JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (the "Agreement") is made and entered into as
of March 8th, 1996 by and between AMERITAS LIFE INSURANCE CORP., a Nebraska
mutual life insurance company ("XXXX"), and AMERICAN MUTUAL LIFE INSURANCE
COMPANY, an Iowa mutual life insurance company ("AML").
R E C I T A L S:
X. XXXX has heretofore created a wholly owned subsidiary known as
Ameritas Variable Life Insurance Company ("AVLIC"), principally engaged in the
business of selling variable life and annuity insurance throughout the United
States.
B. In order to facilitate the sale of variable life and annuity insurance
by AVLIC, XXXX has heretofore created another wholly owned subsidiary known as
Ameritas Investment Corp. ("AIC"), a registered broker-dealer.
C. AML is now engaged in part in the business of selling various forms of
life and annuity insurance, including fixed annuities, throughout the United
States.
D. AML has developed a significant distribution force of approximately
1,800 agents, some of whom are career agents and some of whom are personal
producing general agents, as those terms are generally understood in the
insurance industry.
E. AML has investigated various methods of entering the variable life and
annuity insurance business.
X. XXXX has investigated various methods of expanding its distribution of
variable life and annuity insurance.
X. XXXX and AML have now determined that it is in their mutual best
interests to enter into a joint venture (the "Joint Venture") whereby XXXX and
AML shall combine their various resources, including the variable life and
annuity products currently sold by AVLIC and the distribution force currently
appointed by AML, to sell the variable life and annuity insurance issued by
AVLIC as well as the fixed annuities currently sold by AML.
H. The parties have determined to form a joint venture holding company
into which XXXX will transfer all of its interest in AVLIC and AIC. AML will,
in addition to making a capital investment as set forth herein, use all
reasonable efforts to encourage its distribution force to accept appointment
with AVLIC. Thereafter both parties will direct their sales efforts with
respect to variable life and annuity and fixed annuity products, except as
otherwise stated herein, only through AVLIC.
I. Each of the parties recognize that a minimum of five years will be
required to permit the Joint Venture to realize the benefits contemplated by
this Agreement, and therefore each of the parties commit, on the terms set forth
herein, to remain part of the Joint Venture and devote all reasonable efforts to
the success of the Joint Venture during the first five years, in order that the
Joint Venture is able to operate in an efficient and effective manner, in
accordance with good business practices and the terms and conditions of this
Agreement.
J. Each of the parties to this Agreement recognize that each party is
committing to the Joint Venture valuable resources and business which, once
committed to the Joint Venture, cannot easily be separated from the Joint
Venture without great difficulty and incalculable detriment to each party.
K. The parties commit to treat each other fairly and honestly in
connection with the governance of the Joint Venture as provided hereinafter to
the end that the business of the Joint Venture is promoted to the fullest
extent.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises set forth in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
The capitalized terms used in this Agreement shall have the meanings set
forth below. Other terms are also defined in the text of the Agreement. Unless
the context otherwise requires, such capitalized terms shall include the
singular and plural and the conjunctive and disjunctive forms of the terms
defined.
1.1 "Acceptance Date" shall mean the date on which an offer to
purchase Shares pursuant to an Auction as provided in Section 2.6(b) hereof or
to sell or purchase Shares pursuant to a Unilateral Auction as provided in
Section 2.6(e) hereof is accepted or deemed accepted.
1.2 "Accounting Firm" shall mean Ernst & Young.
1.3 "Adjusted Value" shall mean Value, adjusted to exclude Extraordinary
Items.
1.4 "Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls, is
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controlled by or is under common control with the Person specified.
1.5 "Aggregate Investment" shall mean, as of the Exercise Date for any
portion of the Option, the sum of (x) the Investment plus a charge equal to 5%
per annum on such amount from the Closing Date to the Exercise Date, plus (y)
the amount of any capital contribution(s) (not including any exercise price paid
in respect of any portion of the Option) made by AML after the Closing Date,
plus a charge equal to 5% per annum on each such amount(s) from the date of each
such contribution, respectively, to the Exercise Date.
1.6 "Agreement" shall mean this Agreement, together with the exhibits
attached hereto, the Disclosure Schedule and the Contracts and other documents
to be executed and delivered respectively by XXXX and/or AML pursuant hereto.
1.7 "AIC" shall mean Ameritas Investment Corp., a Nebraska corporation.
1.8 "AIC Statements" shall mean the audited GAAP Statements of AIC for the
year ended on December 31, 1994, and quarterly GAAP Statements of AIC for each
of the first three quarters of 1995 (and notes relating thereto).
1.9 "XXXX" shall mean Ameritas Life Insurance Corp., a Nebraska life
insurance company.
1.10 "AML" shall mean American Mutual Life Insurance Company, an Iowa
mutual life insurance company.
1.11 "AML Baseline Weighted Premium" shall be $5.5 million.
1.12 "AML Parent" shall mean any Person which at any time becomes the
direct record owner of all the issued and outstanding capital stock of AML and
is in turn a Subsidiary of a mutual insurance holding company authorized and
created under Iowa law.
1.13 "AML Sources" shall mean all members of AML's Distribution Force as of
the Closing Date together with any other Persons who are at any time thereafter
(a) appointed as insurance agents or otherwise employed by AML or any Affiliate
thereof (other than Holding Company and its Subsidiaries, except as provided in
clause (b) hereof) or (b) recruited or introduced by AML or any Affiliate
thereof (other than Holding Company and its Subsidiaries) to AVLIC or any other
Subsidiary of Holding Company.
1.14 "AML Weighted Premium" shall mean, for any calendar month, the sum of
the amounts, for all Product Categories, calculated by multiplying (x) the First
Year Earned Premium of AVLIC from AML Sources during the 12-month period ending
on the
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last day of such month (or, if shorter, the period elapsed from the Closing Date
to the last day of such month), for each such Product Category, by (y) the
Product Factor applicable to such Product Category; PROVIDED, HOWEVER, that the
amount calculated in respect of the "Fixed Annuities" Product Category by
multiplying the amounts described in clauses (x) and (y) above shall be
adjusted, if necessary, so that such amount comprises not more than 25% of the
AML Weighted Premium for the period as to which the foregoing definition is
applied.
1.15 "Annual Statement" shall mean the annual SAP Statement of AVLIC and/or
the separate accounts thereof filed with or submitted to the insurance
regulatory authority in the state in which it is domiciled on forms prescribed
or permitted by such authority for the year ended on December 31, 1994.
1.16 "Assets and Properties" shall mean all assets or properties of every
kind, nature, character and description, whether real, personal or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise, and wherever situated, as now operated, owned or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
fixtures, insurance or annuities in force, goodwill and going-concern value.
1.17 "Auction" shall mean the process described in Section 2.6(b) hereof.
1.18 "Auction Notice" shall mean a written communication given by a
Noticing Party to the other party to this Agreement in order to initiate an
Auction as provided in Section 2.6(b) hereof.
1.19 "AVLIC" shall mean Ameritas Variable Life Insurance Company, a
Nebraska life insurance company.
1.20 "AVLIC or AIC Representative" shall mean any present or former
officer, director, employee, agent, consultant or other similar representative
of AVLIC, AIC or any predecessor thereof.
1.21 "AVLIC GAAP Statements" shall mean the audited GAAP Statements of
AVLIC for the year ended on December 31, 1994, and quarterly GAAP Statements of
AVLIC for each of the first three quarters of 1995 (and notes relating thereto).
1.22 "AVLIC SAP Statements" shall mean the Annual Statement and the
Quarterly Statements.
1.23 "Benefit Plans" shall mean all employee pension benefit plans, all
employee welfare benefit plans, all stock bonus, stock ownership, stock option,
stock purchase, stock appreciation rights, phantom stock and other stock plans
(whether qualified or
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non-qualified), and all other pension, welfare, severance, retirement, bonus,
deferred compensation, incentive compensation, insurance (whether life, accident
and health or other and whether key man, group, workers' compensation or other),
profit sharing, disability, thrift, day care, legal services, leave of absence,
layoff and supplemental or excess benefit plans, severance benefit programs, and
all other benefit Contracts, arrangements or procedures having the effect of a
plan, in each case existing on or before the Closing Date under which AVLIC or
AIC is or may hereafter become obligated in any manner (including without
limitation obligations to make contributions or other payments) and which cover
some or all of the AVLIC or AIC Representatives; PROVIDED, HOWEVER, that such
term shall not include (a) routine employment policies and procedures developed
and applied in the ordinary course of business and consistent with past
practice, including without limitation sick leave, vacation, and (b) directors
and officers liability insurance.
1.24 "Books and Records" shall mean all accounting, financial reporting,
Tax, business, marketing, corporate and other files, documents, instruments,
papers, books and records of a specified Person, including without limitation
financial statements, budgets, projections, ledgers, journals, deeds, titles,
policies, manuals, minute books, stock certificates and books, stock transfer
ledgers, Contracts, franchises, permits, agency lists, policyholder lists,
supplier lists, reports, computer files, retrieval programs, operating data or
plans, and environmental studies or plans.
1.25 "Business Day" shall mean a day other than Saturday, Sunday or any day
on which the principal commercial banks located in New York, New York are
authorized or obligated to close.
1.26 "Business or Condition" shall mean the organization, existence,
authority, capitalization, business, licenses, condition (financial or
otherwise), cash flow, management, sales force, solvency, prospects, SAP results
of operations, insurance or annuities in force, SAP capital and surplus,
Liabilities, GAAP results of operation, GAAP income, GAAP book value, net
capital ratios or Assets and Properties of a specified Person.
1.27 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended.
1.28 "Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 2.9 hereof.
1.29 "Closing Confirmation" shall mean the certificate, substantially in
the form attached hereto as Exhibit A, required to be executed and delivered by
each of XXXX and AML pursuant to Section 2.9(g) hereof which confirms that all
conditions to Closing have been satisfied or waived and that the Closing has
occurred as of the Closing Date specified therein.
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1.30 "Closing Date" shall mean (a) the later of (i) the fifth Business Day
next following or (ii) the last Business Day of the month which includes, the
date upon which the last of the orders or approvals described in Sections 5.1,
5.2, 6.1 and 6.2 hereof has been obtained, including without limitation the
approvals under all applicable insurance holding company Laws, or (b) such other
date as AML and XXXX may mutually agree upon in writing.
1.31 "Closing Value" shall mean the sum of the Adjusted Value of AVLIC and
the Adjusted Value of AIC as of (i) December 31, 1995, if the Closing Date
occurs before April 2, 1996, or (ii) the last day of the last full calendar
quarter expiring prior to the Closing Date, if the Closing Date occurs on or
after April 2, 1996.
1.32 "Closing Value Financial Statements" shall mean (i) if the Closing
Date occurs before April 2, 1996, the audited 1995 year-end GAAP Statements of
AVLIC and AIC; and (ii) if the Closing Date occurs on or after April 2, 1996,
the unaudited Verified quarterly GAAP Statements of AVLIC and AIC, for the
calendar quarter described in clause (ii) of Section 1.30 hereof, together with
the audited 1995 year-end GAAP Statements of AVLIC and AIC.
1.33 "Code" shall mean the Internal Revenue Code of 1986, as amended
(including without limitation any successor code), and the rules and regulations
promulgated thereunder.
1.34 "Commission" shall mean the Securities and Exchange Commission or any
successor thereto.
1.35 "Contract" shall mean any agreement, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy, annuity
or other commitment, whether written or oral.
1.36 "Corporate Transaction" shall mean any bona fide merger,
consolidation, acquisition of a substantial portion of the capital stock of
another Person, acquisition of a substantial portion of the business or assets
of another Person, or other similar transaction made or entered into by XXXX or
AML or any Affiliate of either (other than Holding Company and its
Subsidiaries), provided that such Person is engaged in the business of
insurance, has its own Distribution Force or other distribution system and was
not previously an Affiliate of such party.
1.37 "Damages" shall mean any and all monetary damages, liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses and expenses,
including without limitation punitive, treble or other exemplary or extra
contractual damages, amounts paid in settlement, interest, court costs, costs of
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investigation, fees and expenses of attorneys, accountants, actuaries and other
experts, and other expenses of litigation or of any claim, default or
assessment.
1.38 "Difference" shall mean 34/66 of the difference between the Closing
Value and the 12/31/94 Value.
1.39 "Disclosure Schedule" shall mean the bound record dated as of the date
of this Agreement, as amended, supplemented and revised in accordance with this
Agreement, furnished by XXXX to AML, and containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein pursuant to this Agreement.
1.40 "Disputed Issue" shall mean a question or decision which is not
expressly resolved by reference to an express provision of (i) this Agreement,
the Service Agreements, the Guaranties, as modified or amended from time to
time, or any other written Contract between XXXX and AML, or among XXXX, AML,
AVLIC, AIC or any of them, or (ii) any then effective plan of operation, annual
budget or business plan for Holding Company, AVLIC or AIC which has been
approved by a vote of its board of directors.
1.41 "Distribution Force" shall mean those Persons appointed by a life
insurance company to distribute life insurance and annuity products, including
without limitation career agents and personal producing general agents, as those
terms are generally understood in the life insurance industry; PROVIDED,
HOWEVER, that this term shall not include those individuals described above who
are appointed by such life insurance company in connection with and
substantially contemporaneous with a Corporate Transaction occurring after the
Closing Date, or thereafter, if the party engaging in such Corporate Transaction
maintains a separate Distribution Force of the other party to such Corporate
Transaction.
1.42 "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance or regulation pertaining to Hazardous Substances, health,
industrial hygiene or the environmental condition on or under any property
including, without limitation, CERCLA and the Toxic Substance Control Act, and
the rules and regulations thereunder.
1.43 "Exercise Date" shall mean the date on or as of which any portion of
the Option is exercised.
1.44 "Exercise Period" shall have the meaning ascribed to it in Section
2.5(c).
1.45 "Extraordinary Items" shall mean transactions, changes or effects
which are reflected on the Closing Value Financial Statements, the AVLIC GAAP
Statements and/or the AIC Statements
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and (a) which are not in the ordinary course of business; (b) which are the
result of changes in accounting principles or estimation methods and procedures
from those employed in preparation of the closing balances on such GAAP
Statements for the year ended December 31, 1994; or (c) which are the result of
realized or unrealized gains or losses on assets held by AVLIC (other than in
its separate accounts) or AIC arising from interest rate fluctuations.
1.46 "First Year Earned Premiums" shall mean (a) all first year insurance
and annuity premiums actually received in respect of any insurance or annuity
Contracts issued by a specified Person during any calendar month (except to the
extent included in a prior month pursuant to clause (b) hereof) together with
(b) all first year premiums, if any, prospectively due and payable under such
Contracts for the ensuing eleven-month period.
1.47 "Fixed Annuities" shall mean annuity Contracts which are backed by the
general account of the issuing life insurance company, but shall not include the
annuities listed on Exhibit B hereto.
1.48 "GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
1.49 "GAAP Statements" shall mean any and all annual, quarterly or other
interim financial statements prepared by or on behalf of a Person (and notes
related thereto), which include a balance sheet and a statement of income (and,
without limitation, any net capital reports filed with the NASD), whether
audited or unaudited, which were prepared in accordance with GAAP and satisfy
the standards set forth in Section 3.13(a) hereof.
1.50 "Guaranty" shall mean (i) that certain Guarantee Agreement of XXXX
dated as of July 8, 1991, a copy of which is attached hereto as Exhibit C;
and/or (ii) the separate guaranty, dated as of the Closing Date, to be executed
by AML and delivered to AVLIC, substantially in the form attached hereto as
Exhibit D; and/or any guaranty which may be executed by any AML Parent pursuant
to Section 2.8(i) hereof.
1.51 "Guaranty Payment" shall mean a payment made by XXXX, AML or any AML
Parent of any amount under its respective Guaranty.
1.52 "Hazardous Substance" shall mean (i) any and all hazardous, toxic or
dangerous waste, substance, pollutant, contaminant, radiation or material
defined as such in (or deemed as such for purposes of) CERCLA, at the Closing
Date, or any other Environmental Law and (ii) any petroleum or petroleum-based
products.
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1.53 "Holding Company" shall mean AMAL Corporation, a Nebraska corporation
to be formed pursuant to Section 2.1 hereof.
1.54 "HSR Act" shall mean Section 7A of the Xxxxxxx Act (Title II of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976), as amended (including
without limitation any successor act), and the rules and regulations promulgated
thereunder.
1.55 "Initial Investment" shall mean $17.77 million in cash, which amount
shall be contributed by AML to Holding Company at the Closing as provided in
Section 2.1 hereof.
1.56 "Inside Director" shall mean a director of Holding Company, AVLIC or
AIC who is a full-time employee of XXXX, AML, Holding Company, AVLIC, AIC or any
Affiliate of any of the foregoing.
1.57 "Intercompany Liabilities" shall mean Liabilities between AVLIC or
AIC, on the one hand, and, on the other, XXXX or any other Affiliate of XXXX,
AVLIC or AIC or any officer or director of any of the foregoing or any Affiliate
or business venture (other than Holding Company and its Subsidiaries) in which
any of the foregoing have any material interest.
1.58 "Investment" shall mean the Initial Investment plus or minus the
Difference.
1.59 "Joint Venture" shall have the meaning ascribed to it in the Recitals
to this Agreement.
1.60 "JV Baseline Weighted Premium" shall mean the sum of the amounts, for
all Product Categories, calculated by multiplying (x) the First Year Earned
Premiums of AVLIC during 1995 in respect of Variable Products and the First Year
Earned Premiums of XXXX during 1995 in respect of Fixed Annuities by (y) the
Product Factor applicable to such Product Category.
1.61 "JV Weighted Premium" shall mean, for any month, the sum of the
amounts, for all Product Categories, calculated by multiplying (x) the First
Year Earned Premiums of AVLIC from all sources during the 12-month period ending
with the close of business on the last day of such month (or, if shorter, the
period elapsed from the Closing Date to the last day of such month), for each
such Product Category, by (y) the Product Factor applicable to such Product
Category.
1.62 "Knowledge of XXXX" shall mean the actual knowledge of any director,
officer, manager or supervisor of XXXX, AVLIC or AIC, or knowledge which should
have been obtained by any such individual in the normal course of performing the
duties attendant to his or her position.
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1.63 "Knowledge of AML" shall mean the actual knowledge of any director,
officer, manager or supervisor of AML, or knowledge which should have been
obtained by any such individual in the normal course of performing the duties
attendant to his or her position.
1.64 "Laws" shall mean all laws, statutes, ordinances, regulations and
other pronouncements having the effect of law of the United States of America or
any state, commonwealth, city, county, municipality, territory, protectorate,
possession, court, tribunal, agency, government, department, commission,
arbitrator, board, bureau or instrumentality thereof.
1.65 "Liabilities" shall mean all debts, obligations and other liabilities
of a Person, whether absolute, accrued, contingent, fixed or otherwise, and
whether due or to become due, which are recognized as liabilities in accordance
with SAP (other than "Interest Maintenance Reserves" and "Asset Valuation
Reserves") and/or GAAP.
1.66 "Lien" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or other
Contract to give or to refrain from giving any of the foregoing other than
Permitted Encumbrances.
1.67 "Low Load Products" shall mean Variable Products which pay de minimis
or no direct first year or renewal sales commissions and which are marketed as
"low load" products within the meaning of applicable Laws and as commonly
understood in the insurance and/or securities industries.
1.68 "Major Issue" shall mean a question or decision which, alone or in the
aggregate with related questions or decisions, would have or would reasonably be
expected to have a financial impact of more than $1,000,000 on the operations,
finances, capitalization or strategic direction of Holding Company or any of its
Subsidiaries, other than as set forth in any plan of operation or annual budget
or business plan which has been approved by the board of directors of Holding
Company.
1.69 "Material Issue" shall mean a question or decision which, alone or in
the aggregate with related questions or decisions,
(a) would have or would reasonably be expected to have a financial
impact of more than $1,000,000 on the operations, finances,
capitalization or strategic direction of Holding Company or any
of its Subsidiaries, other than as set forth in any plan of
operation or annual budget or business plan
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which has been approved by the board of directors of Holding
Company;
(b) would have or would reasonably be expected to have a significant
impact on the Distribution Force of AVLIC or on any regulatory
approvals or insurance ratings of AVLIC;
(c) involves the marketing by Holding Company or its Subsidiaries of
a new product line or through a new method of distribution;
(d) would or might involve Holding Company, AVLIC, AIC or any other
Subsidiary in any potential violation of applicable Law that
would or would reasonably be expected to have a material adverse
effect on Holding Company or any Subsidiary thereof; or
(e) is a matter which the board of directors has been unable to
resolve as provided in Section 2.6(a).
