPORATION
--------------------------------------
By:
Its:
GENERAL AMERICA CORPORATION
--------------------------------------
By:
Its:
S-1
SCHEDULE A
ACQUIRED COMPANIES
- Safeco Life Insurance Company, a Washington corporation and a wholly
owned subsidiary of Seller
- American States Life Insurance Company, an Indiana corporation and a
wholly owned subsidiary of Safeco Life Insurance Company
- First Safeco National Life Insurance Company of New York, a New York
corporation and a wholly owned subsidiary of Safeco Life Insurance
Company
- Safeco National Life Insurance Company, a Washington corporation and a
wholly owned subsidiary of Safeco Life Insurance Company
- Safeco Assigned Benefits Service Company, a Washington corporation and
a wholly owned subsidiary of Seller
- Safeco Investment Services Inc., a Washington corporation and a wholly
owned subsidiary of General America Corporation, a Washington
corporation and a wholly owned subsidiary of Seller
- Safeco Administrative Services, Inc., a Washington corporation and a
wholly owned subsidiary of Seller
- Employee Benefits Consultants, Inc., a Wisconsin corporation and a
wholly owned subsidiary of Safeco Administrative Services, Inc.
- Wisconsin Pension and Group Services, Inc., a Wisconsin corporation
and a wholly owned subsidiary of Safeco Administrative Services, Inc.
- Safeco Asset Management Company, a Washington corporation and a wholly
owned subsidiary of Seller
- Safeco Securities Inc., a Washington corporation and a wholly owned
subsidiary of Seller
- Safeco Services Corporation, a Washington corporation and a wholly
owned subsidiary of Seller
SCHEDULE 1.4
AGREED ACCOUNTING PRINCIPLES
SCHEDULE 4.5
PUBLIC ANNOUNCEMENT REPRESENTATIVES
PARENT: XXX XXXXXXXX, XXXXX XXX OR XXXXXX XXXXXX
SELLER: XXXXXXX XXXXXXXX, XXXXXXXXX XXXX OR XXXXX XXXXX
EXHIBIT A
FORM OF TRANSITION SERVICES AGREEMENT
EXHIBIT B
FORM OF BUYER INTELLECTUAL PROPERTY LICENSE
EXHIBIT C
FORM OF TRANSITIONAL TRADEMARK LICENSE
EXHIBIT D
FORM OF LEASE AGREEMENT
EXHIBIT 1.4
FORM OF ERNST & YOUNG LLP AUDIT OPINION
We have audited the accompanying statutory-basis balance sheet of
_____________ (the "Company") as of June 30, 2004, and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flow for the six months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting practices
prescribed or permitted by ______________ (the "Department"), which practices
differ from accounting principles generally accepted in the United States. The
variances between such practices and accounting principles generally accepted in
the United States and the effects on the accompanying financial statements are
described in Note 1.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of _______________ at June 30, 2004, or
the results of its operations or its cash flow for the six months then ended.
However, in our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of ____________
at June 30, 2004, and the results of its operations and its cash flow for the
six months then ended in conformity with accounting practices prescribed or
permitted by the Department.
