Exhibit 10.54
Confidential
Execution Copy
ASSET TRANSFER AND ACQUISITION AGREEMENT
By and Among
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY,
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY,
and
XXXX XXXXXXX LIFE INSURANCE COMPANY
Dated as of December 31, 2002
[*] Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Securities and Exchange Commission.
Confidential
TABLE OF CONTENTS
ARTICLE I DEFINITIONS ...................................................................... 2
Section 1.01 Definitions ................................................................ 2
ARTICLE II TRANSFER AND ACQUISITION OF ASSETS .............................................. 11
Section 2.01 Notional Operating Account.................................................. 11
Section 2.02 Acquisition of Transferred Assets, Estimated Notional Account
Balance and Assumption of Assumed Liabilities............................... 13
Section 2.03 Place and Date of Closing .................................................. 14
Section 2.04 Post-Closing Adjustments.................................................... 14
Section 2.05 Closing Items............................................................... 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS ...................................... 17
Section 3.01 Organization, Standing and Authority of Sellers ............................ 17
Section 3.02 Authorization .............................................................. 17
Section 3.03 Actions and Proceedings .................................................... 17
Section 3.04 No Conflict or Violation ................................................... 18
Section 3.05 Governmental Consents and Approvals ........................................ 18
Section 3.06 Computer Software and Intellectual Property. ............................... 18
Section 3.07 Brokerage and Financial Advisers ........................................... 19
Section 3.08 Compliance with Laws ....................................................... 19
Section 3.09 Permits, Licenses and Franchises ........................................... 19
Section 3.10 Coinsured Contracts. ....................................................... 20
Section 3.11 Regulatory Filings ......................................................... 20
Section 3.12 Reinsurance ................................................................ 21
Section 3.13 Conduct of Business ........................................................ 21
Section 3.14 Absence of Certain Changes ................................................. 21
Section 3.15 Other Sale Arrangements .................................................... 21
Section 3.16 Reserved. .................................................................. 21
Section 3.17 Employees .................................................................. 21
Section 3.18 Transferred Assets ......................................................... 21
Section 3.19 GAAP Financial Statements .................................................. 22
Section 3.20 Statutory Statements ....................................................... 22
Section 3.21 Tax Matters ................................................................ 22
Section 3.22 Disaster Recovery Backup ................................................... 23
Section 3.23 Pro Forma Financial Statements ............................................. 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER ..................................... 23
Section 4.01 Organization and Standing .................................................. 23
Section 4.02 Authorization .............................................................. 23
Section 4.03 Actions and Proceedings .................................................... 24
Section 4.04 No Conflict or Violation ................................................... 24
Section 4.05 Governmental Consents and Approvals ........................................ 24
Section 4.06 Brokerage and Financial Advisers ........................................... 25
Section 4.07 Compliance with Laws ....................................................... 25
Section 4.08 Permits, Licenses and Franchises ........................................... 25
Section 4.09 Sufficient Funds ........................................................... 25
ARTICLE V COVENANTS......................................................................... 25
Section 5.01 Conduct of Business. ....................................................... 25
i
Section 5.02 Certain Transactions ....................................................... 27
Section 5.03 Investigations; Pre-Closing Access. ....................................... 27
Section 5.04 Post-Closing Access ....................................................... 28
Section 5.05 Consents and Reasonable Efforts ........................................... 29
Section 5.06 Further Assurances. ....................................................... 30
Section 5.07 Expenses .................................................................. 30
Section 5.08 Indemnity Coinsurance Agreement ........................................... 30
Section 5.09 Administrative Services Agreement ......................................... 30
Section 5.10 Transition Servicing Agreement ............................................ 30
Section 5.11 Xxxx of Sale and General Assignment Agreement ............................. 30
Section 5.12 Reserved. ................................................................. 30
Section 5.13 License Agreements ........................................................ 31
Section 5.14 Reinsurance Treaties ...................................................... 31
Section 5.15 Reserved. ................................................................. 31
Section 5.16 Reserved. ................................................................. 31
Section 5.17 Tax Allocation. ........................................................... 31
Section 5.18 Reserved. ................................................................. 32
Section 5.19 Reserved. ................................................................. 32
Section 5.20 Licensed Software and Transition Support. ................................. 32
Section 5.21 Confidentiality ........................................................... 34
Section 5.22 Systems ................................................................... 35
Section 5.23 Updated Financial Information ............................................. 35
Section 5.24 Reserved. ................................................................. 35
Section 5.25 Reinsurance Treaty ........................................................ 35
Section 5.26 Forty-Nine State Closing; NY Closing ...................................... 35
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF PURCHASER TO CLOSE ................... 36
Section 6.01 Covenants, Representations and Warranties. ................................ 36
Section 6.02 Other Agreements .......................................................... 37
Section 6.03 Governmental and Regulatory Consents and Approvals ........................ 37
Section 6.04 Possession of Assets; Instruments of Conveyance ........................... 37
Section 6.05 Notional Operating Account Balance ........................................ 37
Section 6.06 Litigation ................................................................ 37
Section 6.07 Injunction ................................................................ 37
Section 6.08 Reserved. ................................................................. 37
Section 6.09 Reserved. ................................................................. 37
Section 6.10 Reserved. ................................................................. 37
Section 6.11 General Account Reserves .................................................. 38
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS TO CLOSE .................... 38
Section 7.01 Covenants, Representations and Warranties. ................................ 38
Section 7.02 Other Agreements .......................................................... 38
Section 7.03 Governmental and Regulatory Consents and Approvals ........................ 38
Section 7.04 Notional Operating Account Balance ........................................ 39
Section 7.05 Injunction ................................................................ 39
Section 7.06 Litigation ................................................................ 39
ARTICLE VIII FURTHER AGREEMENTS ........................................................... 39
ii
Section 8.01 Maintenance of Coinsured Contracts ........................................ 39
Section 8.02 Tax Reimbursement. ........................................................ 39
Section 8.03 Asset Adequacy Testing .................................................... 40
Section 8.04 Post Closing Letter ....................................................... 41
ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES ..................................... 41
Section 9.01 Survival of Representations and Warranties ................................ 41
ARTICLE X INDEMNIFICATION ................................................................. 41
Section 10.01 Obligations of Sellers to Indemnify ...................................... 41
Section 10.02 Obligation of Purchaser to Indemnify ..................................... 42
Section 10.03 Notice of Loss, Asserted Liability ....................................... 42
Section 10.04 Opportunity to Contest ................................................... 43
Section 10.06 Sole Remedy .............................................................. 44
Section 10.07 Certain Reductions; Subrogation Rights ................................... 44
Section 10.08 Indemnification Payments ................................................. 44
Section 10.09 Effect of Indemnification ................................................ 44
Section 10.10 Parent Indemnification ................................................... 44
ARTICLE XI TERMINATION PRIOR TO CLOSING ................................................... 44
Section 11.01 Termination of Agreement ................................................. 45
Section 11.02 Survival ................................................................. 45
ARTICLE XII MISCELLANEOUS ................................................................. 45
Section 12.01 Publicity ................................................................ 45
Section 12.02 Confidentiality .......................................................... 45
Section 12.03 Notices .................................................................. 46
Section 12.04 Entire Agreement ......................................................... 47
Section 12.05 Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies .............................................................. 47
Section 12.06 Governing Law ............................................................ 47
Section 12.07 Binding Effect; Assignment ............................................... 47
Section 12.08 Interpretation. .......................................................... 48
Section 12.09 No Third Party Beneficiaries ............................................. 48
Section 12.10 Counterparts ............................................................. 48
Section 12.11 Other Agreements, Exhibits and Schedules ................................. 48
Section 12.12 Headings ................................................................. 48
Section 12.13 Dollar References ........................................................ 48
iii
EXHIBITS
Exhibit A - Form of Coinsurance Agreement
Exhibit B - Form of Administrative Services Agreement
Exhibit C - Form of Transition Servicing Agreement
Exhibit D - Form of Xxxx of Sale and General Assignment Agreement
Exhibit E - [Deleted]
Exhibit F - Modified Endowment Contracts
Exhibit G - Form of Software License Agreement
Exhibit H - Form of Trademark License Agreement
Exhibit I - Form of Copyright License Agreement
INDEX OF SCHEDULES
Schedule 1.01(a) - [*] Policies
Schedule 1.01(e) - Coinsured Contracts
Schedule 1.01(f) - Pro Forma Financial Statements
Schedule 1.01(i) - Purchaser Key People
Schedule 1.01(j) - Seller Key People
Schedule 1.01(k) - Coinsured Contract Liabilities
Schedule 2.01(a)(1) - Notional Operating Account Cash Flows
Schedule 2.01(b) - Investment Assets
Schedule 4.03 - Actions and Proceedings
Schedule 4.04 - Conflicts or Violations
Schedule 4.05 - Governmental Consents and Approvals
Schedule 4.08 - Permits, Licenses and Franchises
Schedule 5.01(a) - Conduct of Business
Schedule 5.05 - Purchaser Approvals and Consents
Schedule 5.14 - Reinsurance Treaties
iv
Exhibit 10.54
Confidential
ASSET TRANSFER AND ACQUISITION AGREEMENT
This ASSET TRANSFER AND ACQUISITION AGREEMENT (this "Agreement"), dated as
of December 31, 2002, is entered into by and among Allmerica Financial Life
Insurance and Annuity Company, a Massachusetts domiciled stock life insurance
company ("AFLIAC"), First Allmerica Financial Life Insurance Company, a
Massachusetts domiciled stock life insurance company ("FAFLIC" and together with
AFLIAC, the "Sellers" and each a "Seller"), and Xxxx Xxxxxxx Life Insurance
Company, a Massachusetts domiciled stock life insurance company ("Purchaser").
The parties agree that this Agreement shall be effective as of 11:59 p.m. (EST)
on December 31, 2002.
RECITALS:
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Sellers wish to sell, and Purchaser wishes to acquire, certain of the assets and
liabilities associated with the fixed universal life insurance policies and
certain other assets of Sellers, as described below. At the Closing, each Seller
and Purchaser will enter into a Coinsurance Agreement (as defined below)
relating to the coinsurance by Purchaser of the Coinsured Contracts (as defined
below); and
WHEREAS, Sellers have retained an independent financial advisor to conduct
a competitive process to identify a reinsurer of the Indemnity Coinsured
Contracts (as defined below) that offered the most favorable terms to Sellers;
and
WHEREAS, Sellers, after consultation with their independent financial
advisor, Xxxxxxx, Sachs & Co., have determined that it is in the best interests
of their stockholders and policyholders that they enter into a coinsurance
relationship with Purchaser, a life insurance company which is not an Affiliate
of the Sellers; and
WHEREAS, AFLIAC and FAFLIC desire to cede and transfer to Purchaser, on a
100% coinsurance basis, liabilities of AFLIAC and FAFLIC under the Coinsured
Contracts; and
WHEREAS, Sellers desire that Purchaser perform a number of administrative
functions on behalf of AFLIAC and FAFLIC after the Closing Date with respect to
the Coinsured Contracts including but not limited to Outward Reinsurance
Agreements (as defined below), and Purchaser has agreed to provide such services
pursuant to the terms of the Administrative Services Agreement (as defined
below); and
WHEREAS, the parties recognize that the transfer of operations systems
necessary for Purchaser to perform its obligations fully under the
Administrative Services Agreement will occur over a period of time during which
Purchaser desires to subcontract with AFLIAC and FAFLIC under the Transition
Servicing Agreement (defined below) to perform some or all administrative
services; and
WHEREAS, upon the terms and subject to the conditions of this Agreement, at
the Closing (as defined below) the parties hereto will execute and deliver the
following agreements and instruments dated as of the Closing Date (as defined
below) or a date prior thereto: (i)
Purchaser and each Seller shall enter into an Indemnity Coinsurance Agreement,
providing for, upon the terms and conditions and for the consideration set forth
therein, the reinsurance on a 100% coinsurance basis as of the Effective Date
(as defined below) by Purchaser of the General Account Liabilities (as defined
below), net of reinsurance recoverables under the Unassigned Outward Reinsurance
Agreements (as defined below), of Sellers under the Coinsured Contracts (as
defined below); (ii) Purchaser and Sellers shall enter into the Transition
Servicing Agreement, providing for the provision of any services to the
Coinsured Contracts (as defined below) that are currently provided and requested
by Purchaser as necessary to enable Purchaser to administer the Coinsured
Contracts (as defined below) for a period not to exceed 12 months; (iii)
Purchaser and AFLIAC and FAFLIC, respectively, shall enter into an
Administrative Services Agreement, providing for the servicing by Purchaser of
the Coinsured Contracts, (iv) Sellers shall execute and deliver to Purchaser all
necessary instruments of transfer, including but not limited to the Xxxx of Sale
(as defined below); and (v) Sellers and Purchaser shall enter into the Software,
Trademark and Copyright License Agreements (as defined below).
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in reliance upon the
representations, warranties, conditions and covenants contained herein, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. The following terms shall have the respective
meanings set forth below throughout this Agreement:
"Additional Liability Reserve" shall mean an aggregate amount equal to [*]
comprised of liability relating to (a) certain Coinsured Contracts and (b) the
surrender value relating to certain partial withdrawals relating to Coinsured
Contracts.
"Adjusted Ceding Commission" means the Ceding Commission as adjusted to
reflect the actual closing level of General Account Reserves, and Tax Reserves
as follows:
(a) To the extent that Tax Reserves as of the Effective Date are lower
than General Account Reserves as of the Effective Date for the
Coinsured Contracts by an amount greater than three million dollars
($3,000,000), the Ceding Commission will be lowered by an amount equal
to 35% of the amount by which such difference is in excess of three
million dollars ($3,000,000).
(b) In the event that the Interest Maintenance Reserve shown on the
Effective Date Statement is less than the Interest Maintenance Reserve
shown on the Final Statement, the Ceding Commission shall be reduced
by an amount equal to the product of (i) the amount of such difference
in Interest Maintenance Reserve amounts multiplied by (ii) [*].
2
"Administrative Services Agreements" means the AFLIAC Administrative
Services Agreement and the FAFLIC Administrative Services Agreement.
"Adjusted Closing Reserve" shall have the meaning set forth in Section
2.02(a) hereof.
"Affiliate" means, with respect to any Person, at the time in question, any
other Person controlling, controlled by or under common control with such
Person. For purposes of the foregoing, "control," including the terms
"controlling," "controlled by" and "under common control with," means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an institution, whether through the ownership of
voting securities, by contract or otherwise.
"AFLIAC" shall have the meaning set forth in the first paragraph of this
Agreement.
"AFLIAC Administrative Services Agreement" means the Administrative
Services Agreement between AFLIAC and Purchaser, in the form of Exhibit B
hereto, provided, that the final form of such agreement will be subject to
review and negotiation by each party and must be in form and substance
satisfactory to each party.
"AFLIAC Indemnity Coinsurance Agreement" means the Indemnity Coinsurance
Agreement between AFLIAC and Purchaser, in the form of Exhibit A hereto.
"Allocable Amount" shall have the meaning set forth in Section 5.17(a)
hereof.
"Ancillary Agreements" means the Indemnity Coinsurance Agreements, the
Administrative Services Agreements, the General Assignment Agreement, the Xxxx
of Sale, the Transition Servicing Agreement and the License Agreement.
"Applicable Law" means any domestic or foreign federal, state or local
statute, law, ordinance, rule, administrative interpretation, regulation, order,
writ, injunction, directive, judgment, decree, policy, guideline or other
requirement (including without limitation those of the Commission, NAIC and any
state) applicable to the parties hereto, or any of their respective Affiliates,
properties, assets, officers, directors, employees or agents, as the case may
be.
"Asserted Liability" shall have the meaning set forth in Section 10.03
hereof.
"Assessment" means any assessment resulting from participation in any
guaranty fund or insolvency fund, plan, pool, association or other similar
organization.
"Asset Adequacy Test" shall have the meaning set forth in Section 8.03
hereof.
"Assigned Outward Reinsurance Contracts" shall mean Outward Reinsurance
Contracts for which consents have been obtained from the reinsurers thereunder
for the assignment of such contract from a Seller to Purchaser and such
assignment has been effected.
"Xxxx of Sale and General Assignment Agreement" means the Xxxx of Sale and
General Assignment Agreement which is substantially in the form of Exhibit D
hereto.