Except as otherwise agreed in writing at the time the question or decision
arises, a Material Issue shall not occur in relation to:
(1) any action reasonably attendant to the day to day operation of
Holding Company or any Subsidiary thereof; or
(2) any matter which is expressly resolved by reference to an express
provision of
a) this Agreement, the Service Agreements, the Guaranties or
any other written Contract between XXXX and AML, as modified
or amended from time to time,
b) any then effective plan of operation, annual budget or
business plan for Holding Company, AVLIC or AIC which has
been approved by a vote of its board of directors, or
c) any applicable resolution of the board of directors of
Holding Company, AVLIC or AIC (or action of the executive
committee of AVLIC or AIC) which has not been withdrawn and
has not been the subject of a subsequent vote in which the
board of directors (or executive committee) was unable to
resolve such matter.
1.70 "NASD" shall mean the National Association of Securities Dealers, Inc.
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1.71 "Notice of Election" shall mean the written notice given to the
Selling Party by the other party to this Agreement as provided in Section
2.8(a)(2)(b) hereof.
1.72 "Noticing Party" shall mean a party to this Agreement who gives an
Auction Notice to the other party to this Agreement.
1.73 "Offering Party" shall mean a party who receives a Unilateral Auction
Notice.
1.74 "Option" shall have the meaning ascribed to it in Section 2.5 hereof.
1.75 "Option Period" shall mean the five-year period which begins on the
day following the Closing Date and ends at 11:59 p.m. on the fifth anniversary
of the Closing Date.
1.76 "Option Ratio" shall mean, for any calendar month, the ratio of the JV
Weighted Premium for such month to the JV Baseline Weighted Premium.
1.77 "Other Party" shall mean a party who receives an Offering Party's
offer in connection with a Unilateral Auction as provided in Section 2.6 hereof.
1.78 "Outside Director" shall mean a director of Holding Company, AVLIC or
AIC who may be a director of XXXX or AML, but who is not a full-time employee of
XXXX, AML, Holding Company, AVLIC or AIC or any Affiliate of any of the
foregoing.
1.79 "Permitted Encumbrances" shall mean the following encumbrances: (i)
Liens for Taxes, either not yet due and payable or to the extent that nonpayment
thereof is permitted by the terms of this Agreement; (ii) pledges or deposits
securing obligations under worker's compensation, unemployment insurance, social
security or public liability laws or similar legislation; (iii) pledges or
deposits securing bids, tenders, Contracts (other than Contracts for the payment
of money) or leases to which XXXX or any of its Affiliates is a party as lessee
made in the ordinary course of business, (iv) deposits securing public or
statutory obligations of XXXX or any of its Affiliates; (v) workers',
mechanics', suppliers', carriers', warehousemen's or other similar liens arising
in the ordinary course of business and securing indebtedness aggregating not in
excess of $100,000 at any time outstanding, to the extent not yet due and
payable; (vi) deposits securing or in lieu of surety, appeal or customs bonds in
proceedings to which XXXX or any of its Affiliates is a party; (vii) pledges or
deposits effected by XXXX or any of its Affiliates as a condition to obtaining
or maintaining any license of such Person; (viii) any attachment or judgment
lien, unless the judgment it secures shall not, within 60 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 60 days after
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the expiration of any such stay; (ix) zoning restrictions, easements,
licenses or other restrictions on the use of real property or other minor
irregularities in title (including leasehold title) thereto, so long as the
same do not materially impair the use, value or marketability of such real
property, leases or leasehold estates; and (x) Liens under the provisions of
insurance policies and annuities in force and reinsurance and coinsurance
contracts in force.
1.80 "Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, trust, union, association,
court, tribunal, agency, government, department, commission, self-regulatory
organization, arbitrator, board, bureau, instrumentality, or other entity,
enterprise, authority or business organization.
1.81 "Prime Rate" shall mean the highest prime rate or base rate of
interest publicly announced by any of Citibank, N.A., Chase Manhattan, N.A. or
Bank of America, N.A., or any successor to any of the foregoing.
1.82 "Product Categories" shall mean those types of insurance and annuity
products set forth in the definition of the term "Product Factor." These
categories are further defined to include the following premiums:
Variable annuities: Premiums paid in respect of all current and
future annuity contracts filed as Variable
Products by AVLIC and approved by the
Commission.
Variable life-repetitive: Premiums paid in respect of current and
future AVLIC life insurance contracts that
are Variable Products up to the premium
established and published by AVLIC as the
"target premium."
Variable life-dump ins: Premiums paid in respect of current and
future AVLIC life insurance contracts that
are Variable Products which are in excess of
the published "target premium."
Variable life-single premium: The single premium paid in respect of current
and future AVLIC single premium life
insurance Contracts that are Variable
Products.
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Fixed annuities: Premiums paid in respect of Fixed Annuities
issued by AVLIC which are not filed with or
approved by the Commission.
1.83 "Product Factor" shall mean, for any Product Category, the percentage
set forth below:
Product Category Percentage
---------------- ----------
Variable annuities 1.8%
Variable life
--repetitive 35.0%
--dump ins 6.0%
--single premium 1.8%
Fixed annuities 1.5%
1.84 "Proposed Purchaser" shall mean a Third Party which is not an
Affiliate to whom XXXX or AML proposes to sell, assign or otherwise transfer its
Shares in a bona fide transaction pursuant to Section 2.8(a)(2) hereof.
1.85 "Quarterly Statement" shall mean the quarterly SAP Statements of AVLIC
and/or the separate accounts thereof filed with or submitted to the insurance
regulatory authority in the state in which it is domiciled on forms prescribed
or permitted by such authority for each of the first three quarters of 1995.
1.86 "Real Estate" shall mean any real property, fixtures and interests
therein, including without limitation leasehold interests.
1.87 "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, leaching, dumping or other disposal,
or any escaping or migrating, in any amount into or onto the air, ground or
surface water, land or other parts of the environment, however caused, not
permitted by or in compliance with Environmental Laws.
1.88 "SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authority in the state in which AVLIC is domiciled, consistently applied
throughout the specified period and in the immediately prior comparable period.
1.89 "SAP Statements" shall mean any and all annual, quarterly or other
interim financial statements prepared by or on behalf of a Person and/or its
separate accounts (and notes related thereto), which include a balance sheet and
a statement of income, whether audited or unaudited, which were prepared in
accordance with SAP and satisfy the standards set forth in Section 3.12 hereof.
14
1.90 "Selling Party" shall mean the party to this Agreement who proposes to
sell, assign or otherwise transfer its Shares to a Proposed Purchaser in a bona
fide transaction pursuant to Section 2.8(a)(2) hereof.
1.91 "Service Agreements" shall mean the (i) the Service Agreement dated as
of the Closing Date, among AVLIC, XXXX and AML, substantially in the form
attached hereto as Exhibit E; (ii) the Service Agreement dated as of the Closing
Date between AIC and XXXX, substantially in the form attached hereto as Exhibit
F; and (iii) the Marketing Services Agreement dated as of the Closing Date
between AML and AIC, substantially in the form which shall be attached hereto as
Exhibit G within 14 days after the date of this Agreement.
1.92 "Shares" shall mean all issued and outstanding shares, par value $1.00
per share, of the capital stock of Holding Company.
1.93 "Statement" shall mean the statement on Form A to be filed by AML
pursuant to Neb. Rev. Stat. Section 44-2126 with the Director of Insurance for
the State of Nebraska, which Statement shall seek approval of the full
implementation of this Agreement and acknowledge that immediately after the
Closing XXXX shall possess more than 50% of the equity interest in Holding
Company (and indirectly, in AVLIC), and that XXXX accordingly shall possess the
power as shareholder to exercise control over those entities.
1.94 "Subsidiary" shall mean each of those Persons, regardless of
jurisdiction of organization, of which a specified Person, directly or
indirectly through one or more Subsidiaries, owns beneficially securities having
more than 50% of the voting power in the election of directors (or Persons
fulfilling similar functions or duties) of such Person, without giving effect to
any contingent voting rights.
1.95 "Taxes" shall mean all taxes, charges, fees, levies, or other similar
assessments or liabilities, including without limitation income, gross receipts,
ad valorem, premium, excise, real property, personal property, windfall profit,
sales, use, transfer, licensing, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
government, or any subdivision, agency or other similar Person of the United
States or any such government whether payable directly or by withholding and
whether or not requiring the filing of a return; and such term shall include any
interest, fines, penalties, assessments, or additions to tax resulting from,
attributable to or incurred in connection with any such tax or any contest or
dispute thereof.
15
1.96 "Tax Returns" shall mean any report, return or other information
required to be provided to or filed with a taxing or other governmental
authority in connection with Taxes.
1.97 "Third Party" shall mean a Person other than XXXX or AML.
1.98 "Transfer Notice" shall mean the notice describing the material terms
of the bona fide offer of a Proposed Purchaser to a Selling Party, which notice
shall be in reasonable detail and shall include, without limitation, the
proposed purchase price, the amount and kind of consideration to be paid and the
identity of the Proposed Purchaser.
1.99 "12/31/94 Value" shall mean the sum of the Value of AVLIC and the
Value of AIC, both as of December 31, 1994.
1.100 "Unilateral Auction" shall mean an auction in which one party to
this Agreement is required to submit an offer to the other party to this
Agreement specifying a price per Share at which it will either sell its Shares
or purchase the other party's Shares, in accordance with Section 2.6(e) hereof.
1.101 "Unilateral Auction Notice" shall mean a written communication given
by one party to this Agreement to the other party to invoke a Unilateral
Auction.
1.102 "Value" shall mean the book value of a specified Person as of a
specified date, measured in accordance with GAAP based on an audited GAAP
Statement or, if otherwise permitted herein, a Verified unaudited GAAP
Statement.
1.103 "Variable Products" shall mean life insurance policies and/or
annuities under which (i) the policyholder has the right to assume the
investment risk (including loss of principal), in whole or in part, and (ii) the
policyholder has the right to direct the manner in which the policy or annuity
funds shall be invested and the policyholder's options shall include at least
one separate account.
1.104 "Verified" shall mean accompanied by a representation that the
subject financial statement is prepared in accordance with GAAP and with all
applicable laws, and presents fairly, in all material respects, all the
information contained therein, including without limitation the assets,
Liabilities, and capital and surplus of the subject Person as of the date
thereof, and such Person's results of operations and cash flows for and during
the respective periods covered thereby, and is accompanied by a signed statement
to such effect by the chief financial officer of the subject Person.
1.105 "Work Papers" shall mean all summaries, calculations compilations
and similar written documentation derived from the
16
Books and Records of AVLIC or AIC and used or prepared by accountants in the
process of computing the Value of such companies.
ARTICLE II
FORMATION AND TERMS OF JOINT VENTURE
At the Closing, XXXX and AML shall enter into the Joint Venture on the
following terms and conditions, and at and following the Closing, the occurrence
of which shall be evidenced by the execution and delivery of the Closing
Confirmation, the provisions of this Article II together with the provisions of
Articles XII and XIII and any agreements or other documents executed pursuant to
this Article II shall survive and shall constitute the entirety of the parties'
agreements with respect to the Joint Venture.
2.0 PURPOSE OF JOINT VENTURE. The purpose of the Joint Venture shall be
to own and manage AVLIC and AIC as provided herein, and to acquire, manage,
transfer, dissolve and/or otherwise operate such other Persons and/or business
operations as the parties may determine from time to time. Holding Company
shall have such powers as are necessary or appropriate to carry out the purposes
of the Joint Venture, including without limitation the following powers:
(a) to own, form, manage, operate, sell, transfer and dissolve any
Subsidiary;
(b) to borrow money and to guarantee the obligations of any
Subsidiary for any business, object or purposes of the Joint Venture from time
to time, without limit as to amount, and to secure the payment thereof by the
creation of any Lien;
(c) to make such investments as the board of directors of Holding
Company or any Subsidiary thereof deems advisable;
(d) to open, maintain and close bank accounts, to draw checks and
other orders for the payment of money;
(e) to employ and dismiss from employment any and all employees,
agents or independent contractors;
(f) to xxx and to defend suits and to prosecute, settle or compromise
claims by or against others;
(g) to enter into, make and perform all such Contracts as may be
necessary or advisable or incident to the carrying out of the foregoing
purposes;
17
(h) to exercise such additional powers as are granted by the Laws of
the State of Nebraska, including those powers granted to a Nebraska corporation
under the provisions of the Nebraska Business Corporation Act which are not
otherwise inconsistent with any specific provision of this Agreement; and
(i) to take such other actions as the board of directors of Holding
Company may deem necessary or advisable in connection with the business of the
Joint Venture, including the retention of agents, independent contractors,
attorneys, accountants and other experts selected by such board of directors on
behalf and at the expense of Holding Company, and in connection with the
preparation and filing of all Joint Venture Tax Returns.
2.1 FORMATION OF HOLDING COMPANY. Prior to the Closing, the parties
shall cause to be taken all actions necessary to form Holding Company, with
10,000 Shares of capital stock, par value $1.00 per Share, authorized for
issuance. The articles of incorporation of Holding Company shall be as set
forth in Exhibit H hereto. Prior to the Closing, the parties shall, as
incorporators, adopt Bylaws for Holding Company in the form attached hereto
as Exhibit K, elect the Directors nominated by the parties in accordance with
Section 2.4(a) hereof, and elect the initial officers of Holding Company as
provided in Section 2.4(f) hereof. At the Closing, XXXX shall contribute or
cause to be contributed 100% of the capital stock of AVLIC and AIC to Holding
Company, free and clear of all liens and encumbrances of any kind whatsoever,
and AML shall contribute a cash amount equal to the Initial Investment. One
hundred Shares shall thereupon be issued as follows: 66 to XXXX and 34 to
AML, and such Shares shall constitute all of the then issued and outstanding
Shares of Holding Company.
2.2 CAPITALIZATION OF HOLDING COMPANY.
(a) Holding Company shall make a capital contribution to AVLIC equal
to the cash it receives on the Closing Date, less an amount sufficient to pay
expenses and any obligation of Holding Company pursuant to Section 2.10(b)
hereof.
(b) During the term of the Joint Venture, XXXX and AML shall fund
capital calls of Holding Company when necessary to permit Holding Company to
maintain AVLIC's and/or AIC's capital, as determined by action of the board of
directors of Holding Company declaring a capital call. Each party shall pay
that portion of the aggregate capital contribution which is equal to its
proportionate share of the then outstanding Shares of Holding Company.
(c) In the event any Guaranty Payment is made, then each of XXXX and
AML shall indemnify the other so that, after
18
such indemnification payments are made hereunder, the relative amounts paid with
respect to such obligation by the parties under their respective Guaranties and
under this Section 2.2(c) are proportionate to the parties' ownership of the
Shares as of the date such Guaranty Payment was made. For this purpose and for
purposes of the following sentence, any payments made by any AML Parent
described in Section 2.8(i) hereof under its separate Guaranty shall be treated
as payments made by AML. In accordance with the foregoing, following any
transaction in which either XXXX or AML becomes the owner of all of the Shares,
such owner shall indemnify the other party for the full amount of any payment
made under such other party's Guaranty following the closing of such purchase.
The provisions of this Section 2.2(c) shall survive termination of the Joint
Venture.
(d) If and when Holding Company receives any amounts under Section
2.5 in respect of the exercise of any portion of the Option, Holding Company
shall, unless the board of directors of Holding Company otherwise determines,
make a capital contribution to AVLIC in an amount equal to 90% of such amount
received.
2.3 DISTRIBUTION EFFORTS AND COMPETITION.
(a) Except as otherwise provided in Subsection (c) below, XXXX and
AML shall use all reasonable efforts and take all reasonable actions to
encourage their respective Distribution Forces, consistent with the requirements
of law and to the extent not prohibited by any other applicable Contract
executed prior to the date of this Agreement, to accept appointment by AVLIC and
to distribute the Variable Products and Fixed Annuities of AVLIC. More
specifically, AML shall commit to take the actions set forth in the marketing
plan set forth as Exhibit I to this Agreement.
(b) Except as otherwise provided in Subsection (c) below, while the
Joint Venture is in effect, neither AML nor XXXX nor any Affiliate of either
(other than Holding Company and its Subsidiaries) shall, directly or indirectly,
or in combination with any other Person, (i) sell, issue, sponsor or provide any
Variable Products or Fixed Annuities except Variable Products or Fixed Annuities
of AVLIC; or (ii) provide any incentive, value, inducement, recognition or other
reward for any member of its Distribution Force or any other agent, employee or
representative thereof for selling any Variable Products or Fixed Annuities
which are not AVLIC products; PROVIDED, HOWEVER, that the foregoing limitation
shall not limit either party's right to distribute any Variable Product or Fixed
Annuity product of any Person other than AVLIC, or to provide any incentive
described in clause (ii) above, in any state until and unless AVLIC has obtained
all licenses and approvals necessary or appropriate to permit a comparable
product of AVLIC to be distributed in such state.
19
(c) The limitations in Sections 2.3(a) and (b) hereof shall not apply
to:
(1) the distribution by XXXX of its Low Load Products, which may
be sold through such marketing channels as XXXX may determine in its reasonable
discretion, including without limitation through non-commission-earning
financial planners and XXXX'x Affiliate, Veritas Corp.; PROVIDED, HOWEVER, that
XXXX'x Low Load Products shall not be sold by or through XXXX'x or AVLIC's
Distribution Force in any state in which AVLIC has obtained all licenses and
approvals necessary or appropriate to permit a comparable product of AVLIC to be
distributed in such state (but DE MINIMIS sales in violation of this clause
shall not be deemed a material breach of this Agreement);
(2) the distribution of group fixed annuities and group Variable
Products of XXXX, which may include an option to convert all or part of such
Contract to a Fixed Annuity or an annuity which is a Variable Product upon
retirement, sold by XXXX'x pension department to group pension and retirement
plans or the individual members of such group pursuant to Sections 403(b) or 457
of the Code;
(3) the solicitation or acceptance by XXXX or AML of renewals,
replacements, or other continued or increased Fixed Annuity contributions by
Persons who have had annuity policies with such party on or prior to the Closing
Date;
(4) the distribution, following any Corporate Transaction of
XXXX, of Variable Products or Fixed Annuities through marketing channels which
do not include the Distribution Force of XXXX, or the distribution, following
any Corporate Transaction of AML, of Variable Products or Fixed Annuities
through marketing channels which do not include the Distribution Force of AML;
(5) the acquisition and servicing by either party of any
existing Variable Products or Fixed Annuity business originated by a Third
Party, and any associated renewals, replacements or other continued or increased
contributions by holders of such Variable Products or Fixed Annuities; or
(6) any distribution activities of any employees or agents of
AmerUs Bank or any of its subsidiaries; PROVIDED, HOWEVER, that AML must employ
all reasonable efforts, in accordance with applicable law, to encourage the
employees or agents of AmerUs Bank who are registered representatives to accept
appointment with AVLIC and with AIC and to distribute the Variable Products and
Fixed Annuities of AVLIC.
(d) While the Joint Venture is in effect and for a period of two
years thereafter, neither AML nor XXXX nor any Affiliate of either (other than
Holding Company and its
20
Subsidiaries) shall, directly or indirectly, or in combination with any other
Person,
(1) knowingly appoint, employ, recruit or otherwise solicit or
engage as an employee or as a member of its Distribution Force any individual
who was, within two years prior to such appointment, a member of the
Distribution Force of the other party to this Agreement or any Affiliate thereof
(other than Holding Company and its Subsidiaries) or an employee of such other
party or any Affiliate thereof (other than Holding Company and its
Subsidiaries);
(2) except with the prior written agreement of the other party
to this Agreement, utilize, directly or indirectly, for any purpose other than
the business interests of the Joint Venture, any policyholder information,
customer lists or other proprietary material of or relating to Holding Company
or its Subsidiaries; PROVIDED, HOWEVER, that any such action on the part of
individual members of a party's Distribution Force with respect to such
information shall not be deemed to violate this section; and PROVIDED FURTHER
that this provision shall not prevent either XXXX or AML or any of their
Affiliates (other than Holding Company and its Subsidiaries) from utilizing the
policyholder information, customer lists or other proprietary material which it
has developed with respect to any Person who is a customer of such Person or of
an Affiliate thereof (other than Holding Company or its Subsidiaries) and who is
also a customer of Holding Company or a Subsidiary thereof; or
(3) solicit policyholders and other customers of Holding Company
and/or its Subsidiaries for the purpose of attempting to replace any policy
issued by or other product sold by or through Holding Company and/or its
Subsidiaries with a policy issued by or product sold through such party or its
Affiliates; PROVIDED, HOWEVER, that incidental violations of this limitation by
individual insurance agents shall not be deemed to violate this section absent
evidence that the violations resulted from a marketing plan, scheme or effort of
the party by which such agent is appointed.
(e) XXXX or AML or any Affiliate of either (other than Holding
Company and its Subsidiaries) may make and/or enter into such acquisitions,
divestitures, mergers, consolidations, reorganizations or other transactions
affecting its corporate structure as each may in its sole discretion determine;
PROVIDED that if any such transaction involves or constitutes a change of
control with respect to XXXX or AML, then the other party shall have the right
in its sole discretion to give, within thirty days after such party receives
notice of such change of control, a Unilateral Auction Notice to the party
engaging in such transaction. A "change of control" shall occur if a majority
of the board of directors of an entity or, if an ultimate parent exists at such
time, the board of directors of such ultimate
21
parent, shall consist of individuals who were not directors of such entity prior
to such transaction or who were not nominated for board membership by such
directors.
(f) The parties intend that AVLIC shall develop and market its own
Low Load Product(s).
2.4 GOVERNANCE AND CONTROL. The following provisions shall be implemented
as soon as practicable after the Closing, and the governance arrangements and
the agreements of XXXX and AML which are set forth in this Section 2.4 shall be
continuing obligations of the parties throughout the continuance of the Joint
Venture, except as otherwise expressly provided in this Agreement:
(a) The board of directors of Holding Company shall be comprised of
eight members, four of whom shall be selected by XXXX and four of whom shall be
selected by AML. Of the four directors selected by each party, two shall be
Inside Directors and two shall be Outside Directors.
(b) As soon as possible after the Closing, the parties shall take all
action necessary to cause Xxxxxxxx X. Xxxx to be elected as the Chief Executive
Officer of Holding Company and of AVLIC. The Chief Executive Officer's term of
office at both Holding Company and AVLIC shall continue for five years from the
Closing Date or until a successor is duly elected by a majority of the board of
directors of Holding Company at an earlier date.
(c) XXXX and AML shall cause the boards of directors of AVLIC and of
AIC to be comprised of six members, three of whom shall be selected by XXXX and
three of whom shall be selected by AML. All such directors shall be Inside
Directors.
(d) XXXX and AML shall cause the board of directors of each of AVLIC
and of AIC to form an executive committee consisting of two directors, one of
whom shall be selected by XXXX and one of whom shall be selected by AML;
PROVIDED that such selections must be mutually acceptable to both parties in
their reasonable discretion. As soon as possible after the Closing, XXXX shall
take all action necessary to select Xxxxxxx X. Louis as its initial appointee to
each such executive committee, and AML shall take all action necessary to select
X X Xxxx as its initial appointee to each such executive committee, and the
parties agree that those selections are mutually acceptable. Any action of
either executive committee shall require the unanimous vote of both of its
members, and if one member is not present or is unable to vote on such matter,
or in the event of a vacancy, then the executive committee shall not take any
action until two members selected in accordance with this subsection (d) are
able to vote. The executive committees of AVLIC and AIC shall have such duties
as the respective board of directors may direct, but it is understood that the
Chief Executive Officer of each of
22
AVLIC and AIC shall report to the executive committee of such entity.
(e) XXXX and AML shall jointly cause to be selected an individual who
was not previously an employee of either party, and the parties shall cause such
individual to be elected as President of AVLIC. The President of AVLIC shall
report to the Chief Executive Officer of AVLIC.
(f) XXXX and AML shall jointly cause to be elected as the initial
officers of Holding Company, AVLIC and AIC those individuals as set forth on
Exhibit J hereto.
(g) The following provisions shall govern the boards of directors of
each of Holding Company, AVLIC and AIC:
(1) Any action of the board of directors shall require the
affirmative vote of a majority of the full number of directors specified in this
Agreement, whether or not each director is present and/or eligible to vote on
such matter, and whether or not any vacancy occurs with respect to one or more
seats on such board.
(2) Upon the express written direction of XXXX or AML, which may
be given at any time in the sole discretion of either party, with or without
cause, XXXX and AML shall together take such actions as may be necessary to
remove any director or committee member selected and/or appointed by the party
giving such direction, without prior notice or delay. In the event a vacancy
occurs, whether due to resignation, death, removal or other cause, then the
party which selected and/or appointed the director or committee member who
vacated such position shall promptly select and/or appoint a new director and/or
committee member, whom the parties shall promptly cause to be elected to fill
such vacancy.
(3) Any two members of the board of directors may, upon written
request directed to the Secretary or the Chairman of the corporation,
a) call a meeting of the board of directors;
b) place any matter on the agenda for any meeting of the
board of directors; and/or
c) call for a vote on any agenda item during any meeting
of the board of directors.
(4) To the extent not inconsistent with the specific provisions
set forth above, the board of directors may
23
form such committees and elect such officers as may be necessary or appropriate.
Except as otherwise specifically provided above, the term of office for any
officer of Holding Company, AVLIC and AIC shall be one year. Any office not
filled by reelection or new election by action of the board of directors shall
remain vacant, PROVIDED, HOWEVER, that neither party may, without the consent of
the other, arbitrarily cause the directors appointed by it to refuse to vote in
such election.
(h) As soon as possible after the Closing, the parties shall take all
action necessary to adopt the by-laws set forth as Exhibits K, L and M hereto as
the by-laws of Holding Company, AVLIC and AIC, respectively.
(i) In the event that any vote by the shareholder (Holding Company)
of AVLIC or AIC is required at any time, such vote shall be made only after and
in accordance with a vote of the Board of Directors of Holding Company.
(j) Any Contract of AVLIC with AIC, Holding Company, XXXX and/or AML
shall be effective only upon approval by the board of directors of AVLIC; any
Contract of AIC with AVLIC, Holding Company, XXXX and/or AML shall be effective
only upon approval by the board of directors of AIC; and any Contract of Holding
Company with AVLIC, AIC, XXXX and/or AML shall be effective only upon approval
by the board of directors of Holding Company. Until and unless such approval is
obtained, any such Contract shall be void ab initio.
2.5 OPTION. From and after the Closing, AML shall have the option to
acquire newly issued Shares of Holding Company which would, together with prior
issuances of Shares to AML, total up to 49% of the outstanding Shares of Holding
Company (the "Option"), on the terms and subject to the conditions set forth in
this Section 2.5.
(a) The Option shall not be exercisable pursuant to Sections 2.5(b)
and (c) hereof until and unless the AML Weighted Premium, for at least one
calendar month at any time during the Option Period, exceeds the AML Baseline
Weighted Premium.
(b) Subject to Section 2.5(a) hereof, the Option shall be exercisable
by AML in three portions, which may be exercised singly or sequentially with one
or both of the other portions, and shall be exercised in the order set forth
below. Each portion of the Option shall individually permit AML to acquire that
number of newly issued Shares which will, when added to AML's existing Shares,
increase AML's percentage ownership of the aggregate outstanding Shares by 5%.
If and to the extent that, in any calendar month, any of the Option Ratio
percentage(s) set forth below is(are) met or exceeded, then the corresponding 5%
portion(s) of the Option shall be exercisable, at the exercise price(s) which
are set forth below and are expressed as a
24
percentage of the Aggregate Investment. AML's aggregate percentage ownership of
the Shares following its exercise of each such portion of the Option shall be as
set forth below.
EXERCISE PRICE
(AS A % OF POST-EXERCISE
OPTION RATIO AGGREGATE INVESTMENT) AGGREGATE % OF SHARES
------------ --------------------- ---------------------
200% 24.1% 39%
300% 28.4% 44%
400% 34.0% 49%
(c) To the extent any portion(s) of the Option become(s) exercisable
in accordance with the provisions of this Section 2.5, AML shall, in order to
exercise such portion(s) of the Option, give XXXX written notice of AML's
intention to exercise such portion(s) of the Option within 30 days after the
parties determine that such portion(s) of the Option is(are) exercisable, and
shall consummate the exercise of such portion(s) of the Option within 60
additional days (as to any exercisable portion of the Option, the "Exercise
Period"). Prior to the expiration of the Exercise Period, AML shall designate a
time at which it shall consummate such exercise at the offices of Holding
Company and/or AVLIC in Lincoln, Nebraska or such other place as the parties may
reasonably agree. At such time and place, AML shall pay to Holding Company the
exercise price specified in Subsection 2.5(b) hereof, in cash or by wire
transfer of immediately available funds, and Holding Company shall cause to be
delivered the certificates representing the Shares purchased pursuant to such
exercise.
(d) Any failure by AML to exercise any portion(s) of the Option
during the Exercise Period applicable to such portion(s) shall cause the
following consequences, effective at the end of such Exercise Period:
(1) Such unexercised portion(s) of the Option and any and all
other portion(s) of the Option which have not previously been exercised shall
lapse and shall be of no further force or effect; and
(2) Sections 2.4(a), (c), (d) and (g)(1) of this Agreement shall
be null and void, and each of the shareholders of Holding Company shall
thenceforth be entitled to elect that portion of the directors of Holding
Company, AVLIC and AIC which corresponds to its then percentage ownership of the
Shares.
(e) To the extent the Option or any portion(s) thereof does(do) not
become exercisable during the Option Period in accordance with the provisions of
Sections 2.5(a) and (b) hereof, then XXXX may in its sole and absolute
discretion, at any time after the expiration of the Option Period, give notice
to AML
25
that it is waiving all of the limitations in Sections 2.5(a) and (b) of this
Agreement which, by their terms, prevented the Option from becoming exercisable,
and AML shall thereupon be entitled to exercise the Option in accordance with
Subsection 2.5(c) hereof.
2.6 DISPUTE RESOLUTION AND AUCTION.
(a) If at any time during the continuation of the Joint Venture the
board of directors of AVLIC or AIC is unable to resolve any matter which has not
previously been agreed to or decided by a written agreement of the parties or by
a vote of such board of directors taken within the prior six months, then such
matter shall be referred to the board of directors of Holding Company. If the
board of directors of Holding Company is unable to resolve any matter which has
been the subject of a vote of the directors (whether referred from the board of
directors of AVLIC or AIC or otherwise), then:
(1) that matter shall be referred to the Outside Directors of
Holding Company, and the Outside Directors shall within 15 Business Days attempt
to resolve such matter using such means of communication or meetings as may be
appropriate under the circumstances; and
(2) if such matter remains unresolved at the end of the 15-
Business Day period described in the foregoing paragraph, then the parties shall
within ten additional Business Days select a mediator mutually agreeable to the
parties or submit the disagreement to mediation under the Commercial Mediation
Rules of the American Arbitration Association. The mediator shall not have
authority to impose a settlement upon the parties, but will attempt to help
XXXX, AML and/or their respective appointees to the board of directors of
Holding Company work in good faith to reach a satisfactory resolution of the
disagreement. The mediator shall end the mediation whenever, in his or her
judgment, further efforts at mediation would not contribute to a resolution of
the submitted disagreement. Any fees and expenses related to such mediation
shall be paid one-half by XXXX and one-half by AML.
Until and unless the disputed matter is resolved in accordance with the
provisions of this Agreement, and after the Outside Directors have attempted and
have been unable to resolve such matter as provided above, no action shall be
taken by any officer of Holding Company or any Subsidiary thereof which would
affect the subject matter of the dispute. Such officers may, however, continue
to perform all of the duties of their respective offices with regard to any
other matters.
(b) After the expiration of five years from the Closing Date, in the
event that any Disputed Issue which is a Major Issue remains unresolved
following the efforts at resolution described in Section 2.6(a), then within 30
days after
26
the conclusion of such efforts, either party may, by giving an Auction Notice to
the other, initiate an Auction, as described below:
(1) In the event the party receiving such Auction Notice
disputes that the question or decision is a Major Issue, such party must give
notice of such dispute to the other party within 15 days of its receipt of the
Auction Notice and, if such party fails to give such notice, the question or
decision shall be conclusively deemed to be a Major Issue and any claim or
argument to the contrary shall be waived. XXXX and AML agree that any disputes
arising out of or relating to the determination of whether a question or
decision constitutes a "Major Issue" shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association (the "AAA
Rules") and the Federal Arbitration Act. The determination of the arbitrator
shall be expedited to the fullest extent possible, consistent with the AAA
Rules, and such determination shall be deemed final. In the event arbitration
is invoked as provided herein, the time periods set forth below for the conduct
of the Auction shall not begin to run until after the arbitrator's decision is
received by the parties.
(2) In the event an Auction Notice is given in accordance with
this provision, then the Noticing Party shall, within 60 days after giving the
Auction Notice, deliver to the other party an offer specifying the per-share
price at which it would purchase the other party's Shares.
(3) Within 60 days after the date of the Auction Notice or, if
later, within ten days after the Noticing Party delivers the offer described in
subparagraph (2) above, the other party may deliver to the Noticing Party an
offer specifying the per-share price at which it would purchase the Noticing
Party's Shares.
(4) The Auction shall continue with the submission of subsequent
offers, if any, by each party within ten Business Days of receipt of the other
party's previous offer in accordance with the provisions of this Section 2.6(b),
until (x) any such ten-day period expires without the submission of an offer by
the party entitled to submit same and, in such event, the previous offer made by
the other party shall be deemed accepted immediately prior to the expiration of
such period; or (y) one party delivers to the other a written acceptance of the
other party's then present offer.
(5) Each offer submitted in accordance with this Section 2.6(b)
shall be in writing, shall be delivered by hand, courier service, overnight mail
or delivery service, or telecopy, and shall be effective at the addresses set
forth in Article XII hereof when duly given (pursuant to Article XII hereof)
within the time periods specified above, as such time periods are
27
extended or modified by written agreement of the parties. Each offer hereunder
shall be an unconditional offer to purchase all, but not less than all, of the
other party's Shares, for an amount payable in cash at a closing in accordance
with this Section 2.6(b), and each offer must be at least one half of one
percent (0.5%) higher than the preceding offer, but in all events such increase
in the per-Share offer shall be an amount which, when multiplied by the
aggregate number of Shares outstanding, equals at least $500,000. Each offer
shall, once made, be irrevocable until the earlier of (x) the expiration of the
period within which the other party may submit its own offer; or (y) the other
party actually submits its own offer.
(6) The party whose offer is accepted as provided herein shall,
within one year after the Acceptance Date (or any shorter period as such party
may determine), consummate its purchase of all the Shares held by the other
party. During the period prior to the closing of the purchase and sale
transaction, the seller shall cooperate fully with the purchaser in all
respects, including but not limited to all actions necessary to facilitate such
closing and to continue the operation of the business, but no action shall be
taken by either party or any officer of Holding Company or any Subsidiary
thereof other than in the ordinary course of business unless both XXXX and AML
have agreed to such action or unless the purchaser has provided an irrevocable
letter of credit or other similar evidence satisfactory to the seller of its
ability to close such purchase and sale transaction, in which case the purchaser
may (i) immediately designate an individual whom the parties will immediately
cause to be elected as the Chief Executive Officer of Holding Company (and, at
the purchaser's discretion, AVLIC and/or AIC), and (ii) take such other actions
as the purchaser may reasonably determine. At the closing of the purchase and
sale of Shares, the purchaser shall pay to the other party the purchase price,
together with interest at a rate per annum equal to the Prime Rate plus 3% from
the Acceptance Date to the date of such closing, based on the actual number of
days elapsed from and including the Acceptance Date to the date of payment and
based on a 360-day year. At such closing the seller shall transfer its Shares
free and clear of any and all liens, mortgages, pledges, security interests or
other restrictions or encumbrances (other than any Liens arising out of
Contracts approved by the parties hereto), but the transfer shall otherwise be
made without representation or warranty of any kind. Upon consummation of any
such transaction, this Agreement shall be deemed terminated.
(c) Except for matters which are proposed by AML for a vote of the
shareholders of Holding Company, or matters as to which this Agreement directs
the votes of the parties as shareholders, if at any time after the Closing any
matter is determined by the vote by XXXX of its majority equity interest in
Holding Company without the concurring vote of AML, then, at any
28
time within 60 days after such vote by XXXX, AML may in its sole discretion give
a Unilateral Auction Notice to XXXX.
(d) If at any time after the Closing the board of directors of
Holding Company is unable to resolve any Disputed Issue which has been the
subject of a vote of the directors and the Outside Directors have attempted to
and have been unable to resolve such Disputed Issue, then neither the Chief
Executive Officer of Holding Company nor of AVLIC shall take, or cause or permit
any other officer of Holding Company, AVLIC or AIC to take, any action which
would affect such Disputed Issue, other than routine actions consistent with a
course of action previously approved by the board of directors of Holding
Company, AVLIC or AIC.
(1) In the event of a breach of Subsection 2.6(d), or if a
Disputed Issue becomes the subject of a vote of the directors after the Chief
Executive Officer of Holding Company or AVLIC takes, or causes or permits
another officer of Holding Company, AVLIC or AIC to take, an action which would
have been prohibited by Subsection 2.6(d) had the directors' vote occurred
earlier, then the Chief Executive Officer shall promptly either:
a) Obtain ratification of such action by a vote of the
board of directors of Holding Company; or
b) Reverse such action and place Holding Company and its
Subsidiaries in the same position as if such action had
never occurred.
(2) If the requirements of Subsection 2.6(d)(1) are not met
within 15 Business Days after the vote of directors referred to in Subsection
2.6(d) or 2.6(d)(1) above, and
a) if the Disputed Issue is a Material Issue, or
b) if the prohibited action described in Section 2.6(d) or
Section 2.6(d)(1) occurred after the above-referenced
directors' vote and was not taken pursuant to a binding
and irrevocable commitment made prior to such
directors' vote (whether or not the Disputed Issue is a
Material Issue),
then, if such Chief Executive Officer is Xx. Xxxx or another individual who is
affiliated concurrently or who was, within two years prior to assuming his or
her position as Chief Executive Officer of Holding Company or AVLIC, affiliated
with XXXX, then
29
AML may in its sole discretion give XXXX a Unilateral Auction Notice, and if
such Chief Executive Officer is an individual affiliated concurrently or who was
within two years prior to assuming his or her position as Chief Executive
Officer of Holding Company or AVLIC affiliated with AML, then XXXX may in its
sole discretion give AML a Unilateral Auction Notice. Any Unilateral Auction
Notice pursuant to this Section 2.6(d)(2) shall be given within thirty days
after the expiration of the 15-Business Day period specified in the first clause
of this Section 2.6(d)(2).
(e) If one party gives to the other a Unilateral Auction Notice, then:
(1) If any portion(s) of the Option remains in effect but
has(have) not yet been exercised, then AML shall have the immediate right to
exercise such portion(s) in accordance with Section 2.5(c) hereof (except that,
if inconsistent, the time periods for such exercise shall be as set forth
herein), irrespective of any restrictions on exercisability which are set forth
in Section 2.5(a) or 2.5(b) hereof. In such event, AML shall give notice of its
intent to exercise such portion(s) of the Option within 30 days of the date of
the Unilateral Auction Notice, and shall consummate the exercise of such
portion(s) of the Option prior to or concurrently with the closing of the
purchase and sale transaction described in Section 2.6(e)(4) below.
(2) Within 75 days of its receipt of a Unilateral Auction
Notice, the Offering Party shall deliver to the other party (using such means as
are specified in Section 2.6(b)(5)) an irrevocable offer specifying the per-
share price at which the Offering Party will either sell all its Shares of
Holding Company or purchase all the Shares of Holding Company which are then
owned by the other party. Such offer shall be unconditional and shall provide
for the purchase price to be paid in cash at a closing in accordance with this
Section 2.6(e). The Offering Party's offer shall be irrevocable for the 15-day
period described in the following Section.
(3) The Other Party shall, within 15 days of its receipt of the
Offering Party's offer, accept, in writing, either the Offering Party's offer to
sell the Shares owned by the Offering Party or the Offering Party's offer to
purchase the Shares owned by the Other Party. If the Other Party does not
respond in writing within such 15-day period, then the Other Party shall be
deemed to have accepted the Offering Party's offer to sell its Shares
immediately prior to the expiration of such 15-day period.