3
"Books and Records" means the originals or copies of a list of
policyholders of Coinsured Contracts, Coinsured Contract forms and rating plans,
claim records, premium records, reserve calculations, actuarial data, policy
records, sales records of Sellers, underwriting records, financial records,
producer records of Seller, information technology licenses, reinsurance
agreements and related data, tax records, and compliance records in each case in
the possession or control of a Seller and relating principally to the operation
of the Business, including, without limitation, any database, magnetic or
optical media and any other form of recorded, computer generated or stored
information or process, but excluding any such records that are subject to the
attorney-client privilege; it being understood that this definition shall not
constitute an assignment of licenses or agreements referred to herein.
"Business" means the business, assets or results of operations with respect
to the Coinsured Contracts, Assigned Outward Reinsurance Agreements, General
Account Liabilities, General Account Reserves and Investment Assets.
"Business Day" means any day other than a Saturday, a Sunday, a day on
which banking institutions in the Commonwealth of Massachusetts or the State of
New York are permitted or obligated by law to be closed or a day on which the
New York Stock Exchange is closed for trading.
"Ceding Commission" shall mean an aggregate of $[*] less the product of [*]
multiplied by Interest Maintenance Reserve as shown on the Effective Date
Statement allocated between the Sellers as provided for under each of the
Indemnity Coinsurance Agreements; provided, however, that in the event the
Closing takes place in January or February 2003 and the General Account Reserves
as of the Closing Date ("Closing Date General Account Reserves") as shown on the
Closing Date Statement, are equal to or less than $630 million in January or
$620 million in February, then the Ceding Commission shall be reduced by 50% of
the amount that the Closing Date General Account Reserves are less than $630
million in January or $620 million in February, (the "Reserve Level Additional
Amount"). For purposes of this section, Closing Date Statement shall mean an
estimated statement of certain financial information as of the Closing Date, in
the same format as the Effective Date Statement and in accordance with the
requirements of Section 2.01(b)A-D, prepared and delivered to Purchaser by
Sellers one day prior to the Closing Date.
"Claims Notice" shall have the meaning set forth in Section 10.03 hereof.
"Closing" means the closing of the transactions contemplated by this
Agreement.
"Closing Date" means last date of the month in which the last of the
conditions to Closing set forth in this Agreement are satisfied or waived in
writing; provided, however, that if such date is not a Business Day, the Closing
Date shall be the immediately succeeding Business Day; and provided further,
that the Closing may occur on such other date as the parties may agree to in
writing.
"Closing Date Statement" has the meaning set forth under the definition of
Ceding Commission.
4
"Code" means the Internal Revenue Code of 1986, as amended. Any citation to
a provision of the Code includes a citation to any successor provision.
"Coinsured Contracts" means all individual and group fixed universal life
insurance policies and contracts delivered or issued for delivery by Sellers
prior to the Effective Date to persons in any state of the United States, the
District of Columbia or Puerto Rico and individually identified on Schedule
1.01(e) hereto and in effect on the Effective Date and, with respect to the
group universal life insurance policies, all certificates and employer
participation agreements in effect as of the Effective Date issued in accordance
with the terms of such policies and contracts identified on Schedule 1.01(e)
hereto, contractually required reinstatements of such policies, contracts,
certificates and agreements after the Effective Date; universal life insurance
policies and contracts issued after the Effective Date pursuant to the exercise
of options provided in universal life insurance policies and contracts in effect
on the Effective Date (including, in each case, all supplements, endorsements,
riders and ancillary agreements in connection therewith); but not including
policies identified in Schedule 1.01(a), [*] (although such policies identified
in Schedule 1.01(a) hereto will be included in the policies to be covered under
the Administrative Services Agreements and the Transition Servicing Agreement at
a price of $[*] per policy per year).
"Copyright License Agreement" shall mean a copyright license agreement in
the Form attached hereto as Exhibit I.
"Effective Date" means 11:59 p.m. EST on December 31, 2002.
"Effective Date Reserves" means an estimate of the General Account Reserves
as of the Effective Date as shown on the Effective Date Statement.
"Effective Date Statement" shall have the meaning set forth in Section
2.01(b) hereof.
"Estimated Closing Financial Statement" shall have the meaning set forth in
Section 2.01(a) hereof.
"Estimated Notional Account Balance" shall have the meaning set forth in
Section 2.01(a).
"Fair Market Value" means the fair market value determined, with respect to
public securities, pursuant to the Xxxxxxx Xxxx Yield pricing system and, with
respect to private securities, pursuant to an Allmerica proprietary valuation
methodology based on Bloomberg inputs, including in each case interest due and
accrued on bonds and with respect to policy loans, shall be the statement value
of such policies.
"FAFLIC" shall have the meaning set forth in the first paragraph of this
Agreement.
"FAFLIC Administrative Services Agreement" means the Administrative
Services Agreement between FAFLIC and Purchaser, in the form of Exhibit B hereto
provided, that the final form of such agreement will be subject to review and
negotiation by each party and must be in form and substance satisfactory to each
party.
5
"FAFLIC Indemnity Coinsurance Agreement" means the Coinsurance Agreement
between FAFLIC and Purchaser, in the form of Exhibit A hereto.
"Final Statement" shall have the meaning set forth in Section 2.04(a)
hereof.
"Final Closing Financial Statement" shall have the meaning set forth in
Section 2.04(a) hereof.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"General Account Liabilities" means all of Sellers' general account gross
insurance liabilities and obligations arising under the Coinsured Contracts on
or after the Effective Date during the term of this Agreement, without regard to
the reinsurance provided under this Agreement and inuring reinsurance under the
Outward Reinsurance Agreements, including, without limitation (i) benefits,
surrender amounts and other amounts payable to contract holders under the terms
of the Coinsured Contracts incurred on or after the Effective Date; (ii)
liabilities and obligations set forth on Schedule 1.01(k); (iii) premium taxes
due in respect of premiums, deposits and other consideration paid on or after
the Effective Date with respect to the Coinsured Contracts; (iv) Reimbursable
Assessments (net of any premium tax credits of Sellers arising out of any such
assessments ); (v) all amounts payable on or after the Effective Date for
returns or refunds of premiums under the Coinsured Contracts; (vi) all liability
for commission payments and other fees or compensation incurred or payable on or
after the Effective Date with respect to the Coinsured Contracts in respect of
premiums, deposits and other consideration, including, without limitation,
renewal commissions, trail commissions, other asset-based commissions; and an
amount equal to 15% of all such commissions received by agents representing in
the form of agent fringe benefit costs; and (vii) Purchaser Extra Contractual
Obligations but excluding: (x) Sellers' Retained Liabilities.
"General Account Reserves" means the general account statutory reserves of
Sellers (without regard to the transactions contemplated by this Agreement) with
respect to the Coinsured Contracts determined pursuant to Massachusetts SAP,
included in Sellers' statutory financial statements as of the Effective Date and
for reporting periods after the Effective Date during the term of this Agreement
and calculated pursuant to the requirements set out in Section 2.01(b) A-D.
"Government Authority" means any court, commission, administrative or
regulatory authority or instrumentality or any other government agency or
department, whether federal, state or local, including the insurance department
of each jurisdiction where the Seller Parties are each licensed to do business.
"Income Tax Regulations" means the temporary or final regulations issued
under the Code. Any citation to a provision of the Income Tax Regulations
includes a reference to any successor regulatory provision.
"Indemnified Party" shall have the meaning set forth in Section 10.03
hereof.
"Indemnifying Party" shall have the meaning set forth in Section 10.03
hereof.
6
"Indemnity Coinsurance Agreements" means the AFLIAC Indemnity Coinsurance
Agreement and the FAFLIC Indemnity Coinsurance Agreement.
"Interest Maintenance Reserve" shall mean the tax-adjusted reserve related
to the transfer of the Investment Assets determined by Sellers under
Massachusetts SAP.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment Assets" means assets, including cash, listed on Schedule
2.01(b) which shall have a Fair Market Value as of the Effective Date equal to
the value of the sum of (A) 2% of the amount of Effective Date Reserves plus (B)
the amount of Effective Date Reserves less the Ceding Commission, as determined
in accordance with Section 2.01(b) hereof, plus (c) the Additional Liability
Reserve, with such additions and deletions to such assets as may result with the
prior written approval of Purchaser as set forth in Section 5.01(f) hereof.
"IRS" means the United States Internal Revenue Service.
"Knowledge" shall be interpreted for the purposes of this Agreement as
follows: (i) a matter will be deemed to be within the "knowledge of the Seller
Key People" if (A) such matter is as of the date of the execution of this
Agreement actually known to any of the Seller Key People, or (B) in light of the
positions held by Seller Key People, the matter would reasonably be expected to
be known by the Seller Key People; and (ii) a matter will be deemed to be within
the "knowledge of Purchaser" if (A) such matter is actually known to any of
Purchaser Key People as of the date of the execution of this Agreement, or (B)
in light of the positions held by Purchaser Key People, the matter would
reasonably be expected to be known by Purchaser Key People.
"Licensed Software" shall have the meaning set forth in Section 3.06(a)
hereof.
"Loss" and "Losses" shall have the meanings set forth in Section 10.01
hereof.
"Material" or "material adverse effect on the Business" shall have the
following meaning: A matter shall be deemed to be "material" or to have a
"material adverse effect on the Business" in connection with any provision of
this Agreement if such matter has, or is reasonably likely to have, a material
adverse effect on (i) the business, financial condition or results of operations
of the Business or (ii) the ability of the party to perform its obligations
under this Agreement or any of the Ancillary Agreements to which it is a party.
Without limiting the foregoing, "a material adverse effect on the Sellers" shall
include, without limitation, a matter which results or is reasonably likely to
result in a petition for insolvency, rehabilitation, conservation, supervision,
liquidation or similar proceeding being filed by or against any Seller or their
statutory representative in any jurisdiction.
"Massachusetts SAP" means the statutory accounting principles and practices
prescribed by the Insurance Department of the Commonwealth of Massachusetts as
applied on a basis consistent with those utilized in the preparation of Annual
Statements for the 2002 fiscal year.
"NAIC" means the National Association of Insurance Commissioners.
"Notional Operating Account" shall have the meaning set out in Section
2.01(a) hereof.
7
"NY Coinsured Contracts" shall have the meaning set forth in Section
6.03(b) hereof.
"NY Department" shall have the meaning set forth in Section 6.03(b) hereof.
"Outward Reinsurance Agreements" shall mean all third party reinsurance
agreements inuring to the benefit of Sellers with respect to or covering any
portion of the liabilities under any of the Coinsured Contracts.
"Owned Software" shall have the meaning set forth in Section 3.06(a)
hereof.
"Parent" shall mean Allmerica Financial Corporation, a Delaware company.
"Permits" means all licenses, permits, orders, approvals, registrations,
authorizations, qualifications and filings with and under all federal, state,
local or foreign laws or governmental or regulatory bodies.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, limited liability company, limited liability partnership,
joint-stock company, trust, unincorporated organization, governmental, judicial
or regulatory body, business unit (including, but not limited to, the Business),
division or other entity.
"Premiums" means premiums and annuity considerations, deposits and similar
receipts with respect to the Coinsured Contracts.
"Premiums Receivable" means all premiums receivable after the Effective
Time under the Coinsured Contracts calculated on a SAP basis including all
commission charge backs received by the Sellers from Purchaser with respect to
premiums paid after the Effective Date net of Unassigned Outward Reinsurance,
provided that amounts equal to reinsurance premiums payable under the Unassigned
Outward Reinsurance Agreements shall be assigned to Purchaser, in accordance
with the terms of the Indemnity Coinsurance Agreement, solely during any period
that Purchaser provides administrative services for the Coinsured Contracts.
"Pro Forma Financial Statements" shall mean the pro forma financial
statements of the Business for each of AFLIAC and FAFLIC and on a consolidated
basis as set forth in Schedule 1.01 (f) hereto.
"Proposed Closing Statement" shall have the meaning set forth in Section
2.04(a) hereof.
"Proposed Statement" shall have the meaning set forth in Section 2.04(a)
hereof.
"Purchaser" shall have the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Extra Contractual Liability" means (i) all liabilities or
obligations arising in connection with the Coinsured Contracts, exclusive of
liabilities arising under the express terms of the Coinsured Contracts, for
compensatory, consequential, exemplary, punitive or similar damages, fines,
penalties, costs or expenses which relate to or arise in connection with any
alleged or actual act, error or omission whether intentional, negligent, in bad
faith or otherwise by Purchaser or any of its directors, officers, employees,
agents, Affiliates, representatives, successors or assigns on or after the
Closing Date; (ii) any liabilities relating to the Assigned
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Outward Reinsurance Agreements, exclusive of liabilities arising under their
express terms, for the items set forth in clause (i) above; (iii) taxes payable
with respect to premiums earned or received on or after the Effective Date; or
(iv) Reimbursable Assessments.
"Purchaser Key People" means the individuals set forth in Schedule 1.01(i)
hereto.
"Reimbursable Assessments" means (i) 100% of Assessments paid on account of
premiums received or written (depending upon the applicable jurisdiction's
method of making such Assessments) on the Coinsured Contracts on or after the
Effective Date, and (ii) 50% of any Assessments paid on account of insolvencies
first occurring on or after the Effective Date.
"Reinsurance Payments Receivable" means all amounts payable to the Sellers
pursuant to Unassigned Outward Reinsurance Agreements inuring to the benefit of
the Sellers with respect to or covering any portion of the liabilities under any
of the Coinsured Contracts calculated on a SAP basis and assigned to Purchaser
under the Indemnity Coinsurance Agreements solely during any period in which
Purchaser performs administrative services for the Coinsured Contracts.
"Reserve Level Additional Amount" shall have the meaning set forth in the
definition of Ceding Commission.
"Reserve Level Investment Assets" shall have the meaning set forth in
Section 2.02(a) hereof.
"RGA" shall have the meaning set forth in Section 6.08 hereof.
"Seller" and "Sellers" shall have the meaning set forth in the first
paragraph of this Agreement.
"Sellers Financial Statements" shall have the meaning set forth in Section
3.19 hereof.
"Seller Key People" means the individuals set forth in Schedule 1.01(j)
hereto.
"Sellers' Retained Liabilities" means (i) all liabilities or obligations
arising in connection with the Coinsured Contracts (exclusive of liabilities
arising under the express terms of the Coinsured Contracts and exclusive of
liabilities and obligations set forth on Schedule 1.01(k)), for compensatory,
consequential, exemplary, punitive or similar damages, fines, penalties, costs
or expenses which relate to or arise in connection with any alleged or actual
act, error or omission whether intentional, negligent, in bad faith or otherwise
by Sellers or any of their directors, officers, employees, agents, Affiliates,
representatives, successors or assigns prior to the Closing Date; (ii) all
liabilities and obligations (exclusive of obligations arising under the express
terms and conditions of the Coinsured Contracts) to the extent such liabilities
and obligations arise out of or relate to Sellers' action or inaction in the
administration of claims, and other aspects of, or relating to, the Coinsured
Contracts prior to the Closing Date; (iii) any liabilities relating to the
Outward Reinsurance Agreements, exclusive of liabilities arising under their
express terms, for the items set forth in clause (i) above provided that such
liability for Assigned Outward Reinsurance Agreements shall only be for the
period prior to the Closing Date; (iv) taxes payable with respect to premiums
earned or received prior to the Effective Date; (v) Assessments relating to the
Coinsured Contracts other than Reimbursable Assessments; or
9
(vi) assessments, fines, charges or other amounts levied by Governmental
Authorities in connection with Coinsured Contracts and of the type paid on
account of premiums received or written (depending on the applicable
jurisdiction's method of making such assessments) prior to the Effective Date.
"Software License Agreement" shall mean a software license agreement in
the form attached hereto as Exhibit G.
"Subsidiary" means, with respect to any Person on a given date (i) any
other Person of which a majority of the voting power of the equity securities or
equity interests is owned directly or indirectly by such Person and (ii) any
other Person the accounts of which, by virtue of an ownership interest in it by
such Person would be consolidated, in accordance with GAAP, with those of such
Person in its financial statements as of the applicable date.