(4) The purchase and sale of such Shares shall be consummated
within one year after the Acceptance Date (or any shorter period as the
purchasing party may determine). During
30
the period prior to the purchase and sale transaction, the seller shall
cooperate fully with the purchaser in all respects, including but not limited to
all actions necessary to facilitate such closing and to continue the operation
of the business, but no action shall be taken by either party or any officer of
Holding Company or any Subsidiary thereof other than in the ordinary course of
business, unless both XXXX and AML have agreed to such action or unless the
purchaser has provided an irrevocable letter of credit or other similar evidence
satisfactory to the seller of its ability to close such purchase and sale
transaction, in which case the purchaser may (i) immediately designate an
individual whom the parties will immediately cause to be elected as the Chief
Executive Officer of Holding Company (and, at the purchaser's discretion, AVLIC
and/or AIC), and (ii) take such other actions as the purchaser may reasonably
determine. At the closing of the purchase and sale of Shares, the purchaser
shall pay to the other party the purchase price, together with interest at a
rate per annum equal to the Prime Rate plus 3% from the Acceptance Date to the
date of such closing, based on the actual number of days elapsed from and
including the Acceptance Date to the date of payment and based on a 360-day
year. At such closing, the seller shall transfer its Shares free and clear of
any and all liens, mortgages, pledges, security interests or other restrictions
or encumbrances (other than any Liens arising out of Contracts approved by the
parties hereto), but the transfer shall otherwise be made without representation
or warranty of any kind. Upon consummation of any such transaction, this
Agreement shall be deemed terminated.
2.7 TERMINATION AND DEFAULT.
(a) The following shall constitute events of default under this
Agreement:
(1) A material breach by either party of any material provision
of this Agreement, or of any Contract between the parties which expressly states
that a breach thereof shall constitute a breach hereunder, which is not cured
within 30 days after the breaching party receives notice of such breach; or
(2) The institution of insolvency proceedings or the appointment
of a receiver with respect to a party or a substantial portion of its assets.
(b) If an event of default occurs under this Agreement, the remedies
of the non-breaching party shall include the following, which rights shall not
be exclusive but shall be cumulative and in addition to all other rights
available at law or in equity: (i) the institution of a suit for damages;
and/or (ii) the institution of a suit for specific performance. Without
limiting the generality of the foregoing, the parties expressly acknowledge that
certain terms and provisions of this Article II require the parties to engage,
in good faith, in certain
31
governance- and auction-related processes and activities, and that the failure
of either party to perform the actions required of it hereunder could lead to
incalculable detriment to the other party and to the Joint Venture, which
detriment cannot be corrected with monetary damages. Therefore, the parties
agree that the remedy of specific performance shall be available to a party
following the other party's breach of its obligations under this Article II.
(c) In the event the Joint Venture is terminated as provided in this
Article II, the covenants and agreements of the parties set forth in this
Agreement which, by their terms, extend beyond such termination shall survive
and shall be enforceable in accordance with their terms.
2.8 OTHER.
(a) Except as otherwise provided in this Section 2.8(a), neither
party shall sell, assign, pledge, hypothecate or otherwise transfer the Shares
of Holding Company owned by it to any Third Party without the prior written
consent of the other party, which consent may be given or withheld in the sole
and absolute discretion of such party.
(1) Each of the parties may at any time in its sole discretion
transfer all, but not less than all, of its Shares to any Affiliate (other than
Holding Company and its Subsidiaries), subject to insurance department approval;
PROVIDED, HOWEVER, that (x) the transferring party shall not be relieved of any
of its obligations hereunder except to the extent the other party otherwise
agrees, in writing; and (y) prior to the date on which such transferee will
cease to be an Affiliate of the transferor, the Shares held by such transferee
shall be transferred back to such transferor or to another Affiliate of such
transferor which is permitted to hold such Shares as described in this
provision.
(2) At any time after the expiration of the first five years
following the Closing Date, XXXX or AML, or any transferee thereof described in
Section 2.8(a)(1) hereof, may transfer all, but not less than all, of its Shares
to a Proposed Purchaser only upon compliance with the provisions of this Section
2.8(a)(2):
a) If the Selling Party proposes to sell, assign or
otherwise transfer its Shares to a Proposed Purchaser
in a bona fide transaction, then the Selling Party
shall give a Transfer Notice to the other party to this
Agreement.
b) The party receiving a Transfer Notice shall, by giving
a Notice of Election to
32
the Selling Party within 60 days of receipt of such
Transfer Notice, elect to either:
i) permit all of the Selling Party's Shares be sold
to the Proposed Purchaser on the terms and
conditions specified in the Transfer Notice; or
ii) purchase all of the Selling Party's Shares on the
terms and conditions specified in the Transfer
Notice.
If such party fails to deliver its Notice of Election
within the 60-day period specified above, it shall be
deemed to have delivered a Notice of Election electing
clause i) above on the last day of such 60-day period.
c) The Selling Party shall attempt in good faith to cause
the transaction elected in the Notice of Election to be
consummated within 120 days of the date the Transfer
Notice is received on the terms and conditions set
forth in the Transfer Notice.
d) If the Notice of Election elects clause i) above, and
if the Selling Party does not close such transaction
within 120 days of the date the Transfer Notice is
received, then the Selling Party shall not transfer its
Shares unless or until it complies anew with the
provisions of this Section 2.8(a)(2).
e) If the Notice of Election elects clause ii) above, then
the Selling Party shall transfer its Shares to the
other party to this Agreement free and clear of any and
all liens, mortgages, pledges, security interests or
other restrictions or encumbrances, and shall make any
other representations or warranties contemplated under
the Transfer Notice, but the transfer shall otherwise
be made without representation or warranty of any kind.
If such transfer is not closed solely due to the
failure of the purchasing party to fulfill the terms
and conditions specified in the Transfer
33
Notice, then the Selling Party shall have 120 days
after such failure to sell its Shares to the Proposed
Purchaser or another unaffiliated Third Party on
substantially the same terms and conditions as were
specified in the Transfer Notice. If the Selling Party
does not close such transaction within such 120-day
period, then the Selling Party shall not transfer its
Shares unless or until it complies anew with the
provisions of this Section 2.8(a)(2).
(b) Except for consideration paid under the Service Agreements, the
reinsurance treaty contemplated pursuant to Section 2.8(c) hereof and except as
provided below, to the extent either party or any Affiliate thereof (other than
Holding Company and its Subsidiaries) receives any fees, services, discounts,
concessions or other thing of any value whatsoever in respect of products issued
or sold by or through Holding Company or its Subsidiaries, such fee, service,
discount, concession or other thing, or the value thereof, shall be turned over
promptly to Holding Company or any Subsidiary thereof. AML may in writing from
time to time agree to except certain arrangements or Contracts from this Section
2.8(b) (and AML hereby agrees to so except that certain Administrative Service
Agreement dated as of November 30, 1995 between AIC and Xxxxxxxxx & Xxxxxx
Management Incorporated and the corresponding agreement between XXXX and AIC
under which XXXX will perform all services required thereunder) but, to the
extent any such exception is made, XXXX agrees to indemnify, defend and hold
harmless AVLIC, AIC, Holding Company and AML and their respective officers,
directors, employees, agents, partners and controlling persons from and against
any and all expenses, losses, claims, Damages and Liabilities, including without
limitation reasonable attorneys' fees and expenses, caused by or in any way
resulting from or arising in connection with such arrangement or Contract from
any cause. The foregoing indemnity shall include all Damages and Liabilities
resulting from any claim of any Third Party but shall not otherwise include any
Damages incurred directly (and not vicariously) by AIC due to an action or
omission of an AIC employee, which action or omission was not also an action or
omission which was the responsibility of XXXX.
(c) The reinsurance business generated by AVLIC or any other
insurance company Subsidiary of Holding Company, in excess of (in the case of
AVLIC) the initial retention level of $100,000, shall be offered 50% to XXXX and
50% to AML for reinsurance by such party on a quota share basis and/or for
further offering to Third Parties as such party may reasonably direct. Each
such Third Party shall have a rating of at least "Excellent" by A.M. Best, Inc.
The parties shall negotiate a
34
reinsurance treaty among AVLIC, XXXX and AML which would be effective at the
Closing Date or as soon thereafter as may be practicable, which treaty shall
specify the parties' agreements with respect to such reinsurance.
(d) The executive offices of Holding Company, and the executive
offices and home offices of AVLIC and AIC shall remain in Lincoln, Nebraska, and
AVLIC shall continue to be domiciled in the State of Nebraska, unless the board
of directors of Holding Company otherwise determines from time to time. As long
as the Service Agreements remain in force, AVLIC's variable operations shall be
carried out in Lincoln, Nebraska, and AVLIC's fixed annuity operations shall be
carried out in Des Moines, Iowa.
(e) At the beginning of the fifth year after the Closing Date, XXXX
and AML agree to and shall enter into discussion of the method and cost of
obtaining the services which are to be provided to AVLIC and AIC pursuant to the
Service Agreements. At such time, the parties shall consider obtaining such
services from other providers based on market conditions at that time, and shall
mutually cooperate in determining whether to terminate the Service Agreements,
or any portion of any of them, and whether to obtain such services from another
source.
(f) Holding Company and its Subsidiaries shall keep accurate, full
and complete Books and Records showing their assets and Liabilities, operations,
transactions and financial condition. All financial statements shall be
accurate in all material respects, shall present fairly the financial position
and results of Holding Company and its Subsidiaries and shall be prepared in
accordance with GAAP and, where required by Law, SAP. Except as otherwise
specifically provided, the boards of directors of each of Holding Company and
its Subsidiaries shall determine the methods to be used in the preparation of
financial statements and Tax Returns. Without limiting the generality of the
foregoing:
(1) As soon as practicable after the end of each fiscal year of
Holding Company and its Subsidiaries, respectively, a general accounting and,
unless otherwise determined by the board of directors of Holding Company, audit
shall be undertaken and made by the independent certified public accountants of
such Persons, covering its or their assets, properties, Liabilities and net
worth, and its or their dealings, transactions and operations during such fiscal
year, and all matters and things customarily included in such accounts and
audits. XXXX shall cause Holding Company, AVLIC and AIC to use their best
efforts to furnish such audited financial statements to each of XXXX and AML
within 80 days after the end of such fiscal year, followed by a report of the
audit scope and audit findings in the form of a report as described in Statement
of Audit Standards ("SAS") 61, and if required SAS 60, or such similar reports
established by the American Institute of
35
Certified Public Accountants upon revocation or amendment of SAS 60 and 61,
within 120 days after the end of such fiscal year. Unaudited quarterly
financial statements of Holding Company and its Subsidiaries shall be furnished
to each of XXXX and AML within 30 days after the end of each quarter of the
fiscal year of each such Person.
(2) Each of XXXX and AML shall have access to and may inspect
and copy the Books and Records of Holding Company and of AVLIC and AIC at
reasonable times and upon reasonable notice.
(3) XXXX and/or AML may, at its option and its own expense,
conduct inspections and/or audits of the Books and Records of Holding Company,
AVLIC, AIC and, to the extent necessary to inspect and audit the fees and
expenses paid under the Service Agreements, the records of such other party
relating to services provided under any of the Service Agreements. Such
inspections and/or audits may be on a continuous or a periodic basis or both and
may be conducted by employees of such entity, or by employees of an Affiliate
thereof, or by an independent auditor retained by such Person.
(4) Holding Company shall make available to XXXX and AML such
information and financial statements in addition to the foregoing and/or at such
times as shall be required by either of them in connection with the preparation
of registration statements, current and periodic reports, proxy statements and
other documents required to be filed under federal or state laws, and shall
cooperate in the preparation of any such documents.
(5) The fiscal year of Holding Company shall be January 1
through December 31, unless the board of directors of Holding Company shall
approve any change thereto.
(g) In the event one party gives the other an Auction Notice, a
Unilateral Auction Notice or a Transfer Notice pursuant to this Agreement, then
both parties shall cause Holding Company and its Subsidiaries to provide each
other and their respective counsel, accountants, actuaries and other
representatives (including such representatives of any lender, potential venture
partner or other similar Person) with access, upon reasonable notice and during
normal business hours, to all facilities, officers, employees, agents,
accountants, actuaries, Assets and Properties, and Books and Records of Holding
Company, AVLIC and AIC, and will furnish such Persons during such period with
all such information and data (including without limitation copies of Contracts
and other Books and Records) concerning the business, operations and affairs of
Holding Company, AVLIC and AIC as such Persons shall reasonably request. Each
such Person which is not a party to this Agreement shall, agree to be subject to
and bound by the confidentiality provisions of Section 2.8(h) hereof.
36
(h) Each of XXXX and AML will hold, and will cause its respective
Affiliates and their respective officers, directors, employees, agents,
consultants, and other representatives to hold, in strict confidence, except as
may be necessary by reason of legal, accounting, regulatory or administrative
requirements, all confidential documents and confidential or proprietary
information concerning the other party, or concerning Holding Company or its
Subsidiaries, which is furnished to it in connection with this Agreement or in
the course of carrying out the Joint Venture established hereunder. No party
hereto will disclose or otherwise provide any such confidential or proprietary
documents or information to any other Person, except to either party's
respective auditors, actuaries, attorneys, financial advisors, other consultants
and advisors, unless such Person agrees to be subject to and bound by the
confidentiality provisions hereof. Nothing herein shall prohibit either party
from providing such information to any rating agency personnel as may be
necessary or appropriate.
(i) Except as otherwise expressly provided herein, any payment,
reimbursement or other amount due from one party to the other pursuant to this
Agreement shall be paid promptly. The provisions of this Section 2.8(i) shall
survive termination of the Joint Venture.
(j) It is understood that, prior to or after the Closing Date, AML
may be converted into a stock life insurance company to be known as "AmerUs Life
Insurance Company," which shall retain all the rights and obligations it had
prior to such conversion, including all the rights and obligations provided in
this Agreement. If at such time or thereafter during the continuation of the
Joint Venture any AML Parent shall be created, such AML Parent shall sign a
guaranty in substantially the same form as the Guaranty of AML.
2.9 CLOSING. Subject to the provisions of this Agreement, the Closing of
the transactions contemplated by this Agreement, including, without limitation,
the consummation of the Investment and issuance of the Shares, as provided in
Section 2.1 hereof, and the execution and delivery of the documents and
instruments specified in this Section 2.9, will take place at XXXX'x offices in
Lincoln, Nebraska, at 10:00 a.m., local time, on the Closing Date. At the
Closing, the following actions shall be completed, with each document described
below to be in form and content reasonably satisfactory to XXXX and AML:
(a) The Service Agreements shall be executed and delivered by all
parties thereto.
(b) AML shall execute and deliver its Guaranty to AVLIC.
37
(c) XXXX and AML shall each deliver to the other the officer's
certificate required pursuant to Sections 7.3 and 8.3 hereof, respectively.
(d) XXXX and AML shall each deliver to the other the legal opinion
required pursuant to Sections 7.11 and 8.9 hereof, respectively.
(e) AML shall pay the Initial Investment to Holding Company in cash,
by wire transfer according to instructions determined by the parties in writing
at least three Business Days prior to the Closing Date.
(f) XXXX shall deliver the stock certificates and executed stock
powers necessary to transfer ownership of the stock of AVLIC and AIC to Holding
Company.
(g) XXXX shall cause certificates representing the Shares issued
pursuant to Section 2.1 hereof to be delivered to XXXX and AML.
(h) The parties shall execute and/or deliver all such other
Contracts, documents and/or things as may be provided herein to be delivered at
or prior to Closing, to the extent not previously delivered.
(i) XXXX and AML shall each execute and deliver the Closing
Confirmation.
Immediately upon completion of the Closing, XXXX and AML shall hold an initial
meeting of the shareholders of Holding Company, and as soon as practicable
thereafter, the Boards of Directors of Holding Company, AVLIC and AIC shall hold
their initial meetings.
2.10 POST-CLOSING ADJUSTMENT.
(a) Within ten Business Days after completion of the Closing Value
Financial Statements, XXXX will determine and will deliver to AML written
notice setting forth XXXX'x determination of the Closing Value, together with
true and complete copies of all Work Papers related thereto. Within fifteen
Business Days after the receipt by AML of such determination of the Closing
Value, AML shall deliver to XXXX written notice stating whether it agrees or
disagrees with such determination. If AML agrees with such determination and
so notifies XXXX, or does not notify XXXX that AML disagrees with such
determination within such fifteen Business Days, such determination shall be
deemed to be the Closing Value. If AML notifies XXXX within such fifteen
Business Days that AML does not agree with such determination of the Closing
Value, XXXX and AML shall, for a period of fifteen Business Days, attempt to
negotiate, in good faith, a determination of the Closing Value. If XXXX and
AML fail to reach a determination of the Closing Value within such fifteen
38
Business Days, the Closing Value shall be determined by the Accounting Firm.
AML shall cause such determination by the Accounting Firm and a statement of
fees and expenses incurred by the Accounting Firm in making such
determination, together with true and complete copies of all Work Papers
related thereto, to be delivered to XXXX as soon as practicable after AML's
notice of disagreement. The parties hereto agree and acknowledge that the
determination of the Closing Value by the Accounting Firm in accordance with
this Section 2.10(a) shall be final and binding on all parties. If the
services of the Accounting Firm are used as provided herein, all fees and
expenses of the Accounting Firm shall be paid one-half by XXXX and one-half
by AML.
(b) Within ten Business Days of the final determination of the
Closing Value as provided in Section 2.10(a) hereof, then, if the Closing Value
is greater than the 12/31/94 Value, AML will pay to Holding Company, and if the
Closing Value is less than the 12/31/94 Value, XXXX and AML will cause Holding
Company to pay to AML, in cash, an amount equal to the Difference, plus interest
on the Difference at a rate per annum equal to the Prime Rate based on the
actual number of days elapsed from and including the Closing Date to the date of
payment and a 360-day year, PROVIDED, HOWEVER, that if the Difference and
interest thereon due from one party to the other pursuant to this Section
2.10(b) remain unpaid past the 3Oth day after the day such amount was due, the
interest rate will be increased to the Prime Rate plus 3% for the period from
the Closing Date to the payment date.
(c) XXXX shall and shall cause AVLIC and AIC to cooperate fully with
the Accounting Firm and provide all information and access to all personnel it
reasonably requests in connection with its determination of the Closing Value.
Both parties shall be provided access to all Books and Records and Work Papers
used by the Accounting Firm in making its determination hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF XXXX
XXXX hereby represents and warrants to AML as follows:
3.1 ORGANIZATION OF XXXX. XXXX is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Nebraska and has
the requisite corporate power and authority to enter into this Agreement and to
perform its obligations under this Agreement. XXXX is duly licensed, qualified
or admitted to do business and is in good standing in all jurisdictions in which
it is doing business and in which the failure to be so licensed, qualified or
admitted and in good standing, individually or in the aggregate with other such
39
failures, has or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement, on the ability of XXXX to
perform its obligations under this Agreement, or on the Business or Condition of
AVLIC or AIC.
3.2 AUTHORITY OF XXXX. The board of directors of XXXX has duly and
validly approved this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by XXXX and the performance by XXXX of
its obligations under this Agreement have been duly and validly authorized by
all necessary corporate action on the part of XXXX. This Agreement and the
Guaranty of XXXX constitute valid and binding obligations of XXXX and are
enforceable against XXXX in accordance with their terms, except to the extent
that (a) enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or similar Laws now or hereafter in effect relating
to or limiting creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court or other similar
Person before which any proceeding therefor may be brought.
3.3 ORGANIZATION OF AVLIC. AVLIC is a life insurance corporation duly
organized, validly existing and in good standing under the Laws of the State of
Nebraska. AVLIC is duly licensed, qualified or admitted to do business and is
in good standing in all jurisdictions in which it is doing business and in which
the failure to be so licensed, qualified or admitted and in good standing,
individually or in the aggregate with other such failures, has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or on the Business or Condition of AVLIC. XXXX
has furnished to AML true and complete copies of the current articles or
certificate of incorporation and the by-laws of AVLIC (certified by the
secretary of AVLIC), including all amendments thereto.
3.4 ORGANIZATION OF AIC. AIC is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Nebraska. AIC is
duly licensed, qualified or admitted to do business and is in good standing in
all jurisdictions in which it is doing business and in which the failure to be
so licensed, qualified or admitted and in good standing, individually or in the
aggregate with other such failures, has or would reasonably be expected to have
a material adverse effect on the validity or enforceability of this Agreement or
on the Business or Condition of AIC. XXXX has furnished to AML true and
complete copies of the articles or certificate of incorporation and the by-laws
of AIC (certified by the secretary of AIC), including all amendments thereto.
40
3.5 AUTHORITY FOR JOINT VENTURE. On the Closing Date, the board of
directors of XXXX will have duly and validly approved the Joint Venture and the
transactions contemplated in connection therewith and hereby. On the entry into
the Joint Venture in accordance with this Agreement, the performance by XXXX of
its obligations in connection therewith will be duly and validly authorized by
all necessary corporate action on the part of XXXX.
3.6 CAPITAL STOCK. The authorized capital stock of AVLIC consists solely
of 50,000 shares of common stock with a par value of one hundred dollars
($100.00) per share, and an aggregate of 40,000 shares of such stock have been
issued and are owned beneficially and of record by XXXX, free and clear of all
Liens. The authorized capital stock of AIC consists solely of 500,000 shares of
common stock having a par value of ten cents ($.10) per share, and an aggregate
of 209,900 shares of such stock has been issued and shall be, on and as of the
Closing Date, owned beneficially and of record by XXXX, free and clear of all
Liens. All such issued shares of capital stock of AVLIC and AIC are duly
authorized, validly issued, outstanding, fully paid and nonassessable. Except
for such shares, no securities issued by AVLIC (other than Variable Products) or
AIC are held beneficially or of record by XXXX or any of its Affiliates. There
are no outstanding securities, obligations, rights, subscriptions, warrants,
options, phantom stock rights or (except for this Agreement) other Contracts of
any kind that give any Person the right to (a) purchase or otherwise receive or
be issued any shares of capital stock of AVLIC or AIC (or any interest therein)
or any security or Liability of any kind convertible into or exchangeable for
any shares of capital stock of AVLIC or AIC (or any interest therein) or (b)
receive any benefits or rights similar to any rights enjoyed by or accruing to a
holder of such shares, or any rights to participate in the equity, income or
election of directors or officers of AVLIC or AIC.
3.7 NO SUBSIDIARIES. Neither AVLIC nor AIC has or has had at any time any
Subsidiaries and neither controls (whether directly or indirectly, whether
through the ownership of securities or by agreement or proxy, and whether alone
or acting in concert with others) any corporation, partnership, business
organization or other similar Person. For purposes of this Section, "control"
shall mean the right to elect a majority of the board of directors or other
governing body of any such Person or otherwise manage, direct or govern the
business operations of such Person.
3.8 SECURITIES LAW MATTERS. AIC is duly registered as a broker dealer
pursuant to the federal securities Laws and is duly registered as such in each
state in which the nature of its business requires such registration. AIC is a
member in good standing of the NASD. AIC has filed on a timely basis all
reports required to be filed with the Commission, NASD and any state securities
authority. To the Knowledge of XXXX, or except
41
as otherwise disclosed in Section 3.8 of the Disclosure Schedule, all products
sold by AVLIC and AIC have been sold in accordance with all relevant federal and
state Laws or, to the extent any sale not in accordance with the foregoing has
occurred, any associated Damages have been fully and finally resolved and paid
in full or are barred by all applicable statutes of limitation.
3.9 NET CAPITAL REQUIREMENTS. AIC is subject to the net capital rules
under the federal securities Laws. As of December 31, 1995, AIC's actual net
capital and required net capital were $1,051,080 and $250,000, respectively, and
the ratio of aggregate indebtedness to net capital was 6.9 to 1.
3.10 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by XXXX does not, and the performance by XXXX of its obligations under
this Agreement will not:
(a) except as disclosed in Section 3.10(a) of the Disclosure
Schedule, subject to obtaining the approvals contemplated by Sections 5.1 and
5.2 and Sections 6.1 and 6.2 hereof, violate any term or provision of any Law
which materially affects the business, operations or financial condition of the
Holding Company or its Subsidiaries or any writ, judgment, decree, injunction or
similar order applicable to XXXX, AVLIC or AIC;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under,
any of the terms, conditions or provisions of the articles or certificate of
incorporation or by-laws of XXXX, AVLIC or AIC;
(c) result in the creation or imposition of any Lien in favor of any
Person other than AVLIC or AIC upon any of the respective Assets and Properties
of AVLIC or AIC;
(d) result in a breach of, or constitute (with or without notice or
lapse of time or both) a default under, or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect to,
any material Contract to which XXXX, AVLIC or AIC is a party or by which any of
their respective Assets and Properties may be bound; or
(e) require XXXX, AVLIC or AIC to obtain any consent, approval or
action of, or make any filing with or give any notice to, any Person except, in
either case, as contemplated in Section 5.1 or 5.2 hereof.
3.11 BOOKS AND RECORDS. Except as disclosed in Section 3.11 of the
Disclosure Schedule (and to the Knowledge of XXXX, solely with respect to Books
and Records dated prior to January 1, 1987), the minute books and other similar
records of each of AVLIC and AIC contain a true and complete record, in all
material
42
respects, of all actions taken at all meetings and by all written consents in
lieu of meetings of AVLIC's and AIC's stockholders, boards of directors and each
committee thereof. Except as disclosed in Section 3.11 of the Disclosure
Schedule, the Books and Records of AVLIC and AIC accurately reflect in all
material respects the Business or Condition of AVLIC and AIC and have been
maintained in all material respects in accordance with good business and
bookkeeping practices.
3.12 SAP STATEMENTS. XXXX has previously delivered to AML, or will have
delivered to AML upon completion, true and complete copies of the AVLIC SAP
Statements. Except as disclosed in Section 3.12 of the Disclosure Schedule, and
to the Knowledge of XXXX, each such SAP Statement complied or will comply in all
material respects with all applicable Laws when so filed, and all material
deficiencies known to XXXX or AVLIC with respect to any such SAP Statement have
been cured or corrected. Each such SAP Statement, including without limitation
each balance sheet and each of the statements of operations, capital and surplus
account and cash flow contained in the respective SAP Statement, was prepared in
accordance with SAP, is or will when filed be true and complete in all material
respects, and does or will present fairly, in all material respects, the
admitted assets, liabilities and capital and surplus of AVLIC as of the date
thereof and its results of operations and cash flows for and during the
respective periods covered thereby.
3.13 GAAP STATEMENTS. XXXX has previously delivered to AML, or will have
delivered to AML upon completion, true and complete copies of the AIC Statements
and the AVLIC GAAP Statements.
(a) Except as disclosed in Section 3.13 of the Disclosure Schedule,
and to the Knowledge of XXXX, each AIC Statement complied or will comply in all
material respects with all applicable laws when so filed and material
deficiencies known to XXXX with respect to any AIC Statement have been cured or
corrected. Each AIC Statement, including without limitation the reports to the
Commission pursuant to Section 17 of the Securities and Exchange Act of 1934 and
Rule 17a-5 thereunder was prepared in accordance with GAAP, is or will when
filed or provided be true and complete in all material respects, and does or
will fairly present, in all material respects, all of the information contained
therein, including without limitation the assets, liabilities, capital and
surplus, and results of operations of AIC as of the respective dates thereof or
periods covered thereby.
(b) Except as disclosed in Section 3.13 of the Disclosure Schedule,
and to the Knowledge of XXXX, each AVLIC GAAP Statement complied or will comply
in all material respects with all applicable laws when so filed and material
deficiencies known to XXXX with respect to any AVLIC GAAP Statement have been
cured or corrected. Each AVLIC GAAP Statement was prepared in
43
accordance with GAAP, is or will when provided be true and complete in all
material respects, and does or will fairly present, in all material respects,
all of the information contained therein, including without limitation the
assets, liabilities, capital and surplus, and results of operations of AVLIC as
of the respective dates thereof or periods covered thereby.
3.14 RESERVES.
(a) Except as disclosed in Section 3.14 of the Disclosure Schedule,
all reserves and other Liabilities with respect to insurance and annuities and
for claims and benefits incurred but not reported (the "Reserve Liabilities"),
as established or reflected in the SAP Statements of AVLIC (including without
limitation the reserves and policy and contract liabilities to be reflected
respectively on Lines 1 through 11, 15, 21, 24.2, 24.3 and 24.6 of page 3 of the
Annual Statement of AVLIC (and the corresponding line numbers in the Annual
Statement of AVLIC's separate accounts)), were determined in accordance with
generally accepted actuarial standards consistently applied, are fairly stated
in accordance with sound actuarial principles, are based on actuarial
assumptions that are in accordance with those called for by the provisions of
the related insurance and annuity Contracts and in the related reinsurance,
coinsurance and other similar Contracts of AVLIC, and meet in all material
respects the requirements of the insurance Laws of its state of domicile.
Adequate provision for all such Reserve Liabilities have been made under
generally accepted actuarial principles consistently applied to cover the total
amount of all reasonably anticipated matured and unmatured benefits, dividends,
claims and other Liabilities of AVLIC under all insurance and annuity Contracts
under which AVLIC has any Liability, including without limitation any Liability
arising under or as a result of any reinsurance, coinsurance or other similar
Contract, on the date of each such SAP Statement based on then current
information regarding interest earnings, mortality and morbidity experience,
persistency and expenses. No warranty is made as to the ultimate adequacy of
the Reserve Liabilities to satisfy the Liabilities and obligations reserved
against. AVLIC owns assets that qualify as legal reserve assets under
applicable insurance laws in an amount at least equal to all such Reserve
Liabilities; and
(b) All reserves and accrued Liabilities for estimated losses,
settlements, costs and expenses from pending suits, actions and proceedings
included in the SAP Statements and described in Schedule 3.14(b) of the
Disclosure Schedule were determined in accordance with SAP and Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board. No warranty is made as to the ultimate adequacy of such
reserves and accrued Liabilities to satisfy the Liabilities and obligations
reserved against.
44
3.15 ABSENCE OF CHANGES. Since December 31, 1994, except as disclosed in
Section 3.15 of the Disclosure Schedule or in the Annual Statement or the
December 31, 1994 AIC Statement, or as specifically disclosed in the Quarterly
Statements of AVLIC or the 1995 quarterly AIC Statements, (i) there has not been
any loss or any change in any business practice or policy or, to the Knowledge
of XXXX, any event, action or condition or any agreement to do any of the
foregoing that individually or in the aggregate has or would reasonably be
expected to have a material adverse effect on the Business or Condition of AVLIC
or AIC, (ii) each of AVLIC and AIC has operated only in the ordinary course of
business and consistent with past practice, and (iii) without limiting the
generality of the foregoing, there has not been, occurred or arisen:
(a) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of AVLIC or AIC or any direct
or indirect redemption, purchase or other acquisition by AVLIC or AIC of any
such stock or of any interest in or right to acquire any such stock;
(b) any employment, deferred compensation or other salary, wage or
compensation Contract entered into between AVLIC or AIC and any employee of
AVLIC or AIC, except for normal and customary Contracts with agents and
consultants in the ordinary course of business consistent with past practice;
(c) any issuance, sale or disposition by either AVLIC or AIC of any
debenture, note, stock or other security issued by AVLIC (other than any
Variable Product) or AIC, or a modification or amendment of any right of the
holder of any outstanding debenture, note, stock or other security issued by
AVLIC (other than any Variable Product) or AIC;
(d) any lien created on or in any of the Assets and Properties of
AVLIC or AIC or assumed by either of them with respect to any of such Assets and
Properties, in favor of any Person other than AVLIC or AIC, which lien relates
to Liabilities individually or in the aggregate exceeding $20,000;
(e) any Liability involving the borrowing of money by AVLIC or AIC,
except in the ordinary course of business and consistent with past practice;
(f) to the Knowledge of XXXX, any amendment, termination, waiver,
disposal or lapse of, or other failure to preserve, any license, permit or other
form of authorization of AVLIC or AIC, the result of which individually or in
the aggregate has or would reasonably be expected to have a material adverse
effect on the Business or Condition of AVLIC or AIC;
(g) any amendment to the articles of incorporation or by-laws of
either AVLIC or AIC;
45
(h) any termination, amendment or entering into by AVLIC as ceding or
assuming insurer of any reinsurance, coinsurance or other similar Contract or
any trust agreement or security agreement related thereto;
(i) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible capital assets of AVLIC or AIC, in
excess of any budgeted amounts set forth in Section 3.15(i) of the Disclosure
Schedule, which expenditures or commitments exceed $200,000 in the aggregate; or
(j) any amendment or introduction by AVLIC of any insurance or
annuity Contract or product other than in the ordinary course of business
consistent with past practice.
3.16 NO UNDISCLOSED LIABILITIES. Except to the extent reflected in the
balance sheet included in the Annual Statement or the December 31, 1994 AIC
Statement, or except as disclosed in Section 3.15 or 3.16 of the Disclosure
Schedule, to the Knowledge of XXXX there were no Liabilities (other than
policyholder benefits payable in the ordinary course of business and consistent
with past practice) against, relating to or affecting AVLIC or AIC as of
December 31, 1994 exceeding $50,000 in the aggregate. Except to the extent
specifically reflected in the balance sheets included in the Annual Statement or
the December 31, 1994 AIC Statement, or except as disclosed in Section 3.16 of
the Disclosure Schedule, since December 31, 1994, to the Knowledge of XXXX
neither AVLIC nor AIC has incurred any Liabilities exceeding $50,000 in the
aggregate (other than policyholder benefits and other obligations payable in the
ordinary course of business and consistent with past practice).
3.17 [Reserved.]
3.18 LITIGATION. Except as disclosed in Section 3.18 of the Disclosure
Schedule, there are no actions, suits or proceedings pending, or threatened, at
law or in equity, and, to the Knowledge of XXXX, no investigation, event, fact
or circumstance has arisen or occurred that may reasonably be expected to result
in the commencement of the foregoing, against XXXX, AVLIC or AIC or any of their
Assets and Properties, in, before or by any Person that (i) to the extent
against AVLIC or AIC, individually involves a claim for Damages exceeding
$50,000 or an unspecified amount of Damages; or (ii) individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement, on the ability of XXXX to
perform its obligations under this Agreement, or on the Business or Condition of
AVLIC or AIC.
3.19 COMPLIANCE WITH LAWS. Except as disclosed in Section 3.19 of the
Disclosure Schedule, to the Knowledge of XXXX neither AVLIC nor AIC has been or
is in violation (or with or without notice or lapse of time or both, would be in
violation) of any
46
term or provision of any Law or any writ, judgment, decree, injunction or
similar order applicable to AVLIC or AIC or any of their respective Assets and
Properties, except for violations which have been cured, which have been
resolved or settled through agreements with applicable governmental authorities
or which are barred by all applicable statutes of limitation. Neither AVLIC nor
AIC has ever conducted business in any state, country, province, or other
jurisdiction other than in the United States and, to the Knowledge of XXXX, no
AVLIC or AIC Representative (while a representative of AVLIC or AIC) has ever
offered, marketed or sold any product of AVLIC or AIC other than within the
United States.
3.20 EMPLOYEE MATTERS. Any Benefit Plan in effect prior to the Closing
Date with respect to any AVLIC or AIC Representative shall either (i) be amended
or terminated at or before Closing or (ii) be funded and/or managed, so as to
result in no Liabilities to AVLIC, AIC, Holding Company and/or AML after the
Closing Date. Neither AVLIC nor AIC have any plan or commitment, whether or not
legally binding, to create any Benefit Plan, and neither XXXX (except to the
extent such intention relates to the joint plans of XXXX and AML in connection
with the Joint Venture) nor any Affiliate of XXXX has any such plan or
commitment which would or could impose any Liabilities on AVLIC or AIC after the
Closing Date.
3.21 PROPERTIES. Except as disclosed in Section 3.21 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) Neither AVLIC nor AIC (and no predecessor of either): (i) owns,
operates, leases or subleases, or has ever owned, operated, leased or subleased
any Real Estate, except to the extent it has leased office space; (ii) is now or
has ever been the holder of any mortgage, pledge or other encumbrance on any
Real Estate; (iii) has ever engaged in any business, directly or indirectly,
involving the storage, treatment, generation, transportation, disposal or other
handling of any Hazardous Substance, or has ever caused or permitted any Release
of any Hazardous Substance on or from any Real Estate.
(b) AVLIC has good and valid title to all debentures, notes, stocks,
securities and other assets that are of a type required to be disclosed in
Schedules B through DB of its annual SAP Statements and that are owned by it,
free and clear of all Liens.
(c) None of the loans or other long term invested assets held by
AVLIC of the type required to be disclosed in Schedule B or BA of its annual SAP
Statements is or has been at any time since December 31, 1992 in default for
more than 60 days as to any payment of interest or principal due thereon and the
financial condition of any other party to such loan or asset is
47
not so impaired as to cause a default thereunder. There is no existing
circumstance or condition with respect to any such loan or asset or any property
mortgaged or pledged as collateral for the repayment thereof that would cause
such loan to be subject to imminent default. There is no valid right of offset,
defense or counterclaim to any such loan or asset.
(d) AIC has good and marketable title to all of the assets detailed
in the AIC Statements, subject to no encumbrances, mortgages, pledges, liens or
restrictions of any type.
(e) Each of AVLIC and AIC owns good and indefeasible title to, or has
a valid leasehold interest in or has a valid right under Contract to use, all
tangible personal property that is used in the conduct of its business,
operations or affairs, free and clear of all Liens. All such tangible personal
property is, except for reasonable wear and tear, in good operating condition
and repair and is suitable for its current uses.
(f) Each of AVLIC and AIC has and, immediately after the Closing will
have, the non-exclusive right to use, after the Closing, free and clear of any
royalty or other payment obligations (other than such obligations not exceeding
$5,000 in the aggregate), claims of infringement or alleged infringement or
other Liens, (i) all marks, names, trademarks, patents, patent rights, assumed
names, logos, trade secrets, copyrights, trade names and service marks that are
used in the conduct of its business, operations or affairs, and (ii) all
material computer software, programs and similar systems owned by or licensed to
AVLIC or AIC or used in the conduct of their respective business, operations or
affairs. Neither AVLIC nor AIC is in conflict with or in violation or
infringement of, nor has XXXX, AVLIC or AIC received any notice of any claimed
conflict with, or violation or infringement of (which claimed conflict,
violation or infringement has not been resolved), any asserted rights of any
other Person with respect to any intellectual property or any material computer
software, programs or similar systems.
3.22 REGULATION. Except as disclosed in Section 3.22 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) To the Knowledge of XXXX, (i) AIC's business is being conducted
in compliance with each Law of any governmental entity, and in compliance with
the rules and regulations of the New York Stock Exchange, the American Stock
Exchange, the NASD, the Commodity Future Trading Corporation and any other stock
exchanges, commodities exchanges or self-regulatory organizations of which it is
a member on the date hereof, except for possible violations which either
singularly or in the aggregate do not have or will not have a material adverse
effect on the Business or Condition of AIC; and (ii) no investigation or review
by any
48
governmental entity, securities or commodities exchange or self-regulatory
organization with respect to AIC is pending or threatened, nor has any
governmental entity, securities or commodities exchange or self-regulatory
organization indicated an intention to conduct same.
(b) Except for restrictions generally imposed by rule, regulation or
administrative policy on broker dealers generally, AIC is not under any
restriction or disqualification imposed by the New York Stock Exchange, the
NASD, the American Stock Exchange, the Commission, the Commodity Future Trading
Corporation or any other administrative agency or securities or commodities
exchange.
3.23 PURCHASE FOR INVESTMENT. The Shares to be acquired under the terms of
this Agreement will be acquired by XXXX for its own account for the purpose of
investment and not for the purpose of distribution. XXXX 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 of 1933, as amended, or of any applicable state securities Law
regulating the disposition thereof. XXXX agrees that the certificates
representing the Shares may bear legends to the effect that the Shares have not
been registered under the Securities Act of 1933, as amended, or such other
state securities Laws and that no interest therein may be transferred or
otherwise disposed of in violation of the provisions thereof.
3.24 INSURANCE ISSUED BY AVLIC. Except as disclosed in Section 3.24 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) To the Knowledge of XXXX, no outstanding insurance or annuity
Contract issued, reinsured or underwritten by AVLIC entitles the holder thereof
or any other Person to receive dividends, distributions or other benefits based
on the revenues or earnings of AVLIC or any other Person, except to the extent
any AVLIC Variable Product provides for the policyholder to receive the
dividends or other earnings on the investment of separate account assets.
(b) All outstanding insurance and annuity Contracts issued, reinsured
or underwritten by AVLIC are, to the extent required under applicable Laws, on
forms approved by the insurance regulatory authority of the jurisdiction where
issued or have been filed with and not objected to by such authority within the
period provided for objection.
(c) The underwriting standards utilized and ratings applied by AVLIC
with respect to any insurance or annuity Contract or by AVLIC and/or XXXX
pursuant to any reinsurance, coinsurance or other similar Contract with AVLIC
conform in all
49
material respects to industry accepted practices and to the standards and
ratings required pursuant to the terms of the respective reinsurance,
coinsurance or other similar Contracts.