"Taxes" (or "Tax" as the context may require) means (i) any tax,
however denominated, imposed by any federal, state, local, municipal,
territorial, provincial or foreign government or any agency or political
subdivision of any such government (a "Taxing Authority"), including without
limitation any tax imposed under Subtitle A of the Code and any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use,
gains, goods and services, production, documentary, recording, social security,
unemployment, disability, workers' compensation, estimated, ad valorem, value
added, transfer, franchise, profits, license, withholding on amounts paid to or
by Sellers, payroll, employment, excise, severance, stamp, capital stock,
occupation, personal or real property, environmental or windfall profit tax,
premium, custom, duty or other tax, governmental fee or other like assessment or
charge of any kind whatsoever in the nature of a tax, together with any
interest, penalty, addition to tax or additional amount imposed by any Taxing
Authority relating thereto, (ii) liability of Sellers for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group with any other corporation
at any time on or prior to the Closing Date, and (iii) liability of Sellers for
the payment of any amounts as a result of being a party to any Tax Sharing
Agreement or with respect to the payment of any amounts of the type described in
(i) or (ii) as a result of any express or implied obligation to indemnify any
other Person.
"Taxing Authority" has the meaning set forth in the definition of
"Taxes."
"Tax Reserve" has the meaning provided in Section 807 of the Internal
Revenue Code and regulations thereunder.
"Three Month LIBOR" means
(i) the three-month London Interbank Offered Rate (LIBOR) as
published by Bloomberg, L.P.
(ii) with respect to any period between 91 and 180 days, such
rate plus 0.25%;
(iii) with respect to any period between 181 and 365 days, the
rate referred to in (i) plus 0.75%, and
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(iv) with respect to any period greater than 365 days, the
rate referred to in (i) plus 1.25%.
"Third Party Adjudicator" shall have the meaning set forth in Section
2.04 hereof.
"Trademark License Agreement" shall mean a trademark license agreement
in the form attached hereto as Exhibit H.
"Transferred Assets" means: (i) Investment Assets; (ii) all of Sellers'
rights and interests under the Coinsured Contracts to receive principal and
interest paid on policy or contract loans on or after the Effective Date; (iii)
the Books and Records; and (iv) the Transferred Contracts.
"Transferred Contracts" all contracts assigned pursuant to the Xxxx of
Sale and General Assignment Agreement.
"Transition Servicing Agreement" means the Transition Servicing
Agreement between Sellers and Purchaser, substantially in the form of Exhibit C
hereto provided, that the final form of such agreement will be subject to review
and negotiation by each party and must be in form and substance satisfactory to
each party; provided, that the provisions relating to indemnification by Parent
contained in Section 4.5 of Exhibit C shall be no less advantageous to Purchaser
or Parent.
"Unassigned Outward Reinsurance Agreements" means all Outward
Reinsurance Agreements except for Assigned Outward Reinsurance Agreements.
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS
Section 2.01 Notional Operating Account.
(a) As of the Effective Date, each Seller shall establish on its books
and records, on behalf of Purchaser, a notional account consisting of (i) the
Investment Assets, as determined pursuant to Subsection (b) hereof; (ii) cash
investment income relating to the Investment Assets; (iii) realized gains
(losses) on sales of the Investment Assets after the Effective Date; and (iv)
all operating results, including, but not limited to, revenues, benefits,
expenses and obligations arising out of the Coinsured Contracts, (in the case of
each of clauses (ii) through (iv), for the period from and after the Effective
Date it being understood and agreed that the opening balance of each of the
notional accounts described in clauses (ii) through (iv) shall be $0), as more
fully set out in Schedule 2.01(a)1 hereto, (each a "Notional Operating Account"
and together the "Notional Operating Accounts"). Seller shall maintain
accounting for the Notional Operating Accounts utilizing appropriate reinsurance
accounting entries. Two days prior to the Closing, Sellers each shall prepare a
financial statement of the Notional Operating Accounts substantially in the form
of Schedule 2.01(a)1 hereto for the period from the Effective Date through the
close of business on the Closing Date (the "Estimated Closing Financial
Statement"). Upon the terms
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and subject to the conditions of this Agreement, on the Closing Date, Sellers
shall pay to Purchaser, an amount equal to the estimated aggregate balance of
the Notional Operating Accounts as of the Closing Date as shown on the Estimated
Closing Financial Statement for the components of such accounts set forth in
subsections (ii), (iii) and (iv) hereof (the "Estimated Notional Account
Balance") by wire transfer of immediately available funds in U.S. Dollars to the
bank account(s) designated to Sellers in writing by Purchaser, at least two
Business Days prior to the Closing Date; provided, however, that if the
Estimated Notional Account Balance as of the Closing Date is negative, Purchaser
shall pay Sellers an amount equal to the absolute value of such balance by wire
transfer of immediately available funds in U.S. Dollars to the bank account(s),
and divided between each Seller as designated to Purchaser in writing by
Sellers, at least two Business Days prior to the Closing Date with the exact
amount of the payment to be determined according to the agreement of the parties
prior to the Closing Date.
(b) On the Effective Date, Sellers will deliver to Purchaser a
statement of certain financial information of the Business as of the close of
Business on the Effective Date (the "Effective Date Statement") and a
certification of the chief financial officers of Sellers that all items on the
Effective Date Statement were estimated in good faith by Sellers as of the close
of Business on the Effective Date. Purchaser acknowledges that the financial
information in the Effective Date Statement was estimated as of December 31,
2002 based on November 30, 2002 financial information, with such assumptions as
described in the Effective Date Statement. The General Account Reserves as of
November 30, 2002:
(A) are computed in accordance with commonly accepted
actuarial standards consistently applied and are fairly stated in
accordance with sound actuarial principles in all material respects
and are calculated in a manner consistent in all material respects
with that used for the June 30, 2002 reserve balance that the
Seller provided to Milliman & Xxxxxxxxx for purposes of Milliman &
Robertson's actuarial valuation of the Business contained in a
letter dated October 16, 2002 attached as an Appendix to the
Confidential Information Memorandum relating to the Business, dated
October, 2002 (the "Information Memorandum"), except that reserves
are net of outward reinsurance reserve credits;
(B) are based on actuarial assumptions that produce reserves
sufficient to cover all benefits and guarantees provided for in any
Coinsured Contract, including any supplements or riders thereto, as
to reserve basis and method, and are in accordance with all other
Coinsured Contract provisions;
(C) meet the requirements of the Applicable Laws of the
state of domicile of each of FAFLIC and AFLIAC, as applicable; and
(D) are computed on the basis of reserving methodologies
consistent in all material respects with those used in computing
such reserves in the Pro Forma Financial Statements.
The Effective Date Statement shall reflect, in each case separately with respect
to each Seller, (i) the General Account Reserves (the "Effective Date
Reserves"), (ii) loans under Coinsured Contracts, (iii) Tax Reserves, and (iv)
Interest Maintenance Reserves. After the Effective Date, for a period of seven
(7) Business Days with respect to public securities and fifteen (15) Business
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Days with respect to private securities, each of Sellers on the one hand and
Purchaser on the other shall have the right to identify specific assets
contained in the Investment Assets with Fair Market Values with which it
disagrees. The party objecting shall submit such asset to three of the following
brokers Xxxxxxx, Sachs & Co., Credit Suisse First Boston Corporation, Xxxxxx
Brothers Inc., X.X. Xxxxxx Securities, Inc., Xxxxxxx Lynch, Pierce, Xxxxxx &
Xxxxx Incorporated, and Xxxxxx Xxxxxxx & Co. Inc. who shall each determine their
median bid and ask value for such asset as of the Effective Date. The average of
such bid and ask median values shall then become the adjusted Fair Market Value
of such asset. In the event that after such determination a party does not agree
on the adjusted Fair Market Value of such disputed asset, such party may notify
the other to (i) state a fair market value of the asset which is agreeable to
them and (ii) request that such asset be removed and replaced with cash. In the
event the other party agrees to the proposed fair market value such value will
become the Fair Market Value, if the other party does not agree such assets will
be replaced with cash. The right to substitute cash for a disputed assets shall
not exceed an aggregate amount of $50 million in substitutions for each party.
Section 2.02 Acquisition of Transferred Assets, Estimated Notional
Account Balance and Assumption of Assumed Liabilities.
(a) Upon the terms and subject to the conditions of this Agreement on
the Closing Date, Sellers shall sell, assign and transfer to Purchaser, (i) all
of Sellers' right, title and interest in the Transferred Assets, (ii) the
Estimated Notional Account Balance, if any, as provided in Section 2.01(a),
(iii) all Reinsurance Payments Receivables arising on and after the Effective
Date exclusive of amounts included in clause (ii) above pursuant to the
Indemnity Coinsurance Agreements, and (iv) all Premium Receivables arising on
and after the Effective Date exclusive of amounts included in clause (ii) above
pursuant to the Indemnity Coinsurance Agreements. In the event that there is a
Reserve Level Additional Amount, as set forth in the definition of Ceding
Commission herein, Sellers shall sell, assign and transfer to Purchaser all of
Sellers' right, title and interest in assets of Sellers selected by Purchaser
having a Fair Market Value as of the Effective Date equal to the Reserve Level
Additional Amount (the "Reserve Level Investment Assets"). All sales,
assignments and transfers of the Transferred Assets other than cash and
Investment Assets shall be effected by the Xxxx of Sale and the General
Assignment Agreement. Investment Assets and Reserve Level Investment Assets, if
any, shall be transferred by such instruments of transfer or book entry
transfer, as appropriate, as are reasonably acceptable to Sellers and Purchaser.
Notwithstanding anything in this Agreement to the contrary, but subject to the
provisions of Section 5.04 hereof, Sellers shall be entitled to keep and
maintain copies of all Books and Records from and after the Closing, and to have
access to the originals of the Books and Records in accordance with the terms
hereof.
(b) Upon the terms and subject to the conditions of this Agreement, on
the Closing Date, Purchaser shall reinsure the General Account Liabilities, net
of any reinsurance recoverables under the Unassigned Outward Reinsurance
Agreements, pursuant to the Indemnity Coinsurance Agreements, as appropriate.
Notwithstanding anything herein to the contrary, Purchaser acknowledges that the
Books and Records shall not be transferred prior to the end of the term of the
Transition Servicing Agreement, but during such period shall be entitled,
through its employees and representatives, to make such examination of the Books
and Records as Purchaser may request.
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Section 2.03 Place and Date of Closing. The Closing shall take place at
the offices of Mintz, Levin, Xxxx, Xxxxxx Xxxxxxx & Xxxxx, P.C., Xxx Xxxxxxxxx
Xxxxxx, Xxxxxx, XX 00000, at 10:00 a.m. Eastern Time on the Closing Date or such
other time or place as the parties may mutually agree upon.
Section 2.04 Post-Closing Adjustments.
(a) Sellers shall, within 30 days after the Closing Date, prepare a
proposed financial statement of certain financial information of the Business as
of the close of business on the Effective Date (the "Proposed Statement"), and a
statement of the General Account Reserves as of the Closing Date (the "Proposed
Closing Statement"), each in the same format as the Effective Date Statement and
in accordance with the requirements of Section 2.01(b)A-D, and a certification
of the chief financial officers of Sellers that the data contained in the
Proposed Statement and the Proposed Closing Statement was obtained from the
books and records of AFLIAC and FAFLIC and such data was computed in accordance
with Massachusetts SAP applied consistently in all material respects and with
Section 2.01(b)A-D. Promptly after its preparation, AFLIAC and FAFLIC shall
deliver copies of the Proposed Statement and Proposed Closing Statement to
Purchaser. Purchaser shall have the right to review such statements and the
Estimated Closing Financial Statement and comment thereon for a period of 90
days after receipt of the Proposed Statement and Proposed Closing Statement.
Sellers agree that Purchaser and its accountants may have access to the
accounting records of Sellers relating to their preparation of the Proposed
Statement, Proposed Closing Statement and the Estimated Closing Financial
Statement and for the purpose of conducting its review. Any changes in the
Proposed Statement, Proposed Closing Statement or the Estimated Closing
Financial Statement that are agreed to by Purchaser and Sellers within 90 days
of the aforementioned delivery of such balance sheet by Sellers shall be
incorporated into a final statement of the Business as of the close of business
on the Effective Date, a final statement of the Business as of the close of
business on the Closing Date, and a Final Closing Financial Statement for the
period from the Effective Date through the Closing Date, (the "Final Statement,"
"Final Closing Statement" and "Final Closing Financial Statement",
respectively). In the event that Purchaser and Sellers are unable to agree on
the manner in which any item or items should be treated in the preparation of
the Final Statement, Final Closing Statement or Final Closing Financial
Statement within such 90-day period, separate written reports of such item or
items shall be made in concise form and shall be referred to KPMG, LLP (the
"Third Party Adjudicator") within seven days following the 90 day period. The
Third Party Adjudicator shall determine within 14 days the manner in which such
item or items shall be treated on the Final Statement, Final Closing Statement
or Final Closing Financial Statement; provided, however, that the dollar amount
of each item in dispute shall be determined within the range of dollar amounts
proposed by Sellers, on the one hand, and Purchaser on the other hand. The
determinations by the Third Party Adjudicator as to the items in dispute shall
be in writing and shall be binding and conclusive on the parties and shall be so
reflected in the Final Statement, Final Closing Statement or Final Closing
Financial Statement. The fees, costs and expenses of retaining the Third Party
Adjudicator shall be shared equally by Sellers, on the one hand, and Purchaser,
on the other hand. Following the resolution of all disputed items (or, if there
is no dispute, promptly after the parties reach agreement on the Final
Statement, Final Closing Statement and/or Final Closing Financial Statement),
Sellers shall prepare the Final Statement, Final Closing Statement and/or Final
Closing Financial Statement and shall deliver copies of such statements and/or
such financial statement to Purchaser.
14
(b) In the event the amount of Effective Date Reserves less the Ceding
Commission is less than the General Account Reserves as of the Effective Date
(as reported in the Final Statement) less the Adjusted Ceding Commission,
Sellers shall, within ten (10) Business Days of agreement upon the Final
Statement, transfer to Purchaser additional cash or cash equivalents equal to
the amount of such difference less 2% of the Effective Date Reserves, together
with interest thereon from and including the Effective Date, to but not
including the date of such transfer, computed at the Three Month LIBOR as of
5:00 p.m. on the Effective Date. In the event that the full 2% of the Effective
Date Reserves is not applied to such payment the balance shall be paid by
Purchaser to Sellers together with interest thereon from and including the
Effective Date, to but not including the date of such transfer, computed at the
Three Month LIBOR as of 5:00 p.m. on the Effective Date.
(c) In the event the amount of Effective Date Reserves less the Ceding
Commission is greater than General Account Reserves as of the Effective Date (as
reported in the Final Statement) less the Final Ceding Commission, Purchaser
shall, within ten (10) Business Days of agreement upon the Final Statement,
transfer to Sellers cash or cash equivalents equal to the amount of such
difference plus 2% of the Effective Date Reserves, together with interest
thereon from and including the Effective Date, to but not including the date of
such transfer, computed at the Three Month LIBOR as of 5:00 p.m. on the
Effective Date.
(d) In the event that the aggregate balance shown on the Final Closing
Financial Statement is greater than or less than the Estimated Notional Account
Balance, such difference together with interest thereon from and including the
Effective Date, to but not including the date of such transfer, computed at the
Three Month LIBOR as of 5:00 p.m. on the Effective Date shall be paid in
immediately available funds to the appropriate party within ten (10) Business
Days of the agreement upon the Final Closing Financial Statement.
(e) In the event that the General Account Reserves as of the Closing
Date as shown on the Closing Date Statement is greater than or less than the
General Account Reserves as of the Closing Date as shown on the Final Closing
Statement and such difference would have resulted in a change to the Ceding
Commission in accordance with the definition thereof, 50% of such difference
together with interest thereon from and including the Closing Date, but not
including the date of such transfer, computed at the Three Month LIBOR as of
5:00 p.m. EST on the Effective Date shall be paid in immediately available funds
to the appropriate party within ten (10) Business Days of agreement upon the
Final Closing Statement.
(f) In the event that Purchaser is no longer required to maintain or is
able to reduce the amount of the Interest Maintenance Reserve from the level
reflected in the Final Statement, then Purchaser shall within ten (10) Business
Days of such determination transfer to Sellers cash or cash equivalents in the
amount of such Interest Maintenance Reserve or such reduction, as relevant,
multiplied by 0.24. promptly following the time of such determination. The
parties recognize that Sellers intend to reflect the release of any portion of
the Interest Maintenance Reserve in its statutory accounting statements.
(g) Amounts required to be transferred from Purchaser to Sellers or
from Sellers to Purchaser pursuant to this Section shall be netted against one
another so that only a single net transfer shall be required. Any transfer of
cash required under this Section 2.04 shall be made
15
within ten (10) Business Days following the determination of amounts due under
this Section 2.04.