(d) Neither XXXX nor AVLIC has received any information which would
cause it to believe that the financial condition of any other party to any
reinsurance, coinsurance or other similar Contract with AVLIC is so impaired as
to be likely to result in a default thereunder, or that any amount payable under
any such Contract is not fully collectible.
(e) To the Knowledge of XXXX, each insurance agent, at the time such
agent wrote, sold or produced business for AVLIC at any time since December 31,
1990, was duly licensed as an insurance agent for the type of business written,
sold or produced by such insurance agent in the particular jurisdiction in which
such agent wrote, sold or produced such business. To the Knowledge of XXXX, no
such insurance agent violated (or with or without notice or lapse of time, or
both, would have violated) any term or provision of any Law or any writ,
judgment, decree, injunction or similar order applicable to the writing, sale or
production of business for AVLIC, except for violations which have been cured,
which have been resolved or settled through agreements with applicable
governmental authorities or which are barred by all applicable statutes of
limitation.
3.25 [Reserved.]
3.26 LICENSES AND PERMITS. Except as disclosed in Section 3.26 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below), and to the Knowledge of XXXX:
(a) each of AVLIC and AIC owns or validly holds, or will through the
Service Agreements be entitled to the benefits or protections afforded by, all
licenses, franchises, permits, approvals, authorizations, exemptions,
classifications, certificates, registrations and similar documents or
instruments that are required for its business, operation and affairs and that
the failure to so own or hold has or would reasonably be expected to have a
material adverse effect on the Business or Condition of AVLIC or AIC; and
(b) all such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations and
similar documents or instruments are valid, binding and in full force and
effect.
3.27 [Reserved.]
3.28 DISCLOSURE. Neither this Agreement nor any certificate required to be
furnished by XXXX to AML in connection with this
50
Agreement or the transactions contemplated hereby contains any untrue statement
of a material fact concerning AVLIC or AIC or omits to state a material fact
concerning AVLIC or AIC necessary to make the statements herein or therein not
misleading in light of the circumstances in which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AML
AML hereby represents and warrants to XXXX as follows:
4.1 ORGANIZATION OF AML. AML is a corporation duly organized and validly
existing under the Laws of the State of Iowa and has the requisite power and
authority to enter into this Agreement and to perform its obligations under this
Agreement. AML is duly licensed, qualified or admitted to do business in all
jurisdictions in which the failure to be so licensed, qualified or admitted,
individually or in the aggregate with other such failures, has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of AML to perform its
obligations under this Agreement or on the Business or Condition of AML.
4.2 AUTHORITY OF AML. The board of directors of AML has duly and validly
approved this Agreement and the transactions contemplated hereby. The execution
and delivery of this Agreement by AML and the performance by AML of its
obligations under this Agreement have been duly and validly authorized by all
necessary action. This Agreement constitutes a valid and binding obligation of
AML and is enforceable against AML in accordance with its terms, except to the
extent that (a) enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefor may be brought.
4.3 AUTHORITY FOR JOINT VENTURE. On the Closing Date, the Board of
directors of AML will have duly and validly approved the Joint Venture and the
transactions contemplated in connection therewith and hereby. On the entry into
the Joint Venture in accordance with this Agreement, the performance by AML of
its obligations in connection therewith will be duly and validly authorized by
all necessary corporate action on the part of AML.
4.4 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by AML do not, and the performance by AML of its obligations under
this Agreement will not:
51
(a) subject to obtaining the approvals contemplated by Sections 5.1
and 5.2 and Sections 6.1 and 6.2 hereof, violate any term or provision of any
Law which materially affects the business, operations or financial condition of
AML or any writ, judgment, decree, injunction or similar order applicable to
AML;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under,
any of the terms, conditions or provisions of the articles or certificate of
incorporation or by-laws of AML;
(c) result in the creation or imposition of any Lien upon any of the
Assets and Properties of AML;
(d) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under, or
give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, any Contract to which AML is a party or by
which any of its Assets and Properties may be bound; or
(e) require AML to obtain any consent, approval or action of, or make
any filing with or give any notice to, any Person except, in either case, as
contemplated in Section 6.1 or 6.2 hereof.
4.5 LITIGATION. There are no actions, suits, investigations or
proceedings against AML pending or threatened, and (to the Knowledge of AML) no
event, fact or circumstance has arisen or occurred that may reasonably be
expected to result in any action, suit, investigation or proceeding against AML
at law or in equity in, before or by any Person that individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement or on the ability of AML to
perform its obligations under this Agreement.
4.6 PURCHASE FOR INVESTMENT. The Shares to be acquired under the terms of
this Agreement will be acquired by AML for its own account for the purpose of
investment and not for the purpose of distribution. AML 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 of 1933, as amended, or of any applicable state securities Law
regulating the disposition thereof. AML agrees that the certificates
representing the Shares may bear legends to the effect that the Shares have not
been registered under the Securities Act of 1933, as amended, 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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4.7 DISCLOSURE. Neither this Agreement nor any certificate required to be
furnished by AML to XXXX in connection with this Agreement or the transactions
contemplated hereby contains any untrue statement of a material fact concerning
AML or omits to state a material fact concerning AML necessary to make the
statements herein or therein not misleading in light of the circumstances in
which they were made.
ARTICLE V
COVENANTS OF XXXX
XXXX covenants and agrees with AML that, at all times after the date hereof
and before the Closing (or, with respect to the provisions of Section 5.16
hereof, both before and after the Closing Date), XXXX will comply with all
covenants and provisions of this Article V, except to the extent AML may
otherwise consent in writing, or to the extent otherwise required or permitted
by this Agreement.
5.1 REGULATORY APPROVALS. XXXX will, and will cause AVLIC and AIC to, (a)
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain, as promptly as practicable, all approvals required by any applicable
Contract of XXXX or AVLIC or AIC, (b) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations and clearances of governmental and regulatory
authorities required for XXXX, AVLIC or AIC to permit XXXX to consummate the
transactions contemplated hereby, (c) provide such other information and
communications to such governmental and regulatory authorities as AML or such
authorities may reasonably request, and (d) cooperate with AML in obtaining, as
promptly as practicable, all approvals, authorizations and clearances of
governmental or regulatory authorities and others required for AML to consummate
the transactions contemplated hereby, including without limitation any required
approvals of the insurance regulatory authorities in the State of Nebraska.
5.2 HSR FILINGS. XXXX will, and will cause its Affiliates to, (a) take
promptly all actions necessary to make the filings required of XXXX or its
Affiliates under the HSR Act, (b) comply at the earliest practicable date with
any request for additional information received by XXXX or its Affiliates from
the Federal Trade Commission or Antitrust Division of the Department of Justice
pursuant to the HSR Act, (c) cooperate with AML in connection with AML's filings
under the HSR Act, and (d) request early termination of the applicable waiting
period.
53
5.3 INVESTIGATION BY AML. XXXX will provide, and will cause AVLIC and AIC
to provide, (a) AML and its counsel, accountants, actuaries and other
representatives with access, upon reasonable notice and during normal business
hours, to all facilities, officers, employees, agents, accountants, actuaries,
Assets and Properties, and Books and Records of AVLIC and AIC and will furnish
AML and such other Persons during such period with all such information and data
(including without limitation copies of or information concerning all material
Contracts, Benefit Plans, market conduct and financial examinations, Tax
records, insurance coverage and other Books and Records) concerning the
business, operations and affairs of AVLIC and AIC, and all such additional
information and data with respect to the Tax records and Benefit Plans of XXXX,
as AML or any of such other Persons reasonably may request and (b) AML with
notice of and full access to all meetings (and all actions by written consent in
lieu thereof) of the respective boards of directors and stockholders of AVLIC
and AIC involving matters which are not in the ordinary course of business and
consistent with past practice of AVLIC or AIC, except such meetings as involve
only matters related to the consummation of the transactions contemplated
herein.
5.4 NO NEGOTIATIONS, ETC. XXXX will not take, and will not permit AVLIC
or AIC or any other Affiliate of XXXX (or permit any other Person acting for or
on behalf of any of them) to take, directly or indirectly, any action, except as
permitted or required by this Agreement, (a) to seek or encourage any offer or
proposal from any Person to acquire any shares of capital stock or any other
securities of AVLIC or AIC or any interests therein or Assets and Properties
thereof or interests therein, (b) to merge, consolidate or combine, or to permit
any other Person to merge, consolidate or combine, with AVLIC or AIC, (c) in the
case of AVLIC or AIC, to acquire or agree to acquire blocks of business or all
or substantially all the Assets and Properties or capital stock or other equity
securities of any other Person, (d) to liquidate, dissolve or reorganize AVLIC
or AIC, (e) to acquire or transfer any Assets and Properties of AVLIC or AIC or
any interests therein, except as contemplated by the terms of this Agreement,
(f) to reach any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise to attempt to consummate, any such acquisition, transfer, merger,
consolidation, combination or reorganization with respect to AVLIC or AIC, (g)
to furnish or cause to be furnished any information with respect to AVLIC or AIC
to any Person (other than AML or as provided in Section 5.3) that XXXX, AVLIC or
AIC, or any other Affiliate of XXXX (or any Person acting for or on behalf of
any of them) knows or has reason to believe is in the process of attempting or
considering any such acquisition, transfer, merger, consolidation, combination,
liquidation, dissolution or reorganization with respect to AVLIC or AIC, or (h)
to enter into any other commitment (with respect to AVLIC or
54
AIC or otherwise) which would have a material adverse effect on XXXX'x ability
to perform its obligations under this Agreement. If XXXX, AVLIC or AIC, or any
other Affiliate of XXXX, receives from any Person (other than AML) any offer,
proposal or informational request that is subject to this Section 5.4, XXXX will
promptly advise such Person, by written notice, of the terms of this Section 5.4
and will promptly deliver a copy of such notice to AML. Nothing herein shall
prohibit XXXX from acquiring the Shares of AIC as agreed pursuant to Section 3.6
hereof.
5.5 CONDUCT OF BUSINESS. XXXX will cause AVLIC and AIC to conduct their
business (including, without limitation, relationships with policyholders,
agents and service providers, conduct of marketing efforts, compliance with
Laws, maintenance of Books and Records and maintenance of licenses and
regulatory approvals) only in the ordinary course of business and consistent
with past practice, except as otherwise provided in this Agreement or except as
AML may otherwise consent in writing.
5.6 FINANCIAL STATEMENTS AND REPORTS.
(a) As promptly as practicable (i.e., whether before or after the
Closing Date) after each calendar quarter or year ending after the third quarter
of 1995 and before the Closing Date, XXXX will deliver to AML true and complete
copies of the following:
(1) the SAP Statement filed by AVLIC for each quarter or year
then ended and each quarterly or annual GAAP Statement of AIC or AVLIC;
(2) presentations for AVLIC reflecting, as of the end of each
such quarter, the information of the type required by the line items set forth
on pages 2, 3, 4, 5, 8, 9, 12, 13 and 13.1 and on Schedules A through DB and S
of the Annual Statement of AVLIC (and the corresponding pages and Schedules of
the Annual Statement of AVLIC's separate account), which presentations shall be
prepared in accordance with SAP and will present fairly, in all material
respects, the admitted assets, Liabilities and capital and surplus of AVLIC as
of the date thereof and its results of operations and cash flows for and during
the respective periods covered thereby;
(3) with respect to the year ending on December 31, 1995,
audited GAAP Statements with respect to AVLIC and AIC; and
(4) with respect to the quarter ending on March 31, 1996,
Verified unaudited GAAP Statements with respect to AVLIC and AIC.
(b) As promptly as practicable, XXXX will deliver to AML true and
complete copies of such other material financial
55
statements, reports or analyses as may be prepared or received by XXXX, or any
other Affiliate of XXXX (other than AVLIC or AIC) and as relate to any of the
business, operations or affairs of AVLIC or AIC, including without limitation
normal internal reports which AVLIC or AIC prepares (such as those reflecting
monthly premiums, claims and cash flow) and special reports (such as those of
financial consultants).
5.7 EMPLOYEE AND AGENT MATTERS. XXXX will cause AVLIC and AIC to refrain
from directly or indirectly, without the consent of AML:
(1) hiring, employing, engaging, recruiting, or otherwise taking
on any employee other than in the ordinary course of business;
(2) adopting, entering into, amending, altering or terminating,
partially or completely, any agency, consultation or representation Contract,
other than in the ordinary course of business and in accordance with past
practice, that is, or had it been in existence on the date of this Agreement
would have been, required to be disclosed pursuant to Section 5.3 hereof;
(3) entering into, other than in the ordinary course of business
and in accordance with past practice, any Contract with any AVLIC or AIC
Representative that is not terminable by AVLIC or AIC, without penalty or other
Liability, upon not more than 30 calendar days' notice.
5.8 NO CHARTER AMENDMENTS. XXXX will cause each of AVLIC and AIC to
refrain from amending its articles or certificate of incorporation or by-laws
and from taking any action with respect to any such amendment.
5.9 NO ISSUANCE OF SECURITIES. XXXX will cause each of AVLIC and AIC to
refrain from authorizing or issuing any shares of its capital stock or other
equity securities or entering into any Contract or granting any option, warrant
or right calling for the authorization or issuance of any such shares or other
equity securities, or creating or issuing any securities directly or indirectly
convertible into or exchangeable for any such shares or other equity securities,
or issuing any options, warrants or rights to purchase any such convertible
securities.
5.10 NO DIVIDENDS. Except as set forth in Section 5.10 of the Disclosure
Schedule or except as XXXX otherwise informs AML, XXXX will cause each of AVLIC
and AIC to refrain from declaring, setting aside or paying any dividend or other
distribution in respect of its capital stock and from directly or indirectly
redeeming, purchasing or otherwise acquiring any of its capital stock or any
interest in or right to acquire any such stock.
56
5.11 NO DISPOSAL OF PROPERTY. Except as set forth in Section 5.11 of the
Disclosure Schedule or as otherwise expressly provided in this Agreement, XXXX
will cause each of AVLIC and AIC to refrain from (a) disposing of any of its
Assets and Properties and from permitting any of its Assets and Properties to be
subjected to any Liens, except to the extent any such disposition or any such
Lien is made or incurred in the ordinary course of business and consistent with
past practice, (b) selling any material part of its insurance products,
operations or business to any Third Party (other than sales of insurance
products in the ordinary course of business consistent with past practice), (c)
entering into any Contracts obligating it to administer the insurance operations
of any other Person and (d) entering into any Contracts permitting any other
Person to administer its insurance operations.
5.12 NO BREACH OR DEFAULT. XXXX will cause each of AVLIC and AIC to
refrain from violating, breaching or defaulting, and from taking or failing to
take any action that (with or without notice or lapse of time or both) would
constitute a material violation, breach or default, in any way under any term or
provision of any Contract to which it is a party or by which any of its Assets
and Properties is or may be bound.
5.13 NO INDEBTEDNESS. Except in the ordinary course of business and
consistent with past practice and except for existing contractual obligations,
XXXX will cause AVLIC and AIC to refrain from creating, incurring, assuming,
guaranteeing or otherwise becoming liable for, and from canceling, paying,
agreeing to cancel or pay, or otherwise providing for a complete or partial
discharge in advance of a scheduled payment date with respect to, any Liability,
and from waiving any right to receive any direct or indirect payment or other
benefit under any Liability owing to it.
5.14 [Reserved.]
5.15 INTERCOMPANY LIABILITIES. At or prior to the Closing, all existing
Intercompany Liabilities owed by or to AVLIC or AIC shall have been paid or
accrued. Each Contract of AVLIC or AIC which shall remain in effect after the
Closing Date and, upon performance by any party thereto, give rise to any
Intercompany Liability shall be in writing, shall have been provided to AML
pursuant to Section 5.3 hereof, and shall be described in Section 5.15 of the
Disclosure Schedule.
5.16 TAX MATTERS. XXXX will refrain and will cause each of AVLIC and AIC
to refrain from making, filing, or entering into (whether before or after the
Closing) any election, consent or agreement with respect to any Tax matters
which would have any effect on AVLIC, AIC or any of their respective Assets and
Properties for any Tax period ending after the Closing Date.
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5.17 DISCLOSURE SCHEDULE. XXXX shall deliver the Disclosure Schedule to
AML within 12 days after the date of this Agreement. Any matter disclosed under
one Section of the Disclosure Schedule shall be considered to be disclosed under
all other applicable Sections of the Disclosure Schedule from which it is
inadvertently omitted and, to the extent AML has actual knowledge of (or obtains
information sufficient to cause a reasonable person to make further inquiry with
respect to) any matter required to be disclosed by XXXX or its Affiliates
hereunder, such matter shall be deemed disclosed (but only to the extent of such
actual knowledge or such further reasonable inquiry).
5.18 NOTICE AND CURE. XXXX will notify AML promptly in writing of, and
contemporaneously will provide AML with true and complete copies of any and all
information or documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of XXXX under this Agreement to be breached, or that
renders or will render untrue any representation or warranty of XXXX contained
in this Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. XXXX also will use all commercially reasonable
efforts to cure, before the Closing, any violation or breach of any
representation, warranty, covenant or agreement made by it in this Agreement,
whether occurring or arising before or after the date of this Agreement.
ARTICLE VI
COVENANTS OF AML
AML covenants and agrees with XXXX that, at all times after the date hereof
and before the Closing, AML will comply with all covenants and provisions of
this Article VI, except to the extent XXXX may otherwise consent in writing, or
to the extent otherwise required or permitted by this Agreement.
6.1 REGULATORY APPROVALS. AML will (a) take all commercially reasonable
steps necessary or desirable, and proceed diligently and in good faith and use
all commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations and clearances of governmental and regulatory
authorities required of AML to consummate the transactions contemplated hereby,
including without limitation any required approvals of the insurance regulatory
authorities in the State of Nebraska, including but not limited to the approval
of the Director of Insurance for the State of Nebraska of AML's Statement; (b)
provide such other information and communications to such governmental and
regulatory authorities as XXXX or such authorities may reasonably request, and
(c) cooperate with XXXX, AVLIC and AIC in obtaining, as promptly as practicable,
all
58
approvals, authorizations and clearances of governmental or regulatory
authorities required of XXXX, AVLIC or AIC to consummate the transactions
contemplated hereby.
6.2 HSR FILINGS. AML will (a) take promptly all actions necessary to make
the filings required of AML under the HSR Act, (b) comply at the earliest
practicable date with any request for additional information received by AML
from the Federal Trade Commission or Antitrust Division of the Department of
Justice pursuant to the HSR Act, (c) cooperate with XXXX in connection with
XXXX'x filings under the HSR Act, and (d) request early termination of the
applicable waiting period.
6.3 INVESTIGATION BY XXXX. AML will provide XXXX and its counsel,
accountants, actuaries and other representatives with access, upon reasonable
notice and during normal business hours, to its facilities, officers, employees,
agents, accountants, actuaries, Assets and Properties, and Books and Records and
will furnish ALIC and such other Persons during such period with all such
information and data (including without limitation copies of Contracts and other
Books and Records) concerning AML's Distribution Force and the operation of its
Fixed Annuity business as XXXX or any of such other Persons reasonably may
request.
6.4 NO NEGOTIATIONS, ETC. AML will not take, and will not permit any
Affiliate of AML (or permit any other Person acting for or on behalf of any of
them) to take, directly or indirectly, any action, except as permitted or
required by this Agreement, (a) to seek or encourage any offer or proposal from
any Person by which AML or any Affiliate thereof would acquire a controlling
interest in any Person whose primary business is variable life insurance, (b) to
reach any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise to attempt to consummate, any such acquisition, transfer, merger,
consolidation, combination or reorganization, or (c) to enter into any other
commitment which would have a material adverse effect on AML's ability to
perform its obligations under this Agreement.
6.5 NOTICE AND CURE. AML will notify XXXX promptly in writing of, and
contemporaneously will provide XXXX with true and complete copies of any and all
information or documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of AML under this Agreement to be breached, or that
renders or will render untrue any representation or warranty of AML contained in
this Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. AML also will use all commercially reasonable
efforts to cure, before the Closing, any violation or
59
breach of any representation, warranty, covenant or agreement made by it in this
Agreement, whether occurring or arising before or after the date of this
Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF AML
The obligations of AML hereunder are subject to the fulfillment, at or
before the Closing, of each of the following conditions (all or any of which may
be waived in whole or in part by AML in its sole discretion).
7.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date there
shall not exist any breaches of representations and warranties made by XXXX in
this Agreement (which representations and warranties shall be deemed restated
and made on and as of the Closing Date), which breaches individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the Business and Condition of AVLIC or AIC.
7.2 PERFORMANCE. XXXX shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement to be so performed or complied with by XXXX at or before the
Closing, including those specifically referred to elsewhere in this Article VII.
7.3 OFFICER'S CERTIFICATES. XXXX shall have delivered to AML a
certificate, dated the Closing Date in form reasonably acceptable to AML and
executed by the chief executive officer or chief financial officer of XXXX,
certifying (with respect to XXXX and, as appropriate, AVLIC and AIC) as to the
fulfillment of the conditions set forth in Sections 7.1, 7.2, 7.4, 7.5, 7.6, 7.8
and 8.7 hereof. In addition, XXXX shall have delivered to AML a certificate,
dated the Closing Date and executed by the secretary or any assistant secretary
of XXXX, certifying that XXXX has duly and validly taken all corporate action
necessary to authorize its execution and delivery of this Agreement and its
performance of its obligations under this Agreement and that the resolutions
(true and complete copies of which shall be attached to the certificate) of the
board of directors of XXXX with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full force and
effect.
7.4 HSR ACT APPROVAL. All waiting periods applicable to this Agreement
and the transactions contemplated hereby under the HSR Act shall have expired or
been waived.
7.5 NO INJUNCTION. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree or similar order of any court or similar
Person restraining, enjoining or
60
otherwise preventing consummation of any of the transactions contemplated by
this Agreement.
7.6 NO PROCEEDING OR LITIGATION. There shall not be instituted, pending
or (to the Knowledge of AML) threatened any action, suit, investigation or other
proceeding in, before or by any court, governmental or regulatory authority or
other Person to restrain, enjoin or otherwise prevent consummation of any of the
transactions contemplated by this Agreement or to recover any Damages or obtain
other relief as a result of this Agreement or any of the transactions
contemplated hereby or as a result of any Contract entered into in connection
with or as a condition precedent to the consummation hereof, which action, suit,
investigation or other proceeding would, in the opinion of AML, result in a
decision, ruling or finding that individually or in the aggregate has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of XXXX or AML to perform its
obligations under this Agreement, or on the Business or Condition of AVLIC or
AIC. There shall not be in effect on the Closing Date any voluntary or
involuntary bankruptcy, receivership, conservatorship or similar proceeding with
respect to any one or more of AVLIC, AIC or XXXX.
7.7 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals and waivers of every Person necessary to permit AML to
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby and to permit AML to acquire its interest in the Joint
Venture pursuant to this Agreement (including without limitation any requisite
action of the insurance regulatory authorities in the State of Nebraska, in each
case without the abrogation or diminishment of the authority or license of AVLIC
or AIC or the imposition of significant restrictions upon the transactions
contemplated hereby) shall have been obtained and shall be in full force and
effect. The aforesaid consents include but are not limited to the written
approval of the Director of Insurance for the State of Nebraska of AML's
Statement, which approval shall provide AML with the right to enter into the
transactions contemplated in this Agreement and to exercise the Option and to
become the purchaser of all of the Shares of Holding Company at any Auction or
Unilateral Auction conducted in accordance with this Agreement or any related
Contract, all without further action of the Nebraska Director of Insurance.
7.8 NO ADVERSE CHANGE. Except (i) as disclosed in Section 3.12 of the
Disclosure Schedule or in the notes to the December 31, 1994 SAP Statements,
(ii) for changes or developments relating to the conduct of the business of
AVLIC or AIC after the date of this Agreement in conformity with the requests of
AML or as otherwise provided for in this Agreement, or (iii) for changes
affecting life insurance companies in general which do not have a material
adverse effect on the Business or Condition of AVLIC or
61
AIC, since December 31, 1994, there shall not have been, occurred or arisen any
change, event (including without limitation any damage, destruction or loss
whether or not covered by insurance), condition or state of facts of any
character that individually or in the aggregate has or would reasonably be
expected to have a material adverse effect on the Business or Condition of AVLIC
or AIC.
7.9 CONTRACTS. XXXX shall have provided AML with copies or access to the
originals of all material Contracts to which AVLIC and AIC is a party or by
which it or its Assets and Properties are bound, including all reinsurance,
coinsurance or other similar Contracts, and AML shall have determined in its
reasonable discretion that such Contracts which will remain in force as of the
Closing Date are satisfactory as to form and substance. Except as otherwise
identified by XXXX, each such material Contract is in full force and effect and
constitutes a valid, binding and enforceable obligation of AVLIC or AIC and, to
the Knowledge of XXXX, of each other Person that is a party thereto in
accordance with its terms subject to equitable rights and the rights of
creditors, and neither AVLIC, AIC nor, to the Knowledge of XXXX, any other
Person who is a party to such Contract has materially breached or defaulted
under any such Contract.
7.10 EXAMINATIONS. XXXX shall have provided AML with copies or access to
the originals of the two most recent market conduct and financial examinations
of AVLIC issued by any insurance regulatory authority, and AML shall have
determined in its reasonable discretion that the matters addressed in such
examinations have been resolved to the satisfaction of all applicable insurance
regulatory authorities.
7.11 OPINION OF COUNSEL. XXXX shall have delivered to AML the opinion, in
form and substance reasonably acceptable to AML, dated the Closing Date, of
Xxxxxx X. Xxxxxxxx, Corporate General Counsel of XXXX, confirming and opining as
to (i) the representations set forth in Sections 3.1 through 3.7, 3.10, 3.18 and
3.19 hereof; (ii) satisfaction of the covenants set forth in Section 5.1 hereof;
and (iii) satisfaction of the conditions set forth in Sections 8.4 through 8.7
hereof.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF XXXX
The obligations of XXXX hereunder are subject to the fulfillment, at or
before the Closing, of each of the following conditions (all or any of which may
be waived in whole or in part by XXXX in its sole discretion).
62
8.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date there
shall not exist any breaches of representations and warranties made by AML in
this Agreement (which representations and warranties shall be deemed restated
and made on and as of the Closing Date), which breaches individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the Business and Condition of AVLIC or AIC.
8.2 PERFORMANCE. AML shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement to be so performed or complied with by AML at or before the
Closing, including those specifically referred to elsewhere in this Article
VIII.
8.3 OFFICER'S CERTIFICATES. AML shall have delivered to XXXX a
certificate, dated the Closing Date in form reasonably acceptable to XXXX and
executed by the chief executive officer or the chief financial officer of AML,
certifying the fulfillment of the conditions set forth in Sections 7.7, 8.1,
8.2, 8.4, 8.5 and 8.6 hereof. In addition, AML shall have delivered to XXXX a
certificate, dated the Closing Date and executed by the secretary or any
assistant secretary of AML certifying (as appropriate) that AML has duly and
validly taken all action necessary to authorize its execution and delivery of
this Agreement and its performance of its obligations under this Agreement, and
that the resolutions (true and complete copies of which shall be attached to the
certificate) of the board of directors of AML with respect to this Agreement and
the transactions contemplated hereby have been duly and validly adopted and are
in full force and effect.
8.4 HSR ACT APPROVAL. All waiting periods applicable to this Agreement
and the transactions contemplated hereby under the HSR Act shall have expired or
been waived.
8.5 NO INJUNCTION. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree or similar order of any court or similar
Person restraining, enjoining or otherwise preventing consummation of any of the
transactions contemplated by this Agreement.
8.6 NO PROCEEDING OR LITIGATION. There shall not be instituted, pending
or (to the Knowledge of XXXX) threatened any action, suit, investigation or
other proceeding in, before or by any court, governmental or regulatory
authority, or other Person, to restrain, enjoin or otherwise prevent
consummation of any of the transactions contemplated by this Agreement or to
recover any Damages or obtain other relief as a result of this Agreement or any
of the transactions contemplated hereby or as a result of any Contract entered
into in connection with or as a condition precedent to the consummation hereof,
which action, suit, investigation or other proceeding may, in the opinion of
XXXX, result in a decision, ruling or finding that individually or in
63
the aggregate has or would reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement or on the ability of
AML or XXXX to perform its obligations under this Agreement. There shall not be
in effect on the Closing Date any voluntary or involuntary bankruptcy,
receivership, conservatorship or similar proceeding with respect to AML.
8.7 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals and waivers of every Person necessary to permit XXXX
to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby shall have been obtained and shall be in full
force and effect.
8.8 EXAMINATIONS. AML shall have provided XXXX with copies or access to
the originals of the two most recent market conduct and financial examinations
of AML issued by any insurance regulatory authority, and XXXX shall have
determined in its reasonable discretion that the matters addressed in such
examinations have been resolved to the satisfaction of all applicable insurance
regulatory authorities.
8.9 OPINION OF COUNSEL. AML shall have delivered to XXXX the legal
opinion, in form and substance reasonably acceptable to XXXX, dated the Closing
Date, of Xxxxxx X. Xxxxxxxx, General Counsel of AML, confirming and opining as
to (i) the representations set forth in Sections 4.1 through 4.4 hereof; (ii)
satisfaction of the covenants set forth in Section 6.1 hereof; and (iii)
satisfaction of the conditions set forth in Sections 7.4 through 7.7 hereof.
ARTICLE IX
SURVIVAL OF PROVISIONS; REMEDIES
9.1 SURVIVAL. Without limiting any other provision of this Agreement, the
representations, warranties, covenants and agreements respectively required to
be made by XXXX and AML in this Agreement, or in any certificate, respectively,
delivered by XXXX or AML pursuant to Section 7.3 or Section 8.3 hereof will
survive the Closing:
(a) until the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive) in the
case of (i) the representations and warranties of XXXX respectively set forth in
Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.20 and 3.21(a) hereof, (ii) the
representations and warranties of AML set forth in Sections 4.1, 4.2 and 4.5
hereof, and (iii) the indemnification agreements respectively set forth in
Sections 10.1, 10.2 and, to the extent necessary to enforce the representations
and warranties listed in clause (i) of this subparagraph (a), 10.3 hereof; and
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(b) until December 31, 1998 in the case of all other representations,
warranties, covenants and agreements, except that covenants and agreements to be
performed after the Closing will survive the Closing in accordance with their
terms.
If a notice of any matter or claim as to which indemnity is sought hereunder is
given before expiration of the applicable time period referenced above, then
(notwithstanding such expiration) the representation, warranty, covenant or
agreement applicable to such claim shall survive until, but only for purposes
of, resolution of such claim.
9.2 AVAILABLE REMEDIES. Each party expressly agrees that, consistent with
its intention and agreement to be bound by the terms of this Agreement and to
consummate the transactions contemplated hereby, subject only to the performance
or satisfaction of precedent conditions or of precedent requirements imposed
upon another party hereto, the remedy of specific performance shall be available
to a non-breaching and non-defaulting party to enforce performance of this
Agreement by a breaching or defaulting party, including, without limitation, to
require the consummation of the Closing on the Closing Date. The rights and
remedies provided for in this Agreement are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity;
PROVIDED, HOWEVER, that except as otherwise provided in this Agreement after
Closing the sole and exclusive remedies of any party hereto with respect to all
claims for Damages arising out of any claimed breach of this Agreement shall be
as provided in Article X hereof. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such breach is based may also
be the subject matter of any other representation, warranty, covenant or
agreement contained in this Agreement (or in any other agreement between the
parties) as to which there is no breach.
9.3 SURVIVAL OF JOINT VENTURE PROVISIONS. Notwithstanding anything to the
contrary in this Article IX, the entirety of Article II hereof (and of Articles
XII and XIII as provided therein) shall survive the Closing and be effective
according to their terms.
ARTICLE X
INDEMNIFICATION
10.1 SPECIAL INDEMNIFICATION. The parties acknowledge that XXXX is unable
to make affirmative representations and warranties as to certain tax matters and
other matters addressed in this
65
Section 10.1, although it has no knowledge that such representations are not
true and correct. However, the parties have agreed that, except for the items
disclosed in Section 10.1(b) of the Disclosure Schedule (which, if disclosed,
shall relieve XXXX from any liability therefor), XXXX shall make certain
indemnifications with respect to such matters, as provided in this Section 10.1.
(a) If any statement in Section 10.1(b) is not true and correct, and
if any of AVLIC, AIC, Holding Company or AML incur any Liabilities or Damages
which would not have been incurred if such statement had been true and correct,
then:
1) If a director, officer, manager or supervisor of XXXX, AVLIC
or AIC had actual knowledge, at or prior to the Closing
Date, that such statement was not true and correct, then
XXXX shall pay, and shall indemnify AVLIC, AIC, Holding
Company and AML in respect of, and hold each of them
harmless against, any and all such Liabilities and Damages.
2) If no director, officer, manager or supervisor of XXXX,
AVLIC or AIC had the actual knowledge described in the
foregoing paragaph, then XXXX shall pay, and shall indemnify
AVLIC, AIC, Holding Company and AML in respect of, and hold
each of them harmless against, any and all such Liabilities
and Damages, but only to the extent that the cumulative
total of all such Liabilities and Damages exceeds, in the
aggregate, $5,000,000.
It is understood and agreed that, to the extent that any Tax payment, deduction
or other calculation involves a Tax benefit to AVLIC or AIC which is
subsequently delayed but the benefit of which will ultimately be realized in
full, the Liability or Damage associated therewith which is indemnified
hereunder shall include only the time value of the amount of the benefit
delayed.
(b) The following statements are set forth solely for the purposes of
this Section 10.1, as explained above, and are not intended to serve as
representations or warranties of any party. Each of these statements shall be
deemed made as of the date of this Agreement and restated as of the Closing
Date:
(1) Except as set forth in Section 10.1(b)(1) of the Disclosure
Schedule, for all Tax periods ending on or prior to the Closing Date, each of
AVLIC and AIC, or XXXX on behalf of or with respect to AVLIC and/or AIC, has
within the time and manner prescribed by Law paid all Taxes that are due and
payable and has established reserves on the respective GAAP books of
66
AVLIC or AIC which are adequate for the full payment of all Taxes of AVLIC or
AIC which are not yet due and payable or which may otherwise be determined after
Closing to have been due.
(2) Except as set forth in Section 10.1(b)(2) of the Disclosure
Schedule, at the Closing, neither AVLIC nor AIC shall be a party to or be bound
by any Tax sharing Contract or arrangement which shall have any effect on AVLIC
or AIC for any Tax period after the Closing Date.
(3) Except as set forth in Section 10.1(b)(3) of the Disclosure
Schedule, from and after Closing, AVLIC and AIC shall not have any obligation
with respect to any period ending on or prior to the Closing Date for any Taxes
of any Person other than AVLIC or AIC.
(4) Except as set forth in Section 10.1(b)(4) of the Disclosure
Schedule, AVLIC and AIC shall not, for any reason other than a change after the
Closing Date in applicable Tax Laws, suffer, for any Tax period beginning after
the Closing Date, any reduction, elimination or other unavailability of any
deductions or other Tax benefits which are on the financial statements of AVLIC
and/or AIC as of December 31, 1995.
(5) Except as set forth in Section 10.1(b)(5) of the Disclosure
Schedule, the tax treatment under the Code of all insurance, annuity or
investment policies, plans or contracts; all financial products, employee
benefit plans, individual retirement accounts or annuities; and any similar or
related policy, contract, plan or product, whether individual, group or
otherwise, issued or sold by AVLIC, is and at all times has been in all material
respects the same or more favorable to the purchaser, policyholder or intended
beneficiaries thereof as the tax treatment under the Code for which such
contracts qualified or purported to qualify at the time of its issuance or
purchase, except for changes resulting from changes to the Code effective after
the date of such issuance or purchase. For purposes of this Section 10.1(b),
the provisions of the Code relating to the tax treatment of such Contracts shall
include, but not be limited to, Sections 72, 79, 89, 101, 104, 105, 106, 125,
130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505, 817, 818, 7702
and 7702A of the Code.
(6) Except as set forth in Section 10.1(b)(6) of the Disclosure
Schedule, AVLIC neither offers nor sells any pension, profit sharing, defined
benefit, Code Section 401(k) and other retirement or employee benefit plan or
Contract (including, but not limited to, simplified employee pension plans, Code
Section 403(a), (b) and (c) annuities, Xxxxx plans and individual retirement
accounts and annuities) to, or for the benefit of any employees of, any other
Person; and neither AVLIC nor AIC provides administrative or other contractual
services for any
67
such plan or Contract, including, but not limited to, any Third Party
administrative services for any Benefit Plan.
10.2 BENEFIT PLAN INDEMNIFICATION. XXXX agrees to indemnify AVLIC, AIC,
Holding Company and/or AML in respect of, and hold each of them harmless
against, any and all Damages resulting from or relating to any Benefit Plan to
which AVLIC and/or AIC was a party at any time prior to the Closing Date.
10.3 OTHER INDEMNIFICATION.
(a) Subject to the provisions of Article IX and Sections 10.1 and
10.2 hereof, XXXX agrees to indemnify AVLIC, AIC, Holding Company and/or AML in
respect of and hold each of them harmless against any and all Damages resulting
from or relating to any misrepresentation, breach of warranty or failure to
perform any covenant or agreement on the part of XXXX made as a part of or
contained in this Agreement, or any certificate delivered by or for XXXX
pursuant to Section 7.3 hereof. Notwithstanding anything to the contrary in
this Section 10.3(a), XXXX shall not have any liability for any Damages under
this Section 10.3(a), except for Damages resulting from or relating to any
misrepresentation or breach of warranty contained in Section 3.6, 3.20 or
3.21(a) or any nonfulfillment of or failure to perform any covenant or agreement
on the part of XXXX contained in Article V of this Agreement or any certificate
delivered by or for XXXX in connection therewith, until and unless the
cumulative total of such Damages exceeds in the aggregate $50,000, it being
understood that after such Damages exceed in the aggregate $50,000, XXXX shall
be liable to AML for all such Damages including such $50,000; PROVIDED, HOWEVER,
that the limitations of this sentence shall not apply to any Damages resulting
from XXXX'x intentional, willful or reckless misrepresentations or breaches of
covenants or agreements made as a part of or contained in this Agreement.
(b) Subject to the provisions of Article IX, AML agrees to indemnify
AVLIC, AIC, Holding Company and/or XXXX in respect of, and hold XXXX harmless
against, any and all Damages resulting from or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of AML made as a part of or contained in
this Agreement or any certificate delivered by or for AML pursuant to Section
8.3 hereof. Notwithstanding anything to the contrary in this Section 10.3(b),
AML shall not have any liability for any Damages under this Section 10.3(b),
except for any nonfulfillment of or failure to perform any covenant or agreement
on the part of AML contained in Article V of this Agreement or any certificate
delivered by or for AML in connection therewith, until and unless the cumulative
total of such Damages exceeds in the aggregate $50,000, it being understood that
after such Damages exceed in the aggregate $50,000, AML shall be liable to XXXX
for all such Damages
68
including such $50,000; PROVIDED, HOWEVER, that the limitations of this sentence
shall not apply to any Damages resulting from AML's intentional, willful or
reckless misrepresentations or breaches of covenants or agreements made as a
part of or contained in this Agreement.