Section 2.05 Closing Items.
(a) At the Closing, Sellers shall execute (where appropriate) and
deliver to Purchaser the following:
(i) Estimated Closing Financial Statement;
(ii) the Indemnity Coinsurance Agreements;
(iii) the Administrative Services Agreements;
(iv) the Transition Servicing Agreement;
(v) the Xxxx of Sale and General Assignment Agreement;
(vi) the Software License Agreement;
(vii) the Trademark License Agreement;
(viii) the Copyright License Agreement;
(ix) evidence of receipt of the Permits from the Insurance
Departments of the Commonwealth of Massachusetts and the State
of New York; and
(x) evidence of compliance with any state pre-acquisition
notification acts from which no exemption is available.
Sellers shall also (i) transfer to Purchaser Investment Assets and
Reserve Level Investment Assets, if any, in accordance with Sections 2.01(b) and
2.02(a) hereof, (ii) transfer the other Transferred Assets to Purchaser in
accordance with Section 2.02 hereof, (iii) transfer the Estimated Notional
Account Balance, if applicable, (iv) transfer all right, title and interest in
Reinsurance Payments Receivable arising on or after the Effective Date pursuant
to the Indemnity Coinsurance Agreement, (v) transfer all right, title and
interest in Premium Receivables arising on or after the Effective Date pursuant
to the Indemnity Coinsurance Agreement, and (vi) deliver to Purchaser a true and
correct list of all life insurance contracts included in the Coinsured Contracts
that are in effect as of the Closing Date.
(b) At the Closing, Purchaser shall execute (where appropriate) and
deliver to Sellers, as applicable, the following:
(i) the Indemnity Coinsurance Agreements;
(ii) the Administrative Services Agreements;
(iii) the Transition Servicing Agreement;
16
(iv) the Xxxx of Sale and General Assignment Agreement;
(v) the Software License Agreement;
(vi) the Trademark License Agreement;
(vii) the Copyright License Agreement;
(viii) evidence of compliance with any state pre-acquisition
notification requirements from which no exemption is
available.
Purchaser shall also transfer to Sellers the Estimated Notional Account
Balance, if applicable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Purchaser, jointly and
severally, as of the Effective Date, as follows:
Section 3.01 Organization, Standing and Authority of Sellers. Each
Seller is duly organized, validly existing and in good standing under the laws
of Massachusetts and has all requisite power and authority to carry on the
operations of the Business as they are now being conducted, except where the
failure to have such authority would not, individually or in the aggregate, have
a material adverse effect on the Business. Each Seller is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the Business.
Section 3.02 Authorization. Each Seller has all requisite power and
authority to execute and deliver, and to perform its respective obligations
under, this Agreement and under each of the Ancillary Agreements to be executed
by it. The execution and delivery by Sellers of this Agreement and the Ancillary
Agreements to be executed by them, and the performance by Sellers of their
respective obligations under such agreements have been duly authorized by all
necessary corporate action on the part of Sellers. This Agreement has been duly
executed and delivered by Sellers, and when the Ancillary Agreements are
executed by Sellers will be duly executed and delivered by Sellers, as
appropriate; and, subject to the due execution and delivery by the other parties
to such agreements, this Agreement is and the Ancillary Agreements executed by
Sellers will, upon due execution and delivery, be valid and binding obligations
of Sellers, as the case may be, enforceable against Sellers in accordance with
their respective terms. Notwithstanding the foregoing, the obligation of Sellers
to execute any Ancillary Agreement shall be subject to the terms and conditions
of this Agreement.
Section 3.03 Actions and Proceedings. Except as disclosed on Schedule
3.03 hereto, there are no outstanding orders, decrees or judgments by or with
any court, governmental agency, regulatory body or arbitration tribunal before
which any Seller was a party that, individually or in the aggregate, have a
material adverse effect on the Business. Except as
17
disclosed on Schedule 3.03 hereto, there are no actions, suits, arbitrations or
legal, administrative or other proceedings pending or, to the knowledge of the
Seller Key People, threatened in writing against Sellers, at law or in equity,
or before or by any governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind
which, if adversely determined, would, individually or in the aggregate, have a
material adverse effect on the Business.
Section 3.04 No Conflict or Violation. Except as disclosed on Schedule
3.04 hereto, the execution, delivery and performance by Sellers of this
Agreement and the Ancillary Agreements to which any of them may become a party
and the consummation of the transactions contemplated hereby and thereby in
accordance with the respective terms and conditions hereof and thereof will not
(a) violate any provision of the charter, bylaws or other organizational
document of any Seller, (b) violate, conflict with or result in the breach of
any of the terms of, result in any modification of the effect of, otherwise give
any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both, constitute) a default under, any contract
relating to or arising in connection with the Business to which any Seller is a
party or by or to which Sellers or any of their respective assets or properties
may be bound or subject, except for such violations, conflicts, breaches or
modifications that would not, individually or in the aggregate, have a material
adverse effect on the Business, (c) violate any order, judgment, injunction,
award or decree of any court, arbitrator or governmental or regulatory body
against, or binding upon, or any agreement with, or condition imposed by, any
governmental or regulatory body, foreign or domestic, binding upon Sellers in
connection with the Business, except for such violations that would not,
individually or in the aggregate, have a material adverse effect on the
Business, (d) subject to obtaining the Permits referred to in Section 3.05
hereof, violate any statute, law or regulation of any jurisdiction, except for
such violations that would not, individually or in the aggregate, have a
material adverse effect on the Business or (e) result in a breach or violation
of any of the terms or conditions of, constitute a default under, or otherwise
cause an impairment or revocation of, any Permit related to the Business, except
for such breaches, violations, defaults, impairments or revocations that would
not, individually or in the aggregate, have a material adverse effect on the
Business.
Section 3.05 Governmental Consents and Approvals. Except for required
Permits of and filings with applicable insurance regulatory authorities, the
execution, delivery and performance by Sellers of this Agreement and the
Ancillary Agreements to which any of them is a party and the consummation of the
transactions contemplated hereby and thereby in accordance with the respective
terms hereof and thereof do not require any Sellers to obtain any consent,
approval or action of, make any filing with, or give any notice to, any
governmental or regulatory body, except for such consents, approvals, actions,
filings or notices the failure of which to obtain, make or give, as the case may
be, would not, individually or in the aggregate, have a material adverse effect
on the Business.
Section 3.06 Computer Software and Intellectual Property.
(a) Each Seller has set forth on Schedule 3.06(a) hereto a true and
complete listing of all material computer software programs used in the conduct
of the Business. Such computer software program is either (i) owned by the
Seller (the "Owned Software") or (ii) licensed by the Seller from a third party
(the "Licensed Software"). Each Seller has the right to use all Owned
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and Licensed Software as currently used in the Business, and to grant to
Purchaser the rights and licenses to the Owned Software as are set forth in the
Software License Agreement free and clear of any royalty or other similar
payment obligations, claims of infringement or alleged infringement or other
lien, charge, claim or other encumbrance of any kind, except for any such
claims, liens, charges or encumbrances that would not, individually or in the
aggregate, have a material adverse effect on the Business. Each Seller's use of
the Owned Software and the Licensed Software is not in conflict with or
violation or infringement of, nor, to the knowledge of the Seller Key People,
has any Seller received any notice of any such conflict with, or violation or
infringement of, any asserted rights of any other Person, except for any such
conflicts, violations or infringements that would not, individually or in the
aggregate, have a material adverse effect on the Business. Sellers represent
that all Coinsured Contracts are on the LifeComm/CORE Computer System.
(b) The logos, trademarks, service marks and copyrights that are used
in the Business and listed on Schedule 3.06(b) are the property of Sellers, and
(ii) any Seller has the right to grant to Purchaser a limited license to use
these logos, trademarks, service marks and copyrights above set forth and
included in the Trademark and Copyright License Agreements.
Section 3.07 Brokerage and Financial Advisers. No broker, finder or
financial adviser has acted directly or indirectly as such for, or is entitled
to any compensation from, Sellers or their Affiliates in connection with this
Agreement or the transactions contemplated hereby, except Xxxxxxx, Xxxxx & Co.,
whose fees for services rendered in connection therewith will be paid by
Sellers.
Section 3.08 Compliance with Laws. Except with respect to those
violations listed on Schedule 3.08 or which would not have a material adverse
effect on the Business, no Seller, is in violation of any federal, state, local
or foreign law, ordinance or regulation or any other requirement of any
governmental or regulatory body, court or arbitrator applicable to the Business
nor, to the knowledge of the Seller Key People, has any Seller received any
written notice that any such violation is being alleged.
Section 3.09 Permits, Licenses and Franchises. Schedule 3.09 hereto
lists (i) all jurisdictions in which Sellers are licensed to issue the Coinsured
Contracts and (ii) the lines of business in connection with the Business which
Sellers are authorized to transact in each such jurisdiction. Each Seller has
been duly authorized by the relevant state insurance regulatory authorities to
issue the Coinsured Contracts that it is currently writing, and was duly
authorized to issue the Coinsured Contracts that it is not currently writing at
the time such Coinsured Contracts were issued, in the respective states in which
it conducts the Business, except for authorizations the failure of which to have
would not, individually or in the aggregate, have a material adverse effect on
the Business. Except as set forth on Schedule 3.09, Sellers have all other
Permits necessary to conduct the Business in the manner and in the areas in
which the Business is presently being conducted and all such Permits are valid
and in full force and effect, except where the failure to have such a Permit
would not, individually or in the aggregate, have a material adverse effect on
the Business.
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Section 3.10 Coinsured Contracts.
(a) All Coinsured Contracts as now in force are in all respects, to
the extent required under Applicable Law, on forms approved by applicable
insurance regulatory authorities or which have been filed and not objected to by
such authorities within the period provided for objection, and such forms comply
in all material respects with the insurance statutes, regulations and rules
applicable thereto, except where the failure to have such approval or
non-objection or the failure to so comply would not, individually or in the
aggregate, have a material adverse effect on the Business. To the knowledge of
the Seller Key People, at the time any Seller paid commissions to any broker or
agent within the past 36 months in connection with the sale of Coinsured
Contracts, each such broker or agent was duly licensed as an insurance broker
(for the type of business sold by such broker) or agent in the particular
jurisdiction in which such broker or agent sold such business for any Seller,
and no such broker or agent violated (or with or without notice or lapse of time
or both would have violated) any federal, state, local or foreign law, ordinance
or regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to the Business, except where the failure to be
so licensed or any such violation would not, individually or in the aggregate,
have a material adverse effect on the Business. Neither the manner in which any
Seller compensates any Person involved in the sale or servicing of Coinsured
Contracts that is not registered as a broker-dealer or insurance agent, as
applicable, nor, to the knowledge of the Seller Key People, the conduct of any
such Person, renders such Person a broker-dealer or insurance agent under any
applicable federal or state law, and the manner in which any Seller compensates
each Person involved in the sale or servicing of Coinsured Contracts is in
compliance with all applicable federal or state laws except where such manner of
compensation or conduct having such affect or the failure to be so in compliance
would not, individually or in the aggregate, have a material adverse affect on
the Business.
(b) Both Sellers have implemented procedures and programs which are
reasonably designed to provide assurance that its respective agents and
employees are in material compliance with all Applicable Law, including without
limitation, advertising, licensing and sales practices laws, regulations,
directives, bulletins and opinions of governmental authorities, except for
non-compliances that, individually or in the aggregate, have not had and would
not have a material adverse effect on the Business. Except as previously
disclosed in this Agreement or any Schedule to this Agreement, the Seller Key
People have no knowledge of any noncompliance with the procedures and programs
implemented, except for noncompliance which, individually or in the aggregate,
have not had and would not have a material adverse effect on the Business.
(c) Sellers have at all times since January 1, 1993, maintained
records which in all material respects accurately reflect transactions in
reasonable detail, and accounting controls, policies and procedures sufficient
to ensure in all material respects that such transactions are recorded in a
manner which permits the preparation of financial statements in accordance with
GAAP and applicable statutory accounting requirements.
Section 3.11 Regulatory Filings. Except as listed on Schedule 3.11
hereto, since January 1, 1996, Sellers have filed all reports, statements,
documents, registrations, filings or
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submissions (including without limitation any sales material) required to be
filed by Sellers, with any governmental or regulatory body to the extent they
relate to the Business, except where the failure to make such filings would not,
individually or in the aggregate, have a material adverse effect on the
Business. Except as listed on Schedule 3.11 hereto, all such registrations,
filings and submissions were in compliance in all material respects with
applicable law when filed or as amended or supplemented, and, to the knowledge
of the Seller Key People, no material deficiencies have been asserted by any
such governmental or regulatory body with respect to such registrations, filings
or submissions that have not been satisfied.
Section 3.12 Reinsurance. Except as set forth on Schedule 3.12 hereto,
and to the knowledge of the Seller Key People, (a) there are no agreements,
written or oral, pursuant to which Sellers cede or retrocede risks assumed under
the Coinsured Contracts and (b) there are no Coinsured Contracts which are
agreements of assumed reinsurance.
Section 3.13 Conduct of Business. Except as expressly contemplated or
required by this Agreement, or as set forth in Schedule 3.13 hereto, since
December 31, 2001, Sellers have generally conducted the Business only in the
ordinary course consistent with their past practices and there has not been any
material change in the underwriting, pricing, actuarial, reserving, investment,
sales, marketing or agency practices or policies of the Business, other than a
change that would not be reasonably likely to have a material adverse effect on
the Business.
Section 3.14 Absence of Certain Changes. Except as set forth on Schedule
3.14, since December 31, 2001, there has been no event or condition, that,
individually or in the aggregate, would be reasonably likely have a material
adverse effect on the Business.
Section 3.15 Other Sale Arrangements. None of FAFLIC or AFLIAC is
obligated or liable, contingently or otherwise, for or with respect to
negotiations, letters of intent or commitments for the sale of all or any part
of the Business (except in the ordinary course of business) to any Persons other
than Purchaser.
Section 3.16 Reserved.
Section 3.17 Employees. Schedule 3.17(a) hereto lists to the knowledge
of the Seller Key People (i) five Persons employed by any Seller or any of their
respective Affiliates immediately prior to the execution of this Agreement who
are key employees for the Business.
(b) Schedule 3.17(b) hereto lists and describes, to the knowledge of the
Seller Key People, any "pay to stay" or similar arrangement applicable to any
employee listed on Schedule 3.17(a) hereto as of the date of this Agreement.
Section 3.18 Transferred Assets. Sellers have good and marketable title
to all assets included within the Transferred Assets (other than cash and the
Transferred Contracts), free of any lien, encumbrance, restriction, claim,
charge, or defect of title, except for any liens, encumbrances, restrictions,
claims, charges or defaults of title (i) whose effect on the value of the
relevant Transferred Assets will be collectively reflected in the current value
thereof on the Final Balance Sheet, (ii) identified on Schedule 3.18 hereto, or
(iii) with respect to assets other than cash or Investment Assets, that,
individually or in the aggregate, would not have a material adverse effect on
the Business.
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Section 3.19 GAAP Financial Statements. On or prior to the date hereof,
Sellers have delivered to Purchaser true, correct and complete copies of (a) the
audited consolidated balance sheet of each Seller and their respective
Subsidiaries as of December 31, 2001, prepared in accordance with GAAP, together
with the notes thereon and the related report of PricewaterhouseCoopers, LLP,
the independent certified public accountant of Sellers, and (b) the audited
consolidated statements of income, stockholders' equity and cash flows of each
Seller and its Subsidiaries for the year ended December 31, 2001, prepared in
accordance with GAAP, together with the notes thereon and the related report of
PricewaterhouseCoopers, LLP, (collectively, the "Sellers Financial Statements").
The Sellers Financial Statements are based on the books and records of Sellers
and their Subsidiaries, and the Sellers Financial Statements have been prepared
in accordance with GAAP (subject to normal recurring year-end adjustments)
consistently applied, and fairly present in all material respects the
consolidated financial position and results of operations of Sellers and their
respective Subsidiaries as of the date and for the period indicated therein.
Section 3.20 Statutory Statements. Sellers have previously delivered
Purchaser true, complete and correct copies of (a) the Annual Statements of each
Seller as filed with the Massachusetts Division of Insurance for the years ended
December 31, 2001 and 2000 including any update thereto, together with all
exhibits and schedules thereto; (b) the Quarterly Statements of each Seller as
filed with the Massachusetts Division of Insurance for each of the first three
quarters in 2002; and (c) the actuarial opinions applicable to the Business for
such years and supporting actuarial memoranda for the year ended December 31,
2001 only.
Section 3.21 Tax Matters. Except as described on Schedule 3.21:
(a) Sellers agree that for all Tax purposes the transactions pursuant
to this Agreement and the Ancillary Agreements constitute indemnity reinsurance
transactions. Sellers further agree not to take any position inconsistent with
these positions for Tax purposes.
(b) Each Coinsured Contract identified as a "Life Insurance Contract"
for purposes of this Agreement that was issued after December 31, 1984 complies
with the requirements of Section 7702 of the Code.
(c) Each Coinsured Contract identified as a "Life Insurance Contract"
for purposes of this Agreement that was issued before January 1, 1985 (i)
complies with the requirements of Section 7702 of the Code to the extent
applicable to such Insurance Contract or (ii) to the extent Section 7702 of the
Code is inapplicable to such Insurance Contact and such Insurance Contract is a
flexible premium contract within the meaning of Section 101(f) of the Code,
complies with the requirements of such Section 101(f).
(d) To the knowledge of the Seller Key People, there are no "hold
harmless," tax sharing, indemnification, or similar arrangements regarding the
Tax qualification or treatment of any Coinsured Contracts.
(e) Tax Reserves have been properly computed in accordance with
Section 807 of the Internal Revenue Code and the Income Tax Regulations
thereunder.
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(f) The policyholders of any Coinsured Contracts that constitute
"modified endowment contracts" under Section 7702A of the Code have been fully
notified of the status and federal tax consequences of such Coinsured Contracts.
All such modified endowment contracts are listed on attached Exhibit F and
Seller will bear the economic cost associated with such noncompliance as
provided for in Section 8.02(b) hereof.
(g) Each Seller has complied in all material respects with all
applicable reporting, withholding and disclosure requirements under the Code,
ERISA and other applicable law, including but not limited to those regarding
distributions, with respect to the Coinsured Contracts and has reported the
distributions under such contracts in accordance with Sections 72, 7702 and
7702A of the Code in all material respects.
Section 3.22 Disaster Recovery Backup. Sellers have established off-site
storage of all systems and data used in the administration of the Coinsured
Contracts to allow for a continuation of work with no more than a 48-hour
interruption if there is any disaster or other event which interrupts work at
the facility where the work is being performed ("Disaster Recovery Backup"). The
Disaster Recovery Backup is located at Tewksbury, Massachusetts.
Section 3.23 Pro Forma Financial Statements. Except with respect to net
investment income, the data contained in the Pro Forma Financial Statements was
obtained from the books and records of Sellers and is the same data that was
included with respect to the Business in the statutory financial statements of
Sellers and in Sellers' work papers upon which such Massachusetts SAP financial
statements were based. Such data was computed in accordance with, as applicable,
Massachusetts SAP in all material respects with the requirements of Section
2.01(b)A-D. Except as disclosed on Schedule 3.23 hereto, or reserved against in
Sellers' Financial Statements, to the knowledge of the Seller Key People, as of
the date thereof there were no material debts, liabilities or obligations of the
Business, whether accrued, absolute or contingent and whether due or to become
due that would be required to be set forth in such financial statements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as of the Effective
Date, as follows:
Section 4.01 Organization and Standing. Purchaser is a Massachusetts
domiciled stock life insurance company and has all requisite power and authority
to own, lease and operate its assets, properties and business and to carry on
the operations of its business as they are now being conducted, except where
such authority is not material to such operations.
Section 4.02 Authorization. Purchaser has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and under each of the Ancillary Agreements to be executed by it. The execution
and delivery by Purchaser of this Agreement and the execution and delivery of
the Ancillary Agreements to be executed by Purchaser, and the performance by it
of its obligations under such agreements, have been duly authorized by all
necessary corporate action. This Agreement has been duly executed and
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delivered by Purchaser, and on the Closing Date the Ancillary Agreements
executed by Purchaser will be duly executed and delivered by Purchaser; and,
subject to the due execution and delivery by the other parties to such
agreements, this Agreement is, and the Ancillary Agreements executed by
Purchaser will, upon due execution and delivery, be valid and binding
obligations of Purchaser enforceable against it in accordance with their
respective terms. Notwithstanding the foregoing, the obligation of Purchaser to
execute any Ancillary Agreement shall be subject to the terms and conditions of
this Agreement.
Section 4.03 Actions and Proceedings. Except as disclosed on Schedule
4.03 hereto, there are no outstanding orders, decrees or judgments by or with
any court, governmental agency, regulatory body or arbitration tribunal before
which Purchaser was a party that, individually or in the aggregate, have a
material adverse effect on the operations, financial condition or assets of
Purchaser. Except as disclosed on Schedule 4.03 hereto, there are no actions,
suits, arbitrations or legal, administrative or other proceedings pending or, to
the knowledge of Purchaser Key People, threatened against Purchaser or at law or
in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any arbitrator
of any kind which, if adversely determined, would, individually or in the
aggregate, have a material adverse effect on the operations, financial
conditions or assets of Purchaser.
Section 4.04 No Conflict or Violation. Except as disclosed on Schedule
4.04 hereto, the execution, delivery and performance by Purchaser of this
Agreement and the execution, delivery and performance by Purchaser of the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby in accordance with the respective
terms and conditions hereof and thereof will not (a) violate any provision of
the charter, bylaws or other organizational document of Purchaser, (b) violate,
conflict with or result in the breach of any of the terms of, result in any
modification of the effect of, otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both,
constitute) a default under, any contract to which Purchaser is a party or by or
to which it or any of its assets or properties may be bound or subject, except
for such violations, conflicts, breaches or modifications that would not,
individually or in the aggregate, have a material adverse effect on the
operations, financial condition or assets of Purchaser, (c) violate any order,
judgment, injunction, award or decree of any court, arbitrator or governmental
or regulatory body against, or binding upon, or any agreement with, or condition
imposed by, any governmental or regulatory body, foreign or domestic, binding
upon Purchaser, except for such violations that would not, individually or in
the aggregate, have a material adverse effect on the operations, financial
condition or assets of Purchaser, (d) violate any statute, law or regulation of
any jurisdiction except for such violations that would not, individually or in
the aggregate, have a material adverse effect on Purchaser, or (e) result in a
breach or violation of any of the terms or conditions of, constitute a default
under, or otherwise cause an impairment of, any Permit related to Purchaser's
business or necessary to conduct the Business, except for any violation,
conflict, breach or default that would individually or in the aggregate, have a
material adverse effect on the operations, financial condition or assets of
Purchaser.
Section 4.05 Governmental Consents and Approvals. Except as set forth on
Schedule 4.05 hereto and except for required Permits of applicable insurance
regulatory authorities, the execution, delivery and performance by Purchaser of
this Agreement, and the
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execution, delivery and performance by Purchaser of the Ancillary Agreements to
which it is a party, and the consummation of the transactions contemplated
hereby and thereby in accordance with the respective terms hereof and thereof,
do not require Purchaser to obtain any consent, approval or action of, make any
governmental filing with or give any notice to, any Person, except for such
consents, approvals, actions, filings or notices the failure of which to obtain,
make or give, as the case may be, would not individually or in the aggregate
have a material adverse effect on the operations, financial condition or assets
of Purchaser.
Section 4.06 Brokerage and Financial Advisers. No broker, finder or
financial adviser has acted directly or indirectly as such for, or is entitled
to any compensation from, Purchaser in connection with this Agreement or the
transactions contemplated hereby except Bear Xxxxxxx & Co. Inc, whose fees for
services rendered in connection with the transactions contemplated by this
Agreement will be paid by Purchaser.
Section 4.07 Compliance with Laws. Except with respect to those
violations, if any, that will be cured by Purchaser prior to, or by the act of,
Closing or which individually or in the aggregate would not have a material
adverse effect on the operation of Purchaser, Purchaser is not in violation of
any federal, state, local or foreign law, ordinance or regulation or any other
requirement of any governmental or regulatory body, court or arbitrator nor has
Purchaser received any written notice that any such violation is being alleged.
Section 4.08 Permits, Licenses and Franchises. Purchaser has been duly
authorized by the relevant state insurance regulatory authorities to transact
life insurance business in all 50 states and Puerto Rico. Except as listed on
Schedule 4.08 hereto, Purchaser has all Permits necessary to conduct the
Business in the manner and in the areas in which the Business is presently being
conducted, and all such Permits are valid and in full force and effect, except
where the failure to have such a Permit would not, individually or in the
aggregate, have a material effect on the operations of Purchaser. Except as
listed on Schedule 4.08 hereto, Purchaser has not engaged in any activity which
would cause revocation or suspension of any such Permit and no action or
proceeding looking to or contemplating the revocation or suspension of any such
Permit is pending or threatened.
Section 4.09 Sufficient Funds. Purchaser has or will have at Closing
sufficient funds available to pay the Adjusted Ceding Commission and to pay all
fees and expenses related to the transactions contemplated.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business.
(a) During the period from the Effective Date to the Closing, each
Seller shall (i) in all material respects operate the Business as presently
operated and only in the ordinary course and consistent with past practice
(including but not limited to past underwriting standards and investment
management of the Transferred Assets) except as set forth in Schedule 5.01(a)
hereto, or otherwise required by this Agreement (ii) use commercially reasonable
best efforts to preserve
25
the value of the Business, and (iii) use commercially reasonable best efforts to
preserve their relationships with and the goodwill of their agents, brokers,
customers, suppliers, employees and other Persons having business dealings with
Sellers in connection with the Business.
(b) Without limiting the generality of Section 5.01(a), and except as
otherwise expressly provided in this Agreement, Sellers will not without the
prior written consent of Purchaser:
(i) enter into any contract, other than in the ordinary
course of business consistent with past practice during the fourth
quarter of 2002 in all material respects;
(ii) acquire or dispose of any asset used or to be used
in the Business, other than acquisitions or dispositions in the
ordinary course of the Business in all material respects;
(iii) change in any material respect any of the accounting
principles, practices, methods or policies (including but not
limited to any reserving methods, practices or policies) employed
with respect to the Business, except as may be required as a
result of a change in law, GAAP, SAP or guidelines issued by the
Commission or its accounting staff or by any other regulatory or
self-regulatory authority;
(iv) pay, discharge or satisfy any material claims,
liabilities or obligations associated with the Business (absolute,
asserted or unasserted, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of the
Business consistent with past practice or in accordance with the
terms of liabilities reflected or reserved against in the Pro
Forma Financial Statements or incurred in the ordinary course of
business consistent with past practice in all material respects;
(v) enter into any reinsurance contract, other than in
the ordinary course of business of the Business consistent with
past practice in all material respects;
(vi) agree in writing or otherwise to take any of the
actions described above in this Section 5.01(b).
(c) Prior to Closing, each Seller shall notify Purchaser as promptly
as practicable of any event or transaction having a material adverse effect on
the Business.
(d) Prior to the Closing Date, Sellers will:
(i) not take any action intended to cause lapses,
conversions or the terminations of any Coinsured Contract;
(ii) take no action intended to encourage any agents of a
Seller to roll over any Coinsured Contract; and
26
(iii) pay no commissions to any agent on such Coinsured
Contracts that is rolled over in the event that, commencing on the
Effective Date, the lapse rate with respect to Coinsured Contracts
exceeds [*]%, calculated on an annualized rolling prior 3-month
lapse rate basis calculated and reported, in writing to Purchaser
by Sellers each week.
(e) During the period from the Effective Date to the Closing Date,
Sellers will continue to provide all administrative services and other duties
and obligations required to be performed with respect to General Account
Liabilities and the Coinsured Contracts in accordance in all material respects
with the standards they have used in administering the business and will not
make any material changes in such standards except as required by applicable
law. Sellers shall receive compensation, which Sellers will reflect in the
Notional Operating Account, for such services equal to $[*] per policy in effect
at the end of each month per year prorated for the days the Notional Operating
Account is in effect, which shall become due and payable pursuant to Section
2.01. Within five days of the end of each full calendar month following the date
hereof, Seller shall provide to Purchasers a monthly financial statement of the
Notional Operating Account certified by the chief financial officer of each
Seller that such statement reflects reinsurance accounting as currently required
by Massachusetts SAP in all material respects.
(f) From the Effective Date to Closing, Sellers shall consult with
Purchaser on all investment decisions regarding the Investment Assets and shall
manage the Investment Assets at Purchaser's written direction.
Section 5.02 Certain Transactions. From the date of this Agreement
through the Closing, none of Sellers or any of their respective officers,
employees, representatives or agents will, directly or indirectly, solicit,
encourage or initiate any negotiations or discussions with, or provide any
information to, or otherwise cooperate in any other manner with, any Person or
group (other than Purchaser, and its Affiliates and representatives) concerning
any direct or indirect sale or other disposition of the Business or the stock or
substantially all of the assets of any Seller.
Section 5.03 Investigations; Pre-Closing Access.
(a) Prior to the Closing Date, Purchaser shall be entitled, through
its employees and representatives, to make such investigation of the assets,
liabilities, business and operations of the Business, and such examination of
the Books and Records, as Purchaser may reasonably request. Any investigation,
examination or interview by Purchaser of any of the Sellers or their employees
and agents or access pursuant to any of the provisions of this Section 5.03(a)
or Section 5.03(b) shall be conducted or occur during regular business hours
upon reasonable prior notice to Sellers, provided however, that such actions by
Purchaser shall not unreasonably interfere with Seller's business operations;
and each of the parties hereto and its employees and representatives, including,
without limitation, counsel, investment bankers, and independent public
accountants, shall cooperate with the other's employees and representatives, as
the case may be, in connection with such review and examination.
27
(b) In addition, prior to the Closing Date, Sellers shall provide
Purchaser with full and complete access to every aspect of the Business. Without
limiting the generality of the foregoing, Sellers shall, commencing on the date
hereof (i) provide Purchaser with access to employees and agents of Sellers
reasonably specified by Purchaser to understand any and all aspects of the
Business and to plan the transition of the Business as Purchaser may reasonably
request, (ii) reasonably designate certain individuals (subject to Purchaser's
reasonable approval) to serve as members of a Seller/Purchaser transition team
and cause such individuals to devote reasonable time to transition matters,
(iii) devote reasonable resources to transition matters (such resources to
include, without limitation, office accommodations and related facilities for a
substantial and continuing presence of Purchaser's transition team members on
any Seller's premises), (iv) consult with Purchaser regarding Sellers'
development work pertaining to systems, products, distribution and customer and
producer services, (v) cooperate with Purchaser in its development work
pertaining to systems, products, distribution and customer and producer services
in order to enable implementation of the transition plan at the earliest
feasible date. In conjunction with the foregoing, Sellers hereby acknowledge
that such transition plan is critical to the success of the transactions
contemplated by this Agreement, and (vi) permit, and cooperate with, Purchaser
to offer to selected employees of Seller, as designated by Purchaser and
reasonably acceptable to Sellers, incentive compensation to encourage such
employees to continue their employment with the Business through January 21,
2004, provided the aggregate of such incentive compensation shall not exceed
$250,000, Purchaser to reimburse the Sellers for such incentive compensation,
including Sellers' portion of withholding taxes.
(c) Any investigation, examination or interview by Purchaser of any of
the Seller Parties or their employees and agents or access pursuant to any of
the provisions of Section 5.03(a) or Section 5.03(b) shall be conducted or occur
during regular business hours upon reasonable prior notice to the Seller Parties
provided, however, that such actions by Purchaser shall not unreasonably
interfere with Sellers' business operations.
(d) Sellers shall, prior to Closing, provide Purchaser with all
information reasonably necessary to operate the Business as it is currently
operated.
(e) Notwithstanding any other provisions of this Section 5.03,
Purchaser and Sellers shall cooperate in implementing the provisions of this
Section 5.03 so as not to prevent or interfere with each Seller's compliance
with Section 5.01 hereof.
Section 5.04 Post-Closing Access.
(a) In addition to any similar provisions provided in the Transition
Services Agreement, following the Closing Date, each Seller shall (i) allow
Purchaser upon reasonable prior notice and during regular business hours,
through their employees and representatives, the right, at Purchaser's expense,
to examine and make copies of any books and records retained by each Seller, to
the extent they relate to the Business, for any reasonable business purpose,
including, without limitation, the preparation or examination of Purchaser's Tax
returns, regulatory filings and financial statements and the conduct of any
litigation or regulatory dispute resolution, whether pending or threatened,
concerning the conduct of the Business prior to the Closing Date and (ii)
maintain such books and records for Purchaser's examination and copying for the
period required under each Sellers document retention policy or longer if
required by law.