ARTICLE XI
TERMINATION
11.1 TERMINATION. Prior to the Closing, this Agreement may be terminated,
and the transactions contemplated hereby may be abandoned, upon notice by the
terminating party to the other party:
(a) at any time before the Closing, by mutual written agreement of
XXXX and AML;
(b) by either party if the parties do not agree within 14 days of the
date hereof upon the terms of the Service Agreement to be attached hereto as
Exhibit G (which agreement shall be evidenced by the initials of a duly
authorized representative of each of the parties on the signature page of such
Exhibit G);
(c) at any time by XXXX if any of the covenants set forth in Article
VI shall have been breached or any of the conditions set forth in Article VIII
hereof shall not have been satisfied, performed or complied with, in any
material respect, at or before the Closing Date and such breach,
non-satisfaction, non-performance or non-compliance has not been cured or
eliminated within 30 days after notice thereof has been given to AML; PROVIDED
that at the time of such termination XXXX has neither breached any of the
covenants set forth in Article V nor failed to satisfy, perform or comply with
any of the conditions set forth in Article VII hereof, in any material respect;
(d) by AML if the Disclosure Schedule is not delivered to AML within
twelve (12) days after the date of this Agreement, but AML's right to terminate
this Agreement pursuant to this Section 11.1(d) shall end upon its receipt of
the Disclosure Schedule;
(e) at any time by AML if any of the covenants set forth in Article V
shall have been breached or any of the conditions set forth in Article VII
hereof shall not have been satisfied, performed or complied with, in any
material respect, before the Closing Date and such breach, non-satisfaction,
non-performance or non-compliance has not been cured or eliminated within six
(6) days after notice thereof has been given to XXXX, PROVIDED that at the time
of such termination AML has neither breached any of the covenants set forth in
Article VI
69
nor failed to satisfy, perform or comply with any of the conditions set forth in
Article VIII hereof, in any material respect;
(f) by AML if the Disclosure Schedule or AML's investigation pursuant
to Section 5.3 hereof discloses, with respect to AVLIC or AIC, any material
event, trend, condition, Contract, Liability, action, suit, proceeding, claim,
circumstance or fact of any character that is not acceptable to AML, in its sole
discretion, and AML gives notice thereof to XXXX within eighteen (18) days after
the date of this Agreement, and such non-acceptable event, trend, condition,
Contract, Liability, action, suit, proceeding, claim, circumstance or fact has
not been cured or eliminated within six (6) days after notice thereof has been
given to XXXX;
(g) by XXXX if XXXX'x investigation pursuant to Section 6.3 hereof
discloses, with respect to AML's Distribution Force or the operation of its
Fixed Annuity business, any material event, trend, condition, Contract,
Liability, action, suit, proceeding, claim, circumstance or fact of any
character that is not acceptable to XXXX, in its sole discretion, and XXXX gives
notice thereof to AML within eighteen (18) days after the date of this
Agreement, and such non-acceptable event, trend, condition, Contract, Liability,
action, suit, proceeding, claim, circumstance or fact has not been cured or
eliminated within six (6) days after notice thereof has been given to AML; or
(h) at any time after July 31, 1996, by XXXX or AML, if the
transactions contemplated by this Agreement have not been consummated on or
before such date and such failure to consummate is not caused by a breach of
this Agreement (or any representation, warranty, covenant or agreement included
herein) by the party electing to terminate pursuant to this clause (h);
PROVIDED, HOWEVER, that either party may by notice to the other extend such date
to September 30, 1996 if the only conditions to Closing not satisfied as of July
31, 1996 are those set forth in Sections 7.4, 7.7, 8.4 or 8.7 hereof.
11.2 EFFECT OF TERMINATION. If this Agreement is validly terminated
pursuant to Section 11.1 hereof, this Agreement will forthwith become null and
void, and there will be no Liability on the part of XXXX or AML (or any of their
respective officers, directors, employees, agents, consultants or other
representatives), except that any such termination shall be without prejudice to
any claim which either party may have against the other for breach of this
Agreement (or any representation, warranty, covenant or agreement included
herein). All reasonable out-of-pocket expenses incurred in connection with this
Agreement and the transactions contemplated hereby by a non-breaching party who
terminates this Agreement upon a breach by the other under Section 11.1(b) or
(d) hereof will be reimbursed promptly by the breaching party.
70
11.3 LIMITED EFFECT. The provisions of this Article XI shall be effective
only prior to Closing, and may not be invoked to terminate the Joint Venture,
which shall be governed solely by Articles II, XII and XIII of this Agreement.
ARTICLE XII
NOTICES
12.1 All notices and other communications required or permitted under this
Agreement must be in writing and will be deemed to have been duly given when
tendered if delivered by hand, or when received if sent by telecopy, or on the
next Business Day if sent by overnight delivery service, or three Business Days
after mailing by certified mail, return receipt requested, with first class
postage prepaid, to the parties at the following addresses:
If to XXXX, to: Ameritas Life Insurance Corp.
Xxx Xxxxxxxx Xxx
X.X. Xxx 00000
Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attn.: President
with a copy to: Ameritas Life Insurance Corp.
Xxx Xxxxxxxx Xxx
X.X. Xxx 00000
Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attn.: General Counsel
If to AML, to: American Mutual Life Insurance Company
000 Xxxxx Xxxxxx
Xxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Attn.: Chief Executive Officer
with a copy to: American Mutual Life Insurance Company
000 Xxxxx Xxxxxx
Xxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Attn.: General Counsel
Any party from time to time may change its address for the purpose of notices to
that party by giving a similar notice specifying a new address, but no such
notice will be deemed to have been given until it is actually received by the
party sought to be charged with the contents thereof.
12.2 To the extent any action must be taken by one party hereunder within a
limited period of time after a notice or other
71
document is deemed to have been duly given by the other party pursuant to
Section 12.1 hereof, then the period within which such action must be taken
shall not commence until such notice or other document is actually received.
12.3 The parties agree that, with respect to any Contract, offer or other
document contemplated by this Agreement, the execution and transmittal of any
such document by facsimile as set forth herein shall be of the same binding
effect on the party so executing and transmitting the document as the delivery
of an original of such document bearing the handwritten execution of such party.
Each of the parties hereby agrees that it will promptly forward to the other an
executed original of any document transmitted by facsimile, but the failure to
do so or the absence of arrival thereof shall have no effect on the binding
nature of the document previously executed by facsimile.
ARTICLE XIII
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. Except for documents executed by XXXX and AML
pursuant hereto, this Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter of this Agreement, and
this Agreement (including the exhibits hereto, the Disclosure Schedule and other
Contracts and documents delivered in connection herewith) contains the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof.
13.2 EXPENSES. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in Article X and Section 11.2 hereof),
each of XXXX and AML will pay its own costs and expenses in connection with this
Agreement and the transactions contemplated hereby.
13.3 PUBLIC ANNOUNCEMENTS. At all times at or before the Closing, XXXX and
AML will each consult with the other before issuing or making any reports,
statements or releases to the public with respect to this Agreement or the
transactions contemplated hereby and will use good faith efforts to agree on the
text of a joint public report, statement or release or will use good faith
efforts to obtain the other party's approval of the text of any public report,
statement or release to be made solely on behalf of a party. If XXXX and AML
are unable to agree on or approve any such public report, statement or release
and such report, statement or release is, in the opinion of legal counsel to a
party, required by Law or may be appropriate in order to discharge such party's
disclosure obligations, then such party may make or issue the legally required
report, statement or release. Any such report, statement or release approved or
permitted to be made pursuant to this Section 13.3 may be
72
disclosed or otherwise provided by XXXX or AML to any Person, including without
limitation to any employee or customer of either party hereto and to any
governmental or regulatory authority.
13.4 FURTHER ASSURANCES. XXXX and AML agree that, from time to time after
the Closing, upon the reasonable request of the other, they will cooperate and
will cause their respective Affiliates to cooperate with each other to effect
the orderly transition of the business, operations and affairs of AVLIC and AIC.
13.5 WAIVER. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof; such waiver must be
in writing and must be executed by the chief executive officer or chief
financial officer of such party. A waiver on one occasion will not be deemed to
be a waiver of the same or any other breach on a prior or future occasion. All
remedies, either under this Agreement, or by Law or otherwise afforded, will be
cumulative and not alternative.
13.6 AMENDMENT. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all parties hereto.
13.7 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
13.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of the parties hereto, and their
respective successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person. Notwithstanding
the foregoing, it is understood that Holding Company, AVLIC and AIC are the
direct beneficiaries of the indemnification rights set forth in Article X hereof
and the parties' obligations pursuant to Article II hereof. The parties
expressly agree that Holding Company, AVLIC and/or AIC may enforce those rights
directly by and for themselves. Without limiting the foregoing, it is also
expressly agreed that XXXX and/or AML shall have the right independently to
enforce those rights against the other party to this Agreement (through a
lawsuit or otherwise) on behalf of Holding Company, AVLIC and/or AIC.
13.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Nebraska (without regard to such
State's conflicts of law provisions).
13.10 BINDING EFFECT. This Agreement is binding upon and will inure to
the benefit of the parties and their respective successors and assignees.
73
13.11 ASSIGNMENT LIMITED. Except as otherwise provided herein, this
Agreement or any right hereunder or part hereof may not be assigned by any party
to any Person who is not an Affiliate of such Person hereto without the prior
written consent of the other party hereto.
13.12 HEADINGS, GENDER, ETC. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; and (f) parentheses are used in the
text hereof for ease of interpretation, and language set forth in parentheses
shall have the same force and effect as any other text. The parties hereto have
worked closely together in drafting, negotiating and reviewing this Agreement,
and therefore acknowledge and agree that any rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
13.13 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of XXXX or AML under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable; (b)
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof; (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom; and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
74
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of XXXX and AML, effective as of the date first
written above.
AMERITAS LIFE INSURANCE CORP. AMERICAN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Xxxxxxxx X. Xxxx By: /s/ X X Xxxx
------------------------- -------------------------------
Its: Chairman and C.E.O. Its: Vice Chairman and President -
------------------------ -----------------------------
Insurance Operations
75
FIRST AMENDMENT
to
JOINT VENTURE AGREEMENT DATED AS OF MARCH 8, 1996
THIS FIRST AMENDMENT (the "Amendment") is made and entered into as of April
1, 1996 by and between AMERITAS LIFE INSURANCE CORP. ("XXXX") and AMERICAN
MUTUAL LIFE INSURANCE COMPANY ("AML").
R E C I T A L S:
X. XXXX and AML are parties to a certain Joint Venture Agreement dated
as of March 8, 1996 (the "Agreement"). Except as context otherwise requires,
capitalized terms used herein shall have the meaning assigned to them in the
Agreement.
A. AML's obligation to close the transactions contemplated in the
Agreement is conditional upon obtaining the approval of the Nebraska Director
of Insurance of AML's Statement, which approval would permit AML "to enter
into the transactions contemplated in [the] Agreement and to exercise the
Option and to become the purchaser of all of the Shares of Holding Company at
any Auction or Unilateral Auction conducted in accordance with [the]
Agreement or any related Contract, all without further action of the Nebraska
Director of Insurance." (Agreement at Section 7.7.) Since the date of the
Agreement, the parties have been informed by the Director that such approval
is unnecessary.
A. Due to those changed circumstances, the parties have agreed that
certain provisions of the Agreement should be changed. The parties have also
agreed to include in this Amendment provisions which will correct certain
minor errors in the text of the Agreement.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises set forth in this Amendment and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the Agreement shall be amended as follows:
1. SECTION 1.29. The words "Section 2.9(g)" in Section 1.29 are replaced
with the words "Section 2.9(i)."
2. SECTION 1.50. The words "Section 2.8(i)" in Section 1.50 are replaced
with the words "Section 2.8(j)."
3. SECTION 1.91. Clause (iii) of Section 1.91 of the Agreement is
deleted in its entirety.
4. SECTION 2.2(c). The words "Section 2.8(i)" in the second sentence of
Section 2.2(c) are replaced with the words "Section 2.8(j)."
5. SECTION 2.5(c). The first sentence of Section 2.5(c) is deleted in
its entirety and replaced with the following:
To the extent any portion(s) of the Option become(s) exercisable in
accordance with the provisions of this Section 2.5, AML shall, in
order to exercise such portion(s) of the Option, give XXXX written
notice of AML's intention to exercise such portion(s) of the Option
within 30 days after the parties determine that such portion(s) of the
Option is (are) exercisable, and shall consummate the exercise of such
portion(s) of the Option within 60 additional days; provided, however,
that if the approval of the Director of Insurance of the State of
Nebraska is required to exercise such portion of the Option, then that
60 day period shall be extended for up to one year for AML to secure
such approval (as to any exercisable portion of the Option, the
"Exercise Period").
6. SECTION 2.6(b)(5). The second sentence of Section 2.6(b)(5) is
deleted in its entirety and replaced with the following:
Each offer hereunder shall be an unconditional offer
(subject only to any required approval of the Director of
Insurance for the State of Nebraska) to purchase all, but
not less than all, of the other party's Shares, for an
amount payable in cash at a closing in accordance with this
Section 2.6(b), and each offer must be at least one half of
one percent (0.5%) higher than the preceding offer, but in
all events such increase in the per-Share offer shall be an
amount which, when multiplied by the aggregate number of
Shares outstanding, equals at least $500,000.
7. SECTION 2.6(b)(6). The second sentence of Section 2.6(b)(6) is
deleted in its entirety and replaced with the following:
During the period prior to the closing of the purchase and
sale transaction, the seller shall cooperate fully with the
purchaser in all respects, including but not limited to full
cooperation and assistance in obtaining any necessary
approvals from the Director of Insurance for the State of
Nebraska and all actions necessary to facilitate such
closing and to continue the operation of the business, but
no action shall be taken by either party or any officer of
Holding Company or any Subsidiary thereof other than in the
ordinary course of business unless both XXXX and AML have
agreed to such action or unless the purchaser has provided
an irrevocable letter of credit or other
2
similar evidence reasonably satisfactory to the seller of its ability
to close such purchase and sale transaction, in which case the
purchaser may (i) immediately designate an individual whom the parties
will immediately cause to be elected as the Chief Executive Officer of
Holding Company (and, at the purchaser's discretion, AVLIC and/or
AIC), and (ii) take such other actions as the purchaser may reasonably
determine.
8. SECTION 2.6(b). A new subparagraph (7) is added following Section
2.6(b)(6), as follows:
(7) Notwithstanding the foregoing, in the event that
it is necessary for the party described as the "purchaser"
in Section 2.6(b)(6) above to secure the approval of the
Director of Insurance for the State of Nebraska with respect
to such transaction and such approval has not been received,
then (i) such purchaser shall, within one year after the
Acceptance Date, place the purchase price, together with
interest accrued to such date as provided in Section
2.6(b)(6) hereof, in trust for the benefit of the selling
party, and the selling party shall thereafter be entitled to
receive the investment income earned thereon in lieu of the
interest provided in Section 2.6(b)(6) hereof; and (ii) such
purchaser may, at any time, assign to a Third Party, without
restriction, such purchaser's right to purchase the Shares
of XXXX.
9. SECTION 2.6(e)(2). The second sentence of Section 2.6(e)(2) is
deleted in its entirety and replaced with the following:
Such offer shall be unconditional (subject only to any
required approval of the Director of Insurance for the State
of Nebraska) and shall provide for the purchase price to be
paid in cash at a closing in accordance with this Section
2.6(e).
10. SECTION 2.6(e)(4). The second sentence of Section 2.6(e)(4) is
deleted in its entirety and replaced with the following:
During the period prior to the purchase and sale
transaction, the seller shall cooperate fully with the
purchaser in all respects, including but not limited to full
cooperation and assistance in obtaining any necessary
approvals from the Director of Insurance for the State of
Nebraska and all actions necessary to facilitate such
closing and to continue the operation of the business, but
no action shall be taken by either party or any officer of
Holding Company or any Subsidiary thereof other than in the
ordinary course of business, unless both XXXX and AML have
agreed to such action or unless
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the purchaser has provided an irrevocable letter of credit or other
similar evidence reasonably satisfactory to the seller of its ability
to close such purchase and sale transaction, in which case the
purchaser may (i) immediately designate an individual whom the parties
will immediately cause to be elected as the Chief Executive Officer of
Holding Company (and, at the purchaser's discretion, AVLIC and/or
AIC), and (ii) take such other actions as the purchaser may reasonably
determine.
11. SECTION 2.6(e). A new subparagraph (5) is added following Section
2.6(e)(4), as follows:
(5) Notwithstanding the foregoing, in the event that
it is necessary for the party described as the "purchaser"
in Section 2.6(e)(4) above to secure the approval of the
Director of Insurance for the State of Nebraska with respect
to such transaction and such approval has not been received,
then (i) such purchaser shall, within one year after the
Acceptance Date, place the purchase price, together with
interest accrued to such date as provided in Section
2.6(e)(4) hereof, in trust for the benefit of the selling
party, and the selling party shall thereafter be entitled to
receive the investment income earned thereon in lieu of the
interest provided in Section 2.6(e)(4) hereof; and (ii) such
purchaser may, at any time, assign to a Third Party, without
restriction, such purchaser's right to purchase the Shares
of XXXX.
12. SECTION 2.8(a)(1). The words ", if applicable" are inserted before
the semi-colon at the end of fourth line of Section 2.8(a)(1), so that the
clause ending with that semi-colon provides as follows:
(1) Each of the parties may at any time in its sole
discretion transfer all, but not less than all, of its
Shares to any Affiliate (other than Holding Company and its
Subsidiaries), subject to insurance department approval, if
applicable;
13. SECTION 2.8(a)(2). A new subparagraph f) is added following Section
2.8(a)(2)e), as follows:
f) Notwithstanding the foregoing, in the event
that it is necessary for a party to this
Agreement which elects in the Notice of
Election to purchase the Selling Party's
Shares to secure the approval of the Director
of Insurance for the State of Nebraska with
respect to such transaction and such
4
approval has not been received, then (i) such purchaser
shall, at any time prior to the expiration of the 120-
day period described in Section 2.8(c) hereof, place
the purchase price in trust for the benefit of the
selling party, and the Selling Party shall thereafter
be entitled to receive the investment income earned
thereon; (ii) such purchaser may, at any time, assign
to a Third Party, without restriction, such purchaser's
right to purchase the Shares of XXXX.
14. SECTION 3.9. The words "the ratio of aggregate indebtedness to net
capital was 6.9 to 1" in Section 3.9 are replaced with the following: "the ratio
of aggregate indebtedness to net capital was 0.69 to 1."
15. SECTION 11.2. The words "Section 11.1(b) or (d)" in the last sentence
of Section 11.2 are replaced with the words "Section 11.1(c) or (e)."
16. The form of Exhibit J attached hereto is substituted for the form of
Exhibit J which was originally attached to the Agreement.
17. Except as expressly amended herein, all terms and provisions of the
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers as of the date set forth above.
AMERITAS LIFE INSURANCE CORP. AMERICAN MUTUAL LIFE INSURANCE COMPANY
By: /s/ Xxxxxxxx X. Xxxx By: /s/ Xxxxx X. Xxxxxx
---------------------------- ---------------------------------
Its: Chairman and CEO Its: Chief Executive Officer
---------------------------- ---------------------------------
5
EXHIBIT J
to Joint Venture Agreement dated as of March 8, 1996 (the "Agreement")
- between Ameritas Life Insurance Corp. and
American Mutual Life Insurance Company
INITIAL OFFICERS
HOLDING COMPANY
Chairman, Chief Executive Officer
and President: Xxxxxxxx X. Xxxx
Executive Vice President: Xxxxxxx X. Xxxxx
Executive Vice President: X X Xxxx
Treasurer: Xxx X. Xxxxxxxx
Secretary and General Counsel: Xxxxxx X. Xxxxxxxx
Assistant Secretary and Assistant
General Counsel: Xxxxxx X. Xxxxxxxx
AVLIC
Chairman and Chief Executive Officer: Xxxxxxxx X. Xxxx
President and Chief Operating Officer: [to be determined]
Executive Vice President: Xxxxxxx X. Xxxxx
Executive Vice President: X X Xxxx
Senior Vice President--Variable
Operations and Administration: Xxxxxx X. Xxxx
Senior Vice President--Variable Sales: Xxxxx X. Xxxxxxxx
Vice President--Corporate Compliance
and Assistant Secretary: Xxxxxxx X. Xxxxx
Vice President and Actuary: Xxxxx X. Xxxxx
Vice President--Fixed Annuity
Investments: Xxxxx Xxxxxx
Vice President--Fixed Annuity
Customer Service: Xxxxxx X. Xxxxxx
Vice President--Fixed Annuity
Product Development: Xxxxx X. Xxxxxx
Comptroller: XxXxx X. Xxxxxx
Treasurer: Xxx X. Xxxxxxxx
Assistant Treasurer: Xxxxx Xxxxxxx
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Assistant Vice President Individual
Client Services: Xxxxxx X. Xxxxxxxx
Secretary and General Counsel: Xxxxxx X. Xxxxxxxx
Assistant General Counsel: Xxxxxx X. Xxxxxxxx
Assistant Secretary: Xxxxxx Xxxxx
AIC
Chairman: Xxxxxxxx X. Xxxx
President and Chief Executive Officer: Xxxxxxx X. Xxxxxxxx
Senior Vice President: Xxxxxxx X. Xxxxx
Senior Vice President: X X Xxxx
Vice President--Corporate Compliance
and Assistant Secretary: Xxxxxxx X. Xxxxx
Treasurer: Xxx X. Xxxxxxxx
Secretary and General Counsel: Xxxxxx X. Xxxxxxxx
Vice President--Marketing and
Administration: Xxxxxx X. Xxxxxxx
Vice President--Retail Sales: Xxxxxx X. Xxxxxx
Vice President--Public Financing: Xxxx X. Xxxxxxx
Vice President--Order District
Manager: Xxxx X. Xxxx
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