28
Access to such books and records shall be at Purchaser's expense and may not
unreasonably interfere with any Seller's or successor company's business
operations.
(b) Following the Closing Date, Purchaser shall (i) allow Sellers,
upon reasonable prior notice and during regular business hours, through their
employees and representatives, the right, at Sellers' expense, to examine and
make copies of the Books and Records transferred to Purchaser, respectively, at
the Closing for any reasonable business purpose, including, without limitation,
the preparation or examination of Tax returns, regulatory filings and financial
statements and the conduct of any litigation or the conduct of any regulatory,
contract holder, participant or other dispute resolution whether pending or
threatened, and (ii) maintain such Books and Records for Sellers' examination
and copying for the period required under Purchaser's document retention policy
or longer if required by law. Access to such Books and Records shall be at
Sellers' expense and may not unreasonably interfere with Purchaser's or any
successor company's business operations.
Section 5.05 Consents and Reasonable Efforts.
(a) Sellers and Purchaser shall cooperate and use reasonable best
efforts to obtain all consents, approvals and agreements of, and to give and
make all notices and filings with, any governmental authorities and regulatory
agencies, necessary to authorize, approve or permit the consummation of the
transactions contemplated by this Agreement, the Ancillary Agreements and the
other agreements contemplated hereby and thereby, including, without limitation,
the Permits described in Sections 6.03 and 7.03 hereof. Sellers shall use
reasonable best efforts to obtain, and Purchaser will cooperate with Sellers in
obtaining, all other approvals and consents to the transactions contemplated by
this Agreement and the Ancillary Agreements, including the matters set forth on
Schedule 3.04 hereto and the consents of third parties under contracts to be
assigned. In the event third party consents under contracts to be assigned
cannot be obtained, Sellers agree to use reasonable best efforts, in cooperation
with Purchaser, to obtain comparable benefits for Purchaser. Purchaser will use
reasonable best efforts to obtain all approvals and consents to the transactions
contemplated by this Agreement and the Ancillary Agreements including the
matters as set forth on Schedule 5.05 hereto.
(b) Each party shall provide all necessary information, documentation
and communications to any insurance regulatory authorities and such other
Government Authorities and other Persons required to consummate the transactions
contemplated hereby. Each party shall cooperate with the other in obtaining, as
promptly as practicable, all approvals, authorizations and clearances of
Government Authorities and other Persons required to consummate the transactions
contemplated hereby. Each party hereto shall have the right to review in
advance, and to the extent practicable each will consult the other on, in each
case subject to applicable laws relating to the exchange of information or other
applicable confidentiality requirements, all the information relating to Sellers
and Purchaser or any of their respective Affiliates, as the case may be, that
appears in any filings or other submissions with, or other written materials
submitted to, any third party or Government Authorities in connection with the
transactions contemplated by this Agreement. Sellers and Purchaser agree that
they will keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement, including
promptly furnishing the other with copies of any notice or other communications
received by Sellers and Purchaser or any of their respective
29
Affiliates, as the case may be, from any third party or Government Authority
with respect to the transactions contemplated hereby, including, without
limitation, all inquiries from insurance regulators and all notices of claims,
suits and actions for which either party receives service of process.
Section 5.06 Further Assurances.
(a) Upon the terms and subject to the conditions herein provided, on
and prior to the Closing Date, each of Seller and Purchaser shall use all
commercially reasonable best efforts to take, or cause to be taken, all action
or do, or cause to be done, all things or execute any documents necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, the Ancillary
Agreements and the other agreements contemplated hereby and thereby.
(b) On and after the Closing Date, Sellers (as reasonably requested
from time to time by Purchaser) and Purchaser (as reasonably requested from time
to time by Sellers) shall take all reasonably appropriate action and execute any
additional documents, instruments or conveyances of any kind (not containing
additional representations and warranties) which may be reasonably necessary to
carry out any of the provisions hereof, including, without limitation, putting
Purchaser in full possession and operating control of the Transferred Assets and
the Business and giving effect to the assumption of liabilities by Purchaser as
contemplated hereby and thereby.
Section 5.07 Expenses. Except as otherwise specifically provided in this
Agreement, the parties to this Agreement shall bear their respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including, without
limitation, all fees and expenses of agents, representatives, counsel,
investment bankers, actuaries and accountants.
Section 5.08 Indemnity Coinsurance Agreement. At the Closing, each
Seller and Purchaser shall execute and deliver to each other an Indemnity
Coinsurance Agreement, which shall be effective as of the Effective Date.
Section 5.09 Administrative Services Agreement. Sellers and Purchaser
agree to negotiate in good faith promptly and diligently the final form of
Administrative Services Agreement.
Section 5.10 Transition Servicing Agreement. Sellers and Purchaser agree
to negotiate in good faith promptly and diligently the final form of Transition
Servicing Agreement, provided, that the provisions relating to indemnification
by Parent contained in Section 4.5 of Exhibit C shall be no less advantageous to
Purchaser or Parent.
Section 5.11 Xxxx of Sale and General Assignment Agreement. At the
Closing, Sellers and Purchaser shall execute and deliver to each other the Xxxx
of Sale and General Assignment Agreement, which shall be effective as of the
Closing Date, in substantially the form of Exhibit D hereto.
Section 5.12 Reserved.
30
Section 5.13 License Agreements. At the Closing, Sellers and Purchaser will
execute and deliver to each other the Software, Trademark and Copyright License
Agreements.
Section 5.14 Reinsurance Treaties. Prior to Closing, each Seller agree to
use its commercially reasonable best efforts, at its own expense, to assign all
of its rights and obligations under the reinsurance treaties listed on Schedule
5.14 hereto to which it is a party under the existing terms of such treaties,
and to obtain any endorsements from the reinsurers thereunder to the extent
necessary to ensure that Purchaser is entitled to enforce such treaties against
the reinsurers its own names, with respect to the Coinsured Contracts.
Section 5.15 Reserved.
Section 5.16 Reserved.
Section 5.17 Tax Allocation.
(a) Sellers and Purchaser agree to allocate the sum of the Adjusted Ceding
Commission and the General Account Reserves transferred as of the Effective Date
(such sum, the "Allocable Amount") among the Transferred Assets in accordance
with this Section 5.17 for all purposes, including Tax and financial accounting
purposes.
(b) An amount equal to the Adjusted Ceding Commissions shall be allocated
to the value of the insurance-in-force with respect to the Coinsured Contracts
reinsured under the Coinsurance Agreement.
(c) The remainder of the Allocable Amount shall be allocated among the
Transferred Assets (other than such insurance-in-force) in proportion to the
fair market value of such assets, using the residual method of accounting. For
purposes of the Code, the amount of the liabilities assumed by Purchaser that
are included in the Allocable Amount for this purpose shall be equal to Sellers'
combined tax basis in such liabilities.
(d) For purposes of Section 1060 of the Code, Sellers and Purchaser shall
(i) make the allocation described in Section 5.17(c) hereof in the manner
described in Income Tax Regulations Section 1.1060-1T, taking into account the
allocation described in Section 5.17(b) hereof, and (ii) file asset acquisition
statements on Form 8594 (or any replacement or successor form) reflecting such
allocation at the time, in the manner, and under the procedures described in
such provision of the Income Tax Regulations.
(e) As soon as practicable after the Closing Date, Purchaser shall prepare
a schedule reflecting the allocation of the remainder of the Allocable Amount
under Section 5.17(c) hereof in the manner described in Income Tax Regulations
Section 1.1060-1T and shall submit it to Sellers. If, within 30 days of Sellers'
receipt of such schedule, Sellers shall not have objected in writing to the
determination of the Allocable Amount or to such allocation, the allocation
shall be used by Sellers and Purchaser for purposes of Form 8594 (and any
replacement or successor form) and all other federal income Tax purposes. If,
within 15 days of any objection in writing to the determination of the Allocable
Amount or to such allocation, Sellers and Purchaser shall not have agreed in
writing to the allocation under Section 5.17(c) hereof, any disputed aspects of
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the determination of the Allocable Amount or to such allocation shall be
resolved by the Third Party Accountant within 30 days of the submission of the
dispute to the Third Party Accountant by Sellers or Purchaser. The decision of
the Third Party Accountant shall be final, and the costs, expenses, and fees of
the Third Party Accountant shall be borne equally by Sellers and Purchaser.
(f) Sellers and Purchaser shall not take any position before any Taxing
Authority or otherwise (including in any Tax return) inconsistent with this
Section 5.17 unless and to the extent required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar
provision of state, local or foreign law).
Section 5.18 Reserved.
Section 5.19 Reserved.
Section 5.20 Licensed Software and Transition Support.
(a) Upon Purchaser's written request, Sellers shall obtain, at or prior to
the end of the term of the Transition Servicing Agreement, on behalf of
Purchaser from the licensors of the Licensed Software (i) all rights and
licenses necessary for Sellers to use the Licensed Software to process data for
Purchaser or its designee, as applicable, related to the Business (ii) all
rights and licenses necessary for Purchaser or its designee, as applicable, to
use the Licensed Software, commencing upon termination or expiration of the
Transition Servicing Agreement, to process data for Sellers and Purchaser or its
designee, as applicable, related to the Business, (iii) all rights and licenses
necessary for Purchaser to copy and modify the Licensed Software to the extent
reasonably required in connection with the processing of data related to the
Business and (iv) maintenance for the Licensed Software on commercially
reasonably terms substantially equivalent to those available to Sellers. The
rights and licenses referred to above may be assigned by Purchaser to an
affiliate or a purchaser of substantially all of the assets of the business with
respect to which such licenses relate. Sellers shall provide Purchaser or its
designee with a copy of all source code, object code and documentation related
to such software in Sellers' possession or control in a form reasonably
requested by Purchaser. Sellers shall obtain on behalf of Purchaser the rights
and licenses referred to in this Section 5.20 for a period equal to the greater
of (x) five (5) years after the Closing, and (y) the remaining life of the
applicable license, and shall also obtain on behalf of Purchaser the right to
assign the rights and licenses referred to in this Section 5.20, in whole or in
part, to any of Purchaser's affiliates and direct or indirect successors or
designees or a purchaser of substantially all of the assets of the business with
respect to which such rights and licenses relate. Purchaser agrees that as a
condition of receiving such rights and licenses, Purchaser may be required to
accept certain confidentiality and other non-financial obligations imposed on
Sellers under the license agreements relating to such software. Purchaser shall
be entitled to participate fully in any negotiation with any such licensors, but
shall bear its own costs in connection with such participation.
(b) Sellers shall, commencing on the date hereof and continuing through the
end of the term of the Transition Servicing Agreement:
32
(i) provide Purchaser with access to employees, agents and independent
contractors of Sellers reasonably specified by Purchaser to understand any
and all aspects of the Business and to plan the transition of the Business;
including but not limited to subject matter experts to support the
definition of interfaces to Purchaser's administrative systems from
Seller's administrative systems;
(ii) designate certain individuals (subject to Purchaser's reasonable
approval) to serve as members of a Seller/Purchaser transition team and
cause such individuals to devote reasonable time to transition matters;
(iii) devote reasonable resources to transition matters (such resources to
include, without limitation, office accommodations and related facilities
for a substantial and continuing presence of Purchaser's transition team
members on any Seller's premises);
(iv) cooperate with Purchaser in connection with Purchaser's filing of
policy and contract forms to enable Purchaser to issue policies and
contracts substantially similar to those included in the Business;
(v) consult with Purchaser regarding Sellers' development work pertaining
to systems, products, distribution and customer and producer services; and
(vi) cooperate with Purchaser in its development work pertaining to
systems, products, distribution and customer and producer services in order
to enable implementation of the transition plan at the earliest feasible
date.
In conjunction with the foregoing, Sellers agree to work with Purchaser to
prepare, and use their best efforts to complete prior to the Closing Date a
transition services work plan detailing the services provided for in this
Section 5.20(b), which work plan will be subject to Purchaser's review and
approval.
(c) During the term of the Transition Services Agreement Sellers shall
segment the data associated with the Coinsured Contracts and Sellers and
Purchaser shall test such segmented data to ensure that it can be processed
properly on a stand alone basis, using the Owned Software together with the
Licensed Software. After Purchaser, in its reasonable discretion, is satisfied
with the content and format of the segmented data, Sellers shall deliver such
data to Purchaser in the format and medium identified by Purchaser. All data
delivered to Purchaser hereunder shall be complete and accurate.
(d) All of the expenses of Sellers (including both out of pocket fees and
expenses and the costs of use of internal resources of the Sellers and any
Affiliates) in complying with this Section 5.20 and in assisting Purchaser in
the system development activities contemplated under Section 5.22 shall be borne
by Sellers; provided, however, that in the event such expenses exceed $[*],
Purchaser shall reimburse Sellers for any amounts in excess of $[*]. Any
reimbursement by Purchaser hereunder shall occur within twenty business days of
Purchaser receiving reasonable documentation of Seller's expenses.
(e) Purchaser, at its sole discretion, may choose to forego receiving the
licenses and maintenance provided for in Section 5.20(a) above, and choose
instead to receive the segmented
33
data provided for in Section 5.20(c) and to process such data using Purchaser's
own systems, or the systems of a third party provider, by providing Sellers with
written notice of such choice. In the event that this option is selected,
Purchaser's costs and expenses (including both out of pocket fees and expenses
and the costs of use of internal resources of Purchaser and any Affiliates)
incurred in processing such data using Purchaser's own systems or the systems of
a third party provider shall be reimbursed by Sellers to the extent that such
costs when added to the other expenses of Sellers in complying with this Section
5.20 and in assisting Purchaser in the system development activities
contemplated under Section 5.22, do not exceed $[*] million in the aggregate.
Any reimbursement by the Sellers hereunder shall occur within twenty business
days of the Sellers receiving reasonable documentation of Purchaser's expenses.
Section 5.21 Confidentiality. Each party hereto (with Purchaser considered
to be one party and the Sellers considered to be another party for purposes of
this Section 5.21) will hold, and will use its best efforts to cause its
Affiliates, and their respective representatives to hold, in strict confidence
from any Person (other than any such Affiliates or representatives), unless (i)
compelled to disclose by judicial or administrative process (including without
limitation in connection with obtaining the necessary approvals of this
Agreement and the transactions contemplated hereby of governmental or regulatory
authorities) or by other requirements of law or regulation, or other mandatory
legal process or by the United States National Association of Insurance
Commissioners, (ii) consented to in writing by the other party, (iii) disclosed
in an action or proceeding brought by a party hereto in pursuit of its rights or
in the exercise of its remedies hereunder, (iv) disclosed to any nationally
recognized rating agency by Seller or Purchaser and with Sellers' or Purchaser's
prior consent, or (v) if required by Applicable Law, to correct any material
false or misleading public information concerning the relationship between
Seller and Purchaser, all documents and information concerning the other party
or any of its Affiliates furnished to it by the other party or such other
party's representatives in connection with this Agreement and the Ancillary
Agreements, including, without limitation, the Schedules hereto or the
transactions contemplated hereby, except to the extent that such documents or
information can be shown to have been (a) previously known or was independently
developed by the receiving party, (b) in the public domain (either prior to or
after the furnishing of such documents or information hereunder) through no
fault of such receiving party or (c) later acquired by the receiving party from
another source if the receiving party is not aware that such source is under an
obligation to another party hereto to keep such documents and information
confidential; provided that following the Closing the foregoing restrictions
will not apply to Purchaser's use of documents and information concerning the
Business furnished by Sellers hereunder, it being understood that each may,
without prior notification or consent, advise and otherwise hold discussions
with regulators having jurisdiction over each and their respective businesses,
including insurance and securities regulators. In the event the transactions
contemplated hereby are not consummated, upon the request of the other party,
each party hereto will, and will cause its Affiliates and their respective
representatives to promptly redeliver or cause to be redelivered all copies of
confidential documents and information furnished by the other party in
connection with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings whatsoever related thereto or based thereon
prepared by the party furnished such documents and information or its
representatives.
34
Section 5.22 Systems. During the period prior to the expiration of the
Transition Servicing Agreement, Sellers shall work in good faith to assist
Purchaser in development activities designed to allow that all systems used
principally in the conduct of the Business are capable of inputting, processing
and outputting information in a manner to allow Purchaser to operate the
Business. Each Seller acknowledges the criticality of developing such
capabilities in order to permit Purchaser to commence issuing policies and
contracts substantially identical to the Coinsured Contracts, and thus
maintaining the value of the Business, following the Closing. Purchaser
acknowledges that the development of such capabilities will require resources
that may exceed those reasonably available to Sellers during the pre-Closing
period. In view of the foregoing acknowledgments, each Seller agrees to make
available to Purchaser internal facilities, personnel and other resources for
the development of ongoing operation and transition systems capabilities. On the
date hereof and on the last day of each month prior to Closing, Sellers shall
create a backup tape containing any information regarding the Coinsured
Contracts and deliver such tape to Purchaser within ten business days.
Section 5.23 Updated Financial Information. As soon as is reasonably
practicable following the end of any fiscal quarter or fiscal year of each
Seller, each Seller shall deliver to Purchaser statutory financial statements
with respect to such quarter or year and with respect to the period from the end
of the previous fiscal year to the end of such quarter or year, as applicable.
Sellers agree to file annual statements with the Commonwealth of Massachusetts
by February 28, 2003.
Section 5.24 Reserved.
Section 5.25 Reinsurance Treaty. In order to effect the assignment of an
Outward Reinsurance Agreement, Sellers and Purchaser hereby agree to cooperate
and use their reasonable best effects to comply with their respective
requirements set out in a letter agreement by and among RGA Reinsurance, AFLIAC
and Purchaser dated December 31, 2002.
Section 5.26 Forty-Nine State Closing; NY Closing. Notwithstanding Sections
6.03 and 7.03, the parties agree that if on or after January 20, 2003, all of
the conditions to Closing as set forth in Articles VI and VII are satisfied or
waived, except that the parties have not obtained the necessary approval of the
transactions contemplated hereby from the Superintendent of Insurance of the
State of New York (the "NY DOI"), the parties will proceed with Closing on the
last day of the month in which all of such conditions, except for NY DOI
approval, are satisfied or waived in accordance with the terms of this
Agreement, subject to the following adjustments:
(a) The Indemnity Coinsurance Agreements, Transition Services Agreement,
and Administrative Services Agreements ("Amended Agreements") to be
entered into between Purchaser and Sellers on the Closing Date will be
amended to exclude all Coinsured Contracts that are subject to the SMA
Life Insurance Plan to Protect the People of New York, dated January
17, 1994, and the related custodian account (the "NY Coinsured
Contracts"). Appropriate amendments will be made in such agreements and
adjustments made to this Agreement to reduce, on a pro rata basis, any
liability, accounts, assets, reserves, ceding commission, purchase
price adjustments, reserve closing conditions assumed or transferred to
reflect the removal of the NY Coinsured Contracts. Such adjustments
shall be based upon
35
financial statements prepared by Milliman USA which shall reflect the
Business with the exclusion of the NY Coinsured Contracts and the
Business relating to the NY Coinsured Contracts. Purchaser agrees that,
in such event, it will take all reasonable efforts to cause the NY DOI
to consent to release AFLIAC from its obligations under the SMA Life
Insurance Plan to Protect the People of New York to maintain assets in
the custodian account in an amount equal to 102% of AFLIAC's
obligations under the NY Coinsured Contracts, and the New York Closing
shall be contingent on receipt of such consent and release.
(b) For a period of up to one (1) year after the Closing Date, the parties
shall use all commercially reasonable efforts to obtain the approval of
the NY DOI for a closing on the NY Coinsured Contracts. On a date (the
"NY Closing Date") that is the last day of the month in which the
parties have obtained such required approval from the NY DOI, Purchaser
and Sellers shall execute and deliver an Indemnity Coinsurance
Agreement, a Transition Services Agreement and an Administrative
Services Agreement with respect to the NY Coinsured Contracts,
substantially in the forms attached hereto, with such adjustments to
reflect, on a pro rata basis, the NY Coinsured Contracts. .
(c) On the NY Closing Date, the parties shall close, upon the terms hereof,
on the NY Coinsured Contracts and make whatever adjustments are
appropriate pursuant to this Agreement to cause the parties to be in
the same economic position as if the NY Closing Date occurred at the
same time as the Closing. If agreement on such adjustments cannot be
reached, the matter shall be addressed in accordance with the
"Arbitration" Article of the Indemnity Coinsurance Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF PURCHASER TO CLOSE
The obligations of Purchaser under this Agreement are subject to the
satisfaction on or prior to the Closing of the following conditions, any one or
more of which may be waived by it to the extent permitted by law:
Section 6.01 Covenants, Representations and Warranties.
(a) All of the covenants and obligations that the Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively) and each of those covenants and obligations
(considered individually) shall have been duly performed and complied with in
all material respects;
(b) Each of Sellers' representations and warranties contained in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as if made on the Closing Date (except as to any representation
or warranty which specifically relates to an earlier date), provided that no
breaches of representations and warranties shall be deemed to excuse obligations
to consummate the transactions contemplated hereby unless, individually or in
the
36
aggregate, such breaches would result in a material adverse effect on the
Business or the Sellers (ignoring, for this purpose, any materiality or material
adverse effect qualifications to such representations and warranties); and
(c) Purchaser shall have received a certificate signed by a duly elected
officer of each of the Seller Parties to the effect that the foregoing
conditions have been satisfied.
Section 6.02 Other Agreements. The Ancillary Agreements and each of the
other agreements and instruments contemplated hereby and thereby to which any
Seller is a party shall have been duly executed and delivered by Seller as
applicable, on the Closing Date and each of such agreements, documents and
instruments shall be in full force and effect with respect to Seller on the
Closing Date, as applicable.
Section 6.03 Governmental and Regulatory Consents and Approvals. All
Permits and authorizations required by Sellers or Purchaser from governmental
and regulatory bodies shall have been obtained and shall be in full force and
effect and without conditions or limitations that would have a material adverse
effect on the Business as operated by Purchaser after the Closing Date and
Purchaser shall have been furnished with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such Permits.
Section 6.04 Possession of Assets; Instruments of Conveyance. On the
Closing Date, each of the Sellers shall have delivered to Purchaser, possession
of the Transferred Assets to be transferred on the Closing Date and shall have
transferred to Purchaser, all of the right, title and interest of Sellers, in
and to (i) the Transferred Assets, (ii) Reserve Level Investment Assets, if any,
(iii) all Reinsurance Payments Receivables arising on or after the Effective
Date, and (iv) all Premium Receivables arising on or after the Effective Date,
all as provided in this Agreement and the Ancillary Agreements.
Section 6.05 Notional Operating Account Balance. Sellers shall have paid to
Purchaser an amount in cash equal to the aggregate balance of the Notional
Operating Accounts as shown on the Estimated Closing Financial Statement, as
provided in Section 2.01 of this Agreement, if such balances are positive.
Section 6.06 Litigation. No Applicable Law or order shall be in effect that
prohibits or enjoins, and no litigation, action or other proceeding shall be
pending that seeks to prohibit or enjoin or that seeks material monetary damages
with respect to, the consummation of the transactions contemplated hereby.
Section 6.07 Injunction. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction, directing that the transactions provided for herein not
be consummated as herein provided.
Section 6.08 Reserved.
Section 6.09 Reserved.
Section 6.10 Reserved.
37
Section 6.11 General Account Reserves. The General Account Reserves as of
the Closing Date as shown on the Closing Date Statement shall be equal to or
greater than the following amounts if the Closing Date falls in the applicable
month: $610 million (January), $610 million (February), $610 million (March),
$600 million (April), $590 million (May), or $580 million (June).
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SELLERS TO CLOSE
The obligations of each of the Sellers under this Agreement are subject to
the satisfaction on or prior to the Closing of the following conditions, any one
or more of which may be waived by it to the extent permitted by law:
Section 7.01 Covenants, Representations and Warranties.
(a) All of the covenants and obligations that Purchaser is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively) and each of those covenants and obligations
(considered individually) shall have been duly performed and complied with in
all material respects;
(b) each of Purchaser's representations and warranties contained in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as if made on the Closing Date (except as to any representation
or warranty which specifically relates to an earlier date), provided that no
breaches of representations and warranties shall be deemed to excuse Sellers'
obligations to consummate the transactions contemplated hereby unless,
individually or in the aggregate, such breaches would result in a material
adverse effect on the business of Purchaser (ignoring, for this purpose, any
materiality or material adverse effect qualifications to such representations
and warranties); and
(c) Sellers shall have received a certificate signed by a duly elected
officer of Purchaser to the effect that the foregoing conditions have been
satisfied.
Section 7.02 Other Agreements. The Ancillary Agreements and each of the
other agreements and instruments contemplated hereby and thereby to which
Purchaser is a party shall have been duly executed and delivered by Purchaser on
the Closing Date and each of such agreements and instruments shall be in full
force and effect with respect to Purchaser on the Closing Date, as applicable.
Section 7.03 Governmental and Regulatory Consents and Approvals. All
Permits required by Sellers or Purchaser from governmental and regulatory
bodies, shall have been obtained and shall be in full force and effect and
without conditions or limitations which would have a material adverse effect on
the business of Sellers, and Sellers shall have been furnished with appropriate
evidence, reasonably satisfactory to it and its counsel, of the granting of such
Permits.
38
Section 7.04 Notional Operating Account Balance. Purchaser shall have paid
to Sellers an amount in cash equal to the aggregate balances of the Notional
Operating Accounts as shown on the Estimated Closing Financial Statement, as
provided in Section 2.01 of this Agreement, if such balances are negative.
Section 7.05 Injunction. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction, directing that the transactions provided for herein not
be consummated as herein provided.
Section 7.06 Litigation. No Applicable Law or order shall be in effect that
prohibits or enjoins, and no litigation, action or other proceeding shall be
pending that seeks to prohibit or enjoin or that seeks material monetary damages
with respect to the consummation of the transactions contemplated hereby.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01 Maintenance of Coinsured Contracts. On and after the Closing
Date, Sellers will:
(i) not take any action intended to cause lapses, conversions
or the terminations of any Coinsured Contract;
(ii) take no action intended to encourage any agents of a Seller
to roll over any Coinsured Contract; and
(iii) pay no commissions to any agent on such Coinsured Contracts
that is rolled over in the event that, commencing on the Effective
Date, the lapse rate with respect to Coinsured Contracts exceeds [*]%,
calculated on an annualized rolling prior 3-month lapse rate basis
calculated and reported in writing to Purchaser by Sellers each week.
Section 8.02 Tax Reimbursement. (a) To the extent that (x) an IRS
examination of any year of either of the Sellers or of Purchaser, or (y) an
adjustment reflected on an amended Tax return of either of the Sellers or of
Purchaser that is, in the case of an amended Tax return of a Seller, approved by
Purchaser (such approval not to be unreasonably withheld) or, in the case of an
amended Tax return of Purchaser, approved by Sellers (such approval not be
unreasonably withheld), results in a reduction to the Tax Reserve balances, as
of the Effective Date (or, in the case of Purchaser, as of January 1, 2003) such
that the General Account Reserves, as of the Effective Date, exceed the Tax
Reserves, as of the Effective Date, by more than $3,000,000, Sellers agree to
reimburse promptly to Purchaser an amount equal to the sum of (i) the product of
(a) 35% and (b) the amount by which (x) the excess of the General Account
Reserves over the Tax Reserves, each computed as of the Effective Date, exceeds
(y) $3 million (such excess over $3 million, the "Excess"), except to the extent
that such Excess was previously taken into account in determining the Adjusted
Ceding Commission, plus (ii) interest from the Effective Date at the prevailing
IRS interest rates. To the extent that (x) an IRS examination in respect of any
taxable year of either of the Sellers or of Purchaser, or (y) an adjustment
reflected on an
39
amended Tax return of either of the Sellers or of Purchaser that is, in the case
of an amended Tax return of a Seller, approved by the Purchaser (such approval
not to be unreasonably withheld) or, in the case of an amended Tax return of the
Purchaser, approved by Sellers (such approval not to be unreasonably withheld),
results in an increase to the Tax Reserve balances, as of the Effective Date
(or, in the case of Purchaser, as of January 1, 2003), such that the General
Account Reserves, as of the Effective Date, exceed the Tax Reserves, as of the
Effective Date, by less than $3,000,000, Purchaser agrees to promptly reimburse
to Sellers an amount equal to the sum of (i) the product of (a) 35% and (b) the
amount by which (x) the excess of the General Account Reserves over the Tax
Reserves, each computed as of the Effective Date, is less than (y) $3 million
(the "Shortfall"), plus (ii) interest from the Effective Date at the prevailing
IRS interest rates. All references in this section to Tax Reserves and General
Account Reserves are to such reserves as computed in respect of the Coinsured
Contracts.
(b) To the extent that any tax cost arises from any Coinsured Contract due
to the status of such contract as a modified endowment contract, the Seller that
is a party to such contract shall reimburse Purchaser for any cost incurred by
Purchaser. In the event that any Coinsured Contract is the subject of an audit
or other examination or similar proceeding by a Taxing Authority that relates to
the status (or possible status) of such contract as a modified endowment
contract or in the event that a claim is made by any Taxing Authority which
might result in a payment under this Section 8.02(b), the party receiving notice
of such audit, investigation or similar proceeding or claim (each, a "Tax
Proceeding") shall promptly notify the other party in writing of such Tax
Proceeding. With respect to any Tax Proceeding that might result in a payment by
a Seller pursuant to this Section 8.02(b), such Seller shall have the right to
control such Tax Proceeding (including selection of counsel) and, without
limiting the foregoing may with the consent of Purchaser (which shall not
unreasonably be withheld) pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing Authority with respect
thereto, and may, in its reasonable discretion, either pay the Tax claimed and
xxx for a refund where applicable law permits, or contest the Tax Proceeding in
any permissible manner. The Purchaser shall be entitled to participate in all
proceedings with respect to any such Tax Proceeding (at its expense) and to
employ counsel of its choice for such purpose. The Seller and Purchaser shall
each provide the other with copies of all material documents with respect to any
such Tax Proceeding. Neither party shall settle or otherwise compromise any Tax
Proceeding without the other party's prior written consent (which shall not be
unreasonably withheld). The parties agree to cooperate with each other in
contesting any Tax Proceeding.
Section 8.03 Asset Adequacy Testing. After the Effective date, Sellers and
Purchaser agree to cooperate in order to obtain an Asset Adequacy Test (ad
defined below). Sellers further agree to provide to Purchaser on or prior to
February 15, 2003, an asset adequacy testing report for each Seller as of
December 31, 2002, prepared in accordance with standards of practice promulgated
by the Actuarial Standards Board consistently applied throughout the periods
covered, of policies issued by the Sellers that would have constituted Coinsured
Contracts if in effect on the date hereof (the "Asset Adequacy Test"). The Asset
Adequacy Test shall state any adjustments and qualifications, and shall be
prepared upon methodologies and valuations and in a form and of the scope agreed
to by Purchaser.
40
Section 8.04 Post Closing Letter. Within three (3) business days, but no
longer than ten (10) calendar days after the Closing Date, Sellers and Purchaser
will cooperate to send a letter, reasonably accepted to the parties, to holders
of Coinsured Contracts.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 9.01 Survival of Representations and Warranties. All
representations and warranties of the parties hereto contained in this Agreement
and the Ancillary Agreements shall survive the execution and delivery hereof;
provided, however, that, except as set forth in the following sentence, the
representations and warranties of the parties hereto herein shall terminate and
expire on the date that is three (3) years following the Closing Date except for
matters as to which a Claims Notice shall have been given pursuant to Sections
10.01 or 10.02 by a party hereto prior to the applicable expiration date, which
representations shall continue with respect to such matters until such matters
have been finally decided, settled or adjudicated.
ARTICLE X
INDEMNIFICATION
Section 10.01 Obligations of Sellers to Indemnify.
Subject to the limitations set forth in this Article X, each Seller,
jointly and severally, agree to indemnify Purchaser and hold Purchaser harmless
from and against all Losses asserted against, imposed upon or incurred by
Purchaser resulting from, arising out of, based upon or otherwise in respect of
any of the following:
(a) any breach of or inaccuracy in any representation or warranty of any
Seller contained in this Agreement;
(b) any material breach of any covenant or agreement made or to be
performed by any Seller, respectively, pursuant to this Agreement;
(c) any liability arising out of the operations of the Business prior to
the Closing Date (including, without limitation, any liabilities in excess of
policy limits, liabilities disclosed in any schedule hereto on the date hereof
or disclosed after the date hereof pursuant to Section 5.24 of this Agreement,
and employment related liabilities), but excluding liabilities or obligations of
any kind for which Sellers were released under the settlement in the matter of
Xxxxxx, et al. vs. Allmerica Financial Corp., et al., US District Court,
District of Massachusetts (Civ. Action 97-40204), as approved by the court on
May 19, 1999, other than amounts payable pursuant to the terms of such
settlement agreement;
(d) any Sellers' Retained Liability, but excluding liabilities or
obligations of any kind for which Sellers were released under the settlement in
the matter of Xxxxxx, et al. vs. Allmerica Financial Corp., et al., US District
Court, District of Massachusetts (Civ. Action 97-40204), as
41
approved by the court on May 19, 1999, other than amounts payable pursuant to
the terms of such settlement agreement;
(e) any breach or nonfulfillment by Sellers of, or any failure by Sellers
to perform any of the covenants, terms or conditions of, or any duties or
obligations under, the Indemnity Coinsurance Agreements;
(f) violations of Applicable Law with respect to underwriting or sales
practices of Sellers or its Producers (as defined in the Administrative Services
Agreements) occurring prior to the Effective Date with respect to the Coinsured
Contracts, but excluding liabilities or obligations of any kind for which
Sellers were released under the settlement in the matter of Xxxxxx, et al. vs.
Allmerica Financial Corp., et al., US District Court, District of Massachusetts
(Civ. Action 97-40204), as approved by the court on May 19, 1999, other than
amounts payable pursuant to the terms of such settlement agreement;
(g) amounts arising under Code Section 7702 or Section 7702A violations;
(h) any breach or nonfulfillment by Sellers of, or any failure by Sellers
to perform as applicable, any material representation, warranty, covenant, term
or condition of, or any duties or obligations under, the Software, Trademark or
Copyright License Agreements; and
(i) the reasonable costs to Purchaser of enforcing this indemnity against
any Seller.
The parties hereto acknowledge and agree that the indemnification
obligation of each Seller under this Article X shall be only for those
representations, warranties, covenants, agreements and liabilities of such
Seller and, for the avoidance of doubt, not for the representations, warranties,
covenants, agreements and liabilities of any other Seller.
As used in this Article X, "Loss" and/or "Losses" shall mean any loss,
damage, liability, claim, cost or expense, including but not limited to,
reasonable attorneys fees.
Section 10.02 Obligation of Purchaser to Indemnify.
Subject to the limitations contained in this Article X, Purchaser agrees to
indemnify and hold Sellers harmless from and against all Losses asserted
against, imposed upon or incurred by any Seller resulting from, arising out of,
based upon or otherwise in respect of any of the following:
(a) any breach of or inaccuracy in any representation or warranty of
Purchaser contained in this Agreement; or
(b) any material breach of any covenant or agreement made or to be
performed by Purchaser pursuant to this Agreement.
Section 10.03 Notice of Loss, Asserted Liability. Promptly after (a)
becoming aware of circumstances that have resulted in a Loss for which a party
entitled to indemnification pursuant to Section 10.01 or Section 10.02 intends
to seek indemnification under such Section (the "Indemnified Party") or (b)
receipt by the Indemnified Party of written notice of any demand,
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claim or circumstances which, with the lapse of time, the giving of notice or
both, would give rise to a claim or the commencement of any litigation that may
result in a Loss (an "Asserted Liability"), the Indemnified Party shall give
notice thereof (the "Claims Notice") to any other party obligated to provide
indemnification pursuant to Section 10.01 or Section 10.02 (the "Indemnifying
Party"). The Claims Notice shall describe the Loss or the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary) of
the Loss or Asserted Liability that has been or may be suffered by the
Indemnified Party. If a Claims Notice is not provided promptly as required by
this Section 10.03, the Indemnified Party nonetheless shall be entitled to
indemnification by the Indemnifying Party except to the extent that the
Indemnifying Party has failed to provide the Claims Notice prior to the
applicable period in Section 9.01, in which case the Indemnified Party shall
have no rights to indemnity hereunder, in respect thereto.
Section 10.04 Opportunity to Contest. The Indemnifying Party may elect to
compromise or contest, at its own expense, any Asserted Liability. If the
Indemnifying Party elects to compromise or contest such Asserted Liability, it
shall within 30 days (or sooner, if the nature of the Asserted Liability so
requires) notify the Indemnified Party of its intent to do so by sending a
notice to the Indemnified Party (the "Contest Notice"), and the Indemnified
Party shall cooperate, at the expense of the Indemnifying Party, in the
compromise or contest of such Asserted Liability. If the Indemnifying Party
elects not to compromise or contest the Asserted Liability or fails to notify
the Indemnified Party of its election as herein provided, the Indemnified Party
(upon further notice to the Indemnifying Party) shall have the right to pay,
compromise or contest such Asserted Liability on behalf of and for the account
and risk of the Indemnifying Party. In any event, the Indemnified Party and the
Indemnifying Party may participate, at their own expense, in the contest of such
Asserted Liability. Each of Sellers and Purchaser shall cooperate fully with the
other as to all Asserted Liabilities, shall make available to each other as
reasonably requested all information, records, and documents relating to all
Asserted Liabilities and shall preserve all such information, records, and
documents until the termination of any Asserted Liability. Each of Sellers and
Purchaser also shall make available to the other, as reasonably requested, its
personnel, agents, and other representatives who are responsible for preparing
or maintaining information, records, or other documents, or who may have
particular knowledge with respect to any Asserted Liability.
Section 10.05 Limitations on Indemnification.
(a) Neither Purchaser, on the one hand, nor the Sellers collectively, on
the other hand, shall be required to make any indemnification payment under this
Agreement with respect to a Loss except to the extent the amount of such Loss,
when aggregated with all other such Losses (ignoring, for this purpose, any
materiality or material adverse effect qualifications), shall exceed a dollar
amount equal to 2% of the Ceding Commission, and then only for the amount by
which such Loss exceeds a dollar amount equal to 2% of the Ceding Commission;
and neither Purchaser, on the one hand, nor Parent and the Sellers collectively,
on the other hand, shall be required to make indemnification payments hereunder
in the aggregate exceeding a dollar amount equal to 37.5% of the Ceding
Commission; provided, however, that the minimum and maximum limitations
contained in this Section 10.05(a) shall only apply to any Loss arising pursuant
to Sections 10.01(a) and (b) and Sections 10.02(a) and (b) hereof, but not to
include the representations, warranties, covenants, agreements and indemnities
of the parties contained in
43
Sections 2.01, 2.02, 2.04, 3.12, 3.20, 3.21, 3.23, 5.01, 5.07, 5.14, 5.20, 8.01,
8.02 and (to the extent relating to any of such Sections) 10.01(i).
(b) No party otherwise entitled to indemnification under this Agreement
shall be indemnified pursuant to this Agreement to the extent that such party's
Losses are increased or extended by the willful misconduct, violation of
Applicable Law or bad faith of such party.
Section 10.06 Sole Remedy. Each party's sole and exclusive remedy for any
breach of this Agreement and the Ancillary Agreements by any other party shall
be the provisions in Article X, provided, however, that nothing set forth in
this Article X shall be deemed to prohibit or limit any party's right at any
time, on or after the Closing Date, to seek injunctive or equitable relief for
the failure of any other party to perform any covenant or agreement contained
herein.
Section 10.07 Certain Reductions; Subrogation Rights. All indemnification
payments payable hereunder shall be reduced by the amount of insurance proceeds
received by, or any Tax benefits inuring to the benefit of, the Indemnified
Party as a result of the Loss for which the Indemnified Party is seeking
indemnification. In the event that the Indemnifying Party shall be obligated to
indemnify the Indemnified Party pursuant to this Article X, the Indemnifying
Party shall, upon payment of such indemnity in full, be subrogated to all rights
of the Indemnified Party with respect to the Loss to which such indemnification
relates; provided, however, that the Indemnifying Party shall only be subrogated
to the extent of any amount paid by it pursuant to this Article X in connection
with such Loss.
Section 10.08 Indemnification Payments. Subject to the terms hereof and
unless contested, if an Indemnifying Party is required to pay an amount to the
Indemnified Party under this Article X the Indemnifying Party shall make such
payment within ten Business Days of determination of the full amount of any
Loss, after receipt of the Claims Notice thereof and the full amount of any Loss
resulting from an Asserted Liability within ten Business Days of the date such
litigation is terminated or the date a final judgment or award is rendered and
no appeal is taken.
Section 10.09 Effect of Indemnification. Any indemnity payment made
hereunder shall be treated by the Sellers and Purchaser as an adjustment to the
Allocable Amount.
Section 10.10 Parent Indemnification. Parent agrees to indemnify Purchaser
and hold Purchaser harmless from and against Losses incurred by Purchaser
resulting from a failure by each of the Sellers to comply with their obligations
under this Article X (other than obligations arising under Section 10.01(a)
hereof), except for obligations arising under Sections 3.12, 3.20, 3.21 and 3.23
hereof. Parent shall be afforded the protections regarding notice, limitations
on indemnity, sole remedy, rights to contest and otherwise, of the provisions
set forth in Sections 10.03, 10.04, 10.05, 10.06, 10.07, 10.08 and 10.09 of the
Agreement as if an Indemnifying Party.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
44
Section 11.01 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) by Purchaser or any Seller in writing, if there shall be any order,
writ, injunction or decree of any court or governmental or regulatory agency
binding on Purchaser and/or any Seller, which prohibits or restrains Purchaser
and/or any Seller from consummating the transactions contemplated hereby;
provided, that Purchaser and/or any Seller, as the case may be, shall have used
its commercially reasonable best efforts to have any such order, writ,
injunction or decree lifted and the same shall not have been lifted by June 30,
2003;
(b) by either a Purchaser or any Seller in writing, if the Closing has not
occurred on or prior to June 30, 2003 unless the absence of such occurrence
shall be due to the failure of the party seeking to terminate this Agreement to
perform materially each of its obligations under this Agreement required to be
performed by it on or prior to the Closing Date; and
(c) at any time on or prior to the Closing Date, by mutual written consent
of Sellers and Purchaser.
Section 11.02 Survival. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become null and void and of no further force and effect, except
for (a) the provisions of this Agreement relating to the obligations of the
parties hereto to keep confidential and not to use certain information and data
obtained from the other parties hereto and (b) the provisions of Sections 5.08,
12.04, 12.06 and this Section 11.02. Notwithstanding anything to the contrary
provided herein, the provisions of Article X shall survive any termination of
this Agreement for the term of the Indemnity Coinsurance Agreements.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Publicity. Except as may otherwise be required by law, no
press release, announcement or filing with the Securities and Exchange
Commission concerning this Agreement or the transactions contemplated hereby
shall be made without advance consultation of the other parties hereto with
respect thereto provided however, that neither Seller nor Purchaser, nor any of
their Affiliates, shall issue such a press release until nine days after the
Effective Date, without the prior written consent of the other. The parties
hereto shall cooperate with each other in making any release, announcement or
filing with the Securities and Exchange Commission.
Section 12.02 Confidentiality. The parties agree that, other than as agreed
or as required to implement the transactions contemplated hereby, the parties
will keep confidential the terms and conditions of this Agreement and the
Ancillary Agreements, including, without limitation, the Schedules hereto and
thereto, except as otherwise required by law (including, without limitation,
pursuant to any federal or state securities or insurance laws or the rules of
any stock exchange or self-regulatory organization or pursuant to any legal,
regulatory or legislative proceedings).
45
Section 12.03 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally (by
courier or otherwise), sent by facsimile transmission or overnight delivery
service including express mail or sent by certified or registered mail, postage
prepaid and return receipt requested, or by express mail. Any such notice shall
be deemed given when so delivered personally or sent by facsimile transmission
or, if mailed, three days after the date of deposit in the United States mails,
as follows:
(i) if to Purchaser:
Xxxx Xxxxxxx Life Insurance Company
X.X. Xxx 00
000 Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx
Telecopier No.: 000-000-0000
E-mail: xxxxxxx@xxxxxxxx.xxx
Attn: Xxxxxx X. Xxxxxx
Telecopier No.: 000-000-0000
E-mail: xxxxxxx@xxxxxxxx.xxx
With a concurrent copy to:
Mintz, Levin, Xxxx, Xxxxxx & Glovsky and Popeo, P.C.
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Stanford X. Xxxxxxx, Xx.
Telecopier No.: 617-542-2241
Email: XXXxxxxxx@xxxxx.xxx
(ii) If to AFLIAC:
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, III
Telecopier No.: 000-000-0000
E-mail: Xxxxxx@xxxxxxxxx.xxx
With a concurrent copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Telecopier No.: 000-000-0000
E-mail: Xxxxxxx@xxxxxxxxx.xxx
(iii) if to FAFLIC:
46
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, III
Telecopier No.: 000-000-0000
E-mail: Xxxxxx@xxxxxxxxx.xxx
With a concurrent copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Telecopier No.: 000-000-0000
E-mail: Xxxxxxx@xxxxxxxxx.xxx
Any party may, by notice given in accordance with this Section 12.03 to the
other parties, designate another address or person for receipt of notices
hereunder provided that notice of such a change shall be effective upon receipt.
Section 12.04 Entire Agreement. This Agreement (including the Ancillary
Agreements, the other agreements contemplated hereby and thereby, the Exhibits
and the Schedules hereto), a Confidentiality Letter between Purchaser and Parent
dated April 12, 2002, the November 27, 2002 letter from Purchaser to Parent and
the December 10, 2002 letter from Purchaser to Parent contain the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
Section 12.05 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party on exercising any
right, power or privilege hereunder shall operate as a waiver thereof, or shall
any waiver on the part of any party of any right, power or privilege, or any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity.
Section 12.06 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 12.07 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by any party
47
(in whole or in part) without the prior written consent of the other party
hereto (with Sellers considered to be one party for purposes of this sentence).
Section 12.08 Interpretation.
(a) The parties acknowledge and agree that, except as specifically provided
herein, they may pursue judicial remedies at law or equity in the event of a
dispute with respect to the interpretation or construction of this Agreement. In
the event that an alternative dispute resolution procedure is provided for in
any of the Ancillary Agreements or any other agreement contemplated hereby or
thereby, and there is a dispute with respect to the construction or
interpretation of such Ancillary Agreement, the dispute resolution procedure
provided for in such Ancillary Agreement shall be the procedure that shall apply
with respect to the resolution of such dispute.
(b) For purposes of this Agreement, the words "hereof," "herein," "hereby"
and other words of similar import refer to this Agreement as a whole unless
otherwise indicated. Whenever the singular is used herein, the same shall
include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
Section 12.09 No Third Party Beneficiaries. Except as set forth in Article
X, nothing in this Agreement is intended or shall be construed to give any
Person (including, but not limited to, the employees of any Seller), other than
the parties hereto, their successors and permitted assigns, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
Section 12.10 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
Section 12.11 Other Agreements, Exhibits and Schedules. The Exhibits and
the Schedules are a part of this Agreement as if fully set forth herein. All
references herein to Articles, Sections, subsections, paragraphs, subparagraphs,
clauses, Exhibits and Schedules shall be deemed references to such parts of this
Agreement, unless the context shall otherwise require.
Section 12.12 Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
Section 12.13 Dollar References. All dollar references in this Agreement
are to the currency of the United States.
[Signature Page Follows]
48
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ALLMERICA FINANCIAL LIFE INSURANCE
ANNUITY COMPANY
By: /s/ Xxxx X. XxXxxxxx
-----------------------------------
Name: Xxxx X. XxXxxxxx
--------------------------------
Title: Vice President
-------------------------------
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
By: /s/ Xxxx X. XxXxxxxx
----------------------------------
Name: Xxxx X. XxXxxxxx
--------------------------------
Title: Vice President
-------------------------------
XXXX XXXXXXX LIFE INSURANCE COMPANY
By: /s/ Xxxxxxx X. Xxxx
----------------------------------
Name: Xxxxxxx X. Xxxx
--------------------------------
Title: Senior Executive Vice President
-------------------------------
49
IN WITNESS WHEREOF, the party below is signing to join the agreement as to
the provisions of 10.10 hereof.
ALLMERICA FINANCIAL CORPORATION
By: /s/ Xxxx X. XxXxxxxx
----------------------------------
Name: Xxxx X. XxXxxxxx
--------------------------------
Title: Vice President
-------------------------------
50
