Exhibit 99.1
EXECUTION COPY
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STOCK PURCHASE AGREEMENT
dated as of June 4, 2001
between
FLEET NATIONAL BANK
as Purchaser
and
LIBERTY FINANCIAL COMPANIES, INC.
and
LIBERTY FINANCIAL SERVICES, INC.
as Sellers
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TABLE OF CONTENTS
PAGE
STOCK PURCHASE AGREEMENT..........................................................................................1
BACKGROUND........................................................................................................1
ARTICLE 1
PURCHASE AND SALE.................................................................................................2
1.1 Purchase and Sale...............................................................................2
1.2 Payments at Closing.............................................................................2
1.3 Closing.........................................................................................7
1.4 Deliveries at Closing by the Company............................................................8
1.5 Deliveries at Closing by the Purchaser..........................................................8
1.6 Section 338(h)(10) Election.....................................................................8
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................................................................9
2.1 Organization and Qualification..................................................................9
2.2 Authority.......................................................................................9
2.3 Compliance......................................................................................9
2.4 Certain Regulatory Filings.....................................................................11
2.5 Broker's Fees..................................................................................11
2.6 Financing......................................................................................11
2.7 Litigation.....................................................................................12
2.8 Taxes..........................................................................................12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND LFS............................................................12
3.1 Organization and Qualification.................................................................12
3.2 Subsidiaries...................................................................................12
3.3 Authority......................................................................................13
3.4 Compliance.....................................................................................14
3.5 SEC Filings; Financial Statements..............................................................15
3.6 Litigation.....................................................................................16
3.7 Changes........................................................................................16
3.8 Transactions with Affiliates...................................................................16
3.9 Employee Benefits and Contracts................................................................16
3.10 Liens..........................................................................................20
3.11 Taxes..........................................................................................20
3.12 Compliance with Laws; Permits..................................................................23
3.13 Intellectual Property..........................................................................23
3.14 No Undisclosed Material Liabilities............................................................24
(i)
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3.15 Opinion of Financial Advisor; Brokers..........................................................24
3.16 Investment Advisory Activities.................................................................24
3.17 Registered Investment Companies................................................................25
3.18 Material Contracts.............................................................................29
3.19 Vote Required..................................................................................31
3.20 Knowledge......................................................................................31
3.21 Takeover Statutes..............................................................................31
3.22 Certain Intercompany Transfers.................................................................31
3.23 Assets Transferred.............................................................................31
ARTICLE 4
CONDUCT OF BUSINESS..............................................................................................32
4.1 Conduct Prior to Closing.......................................................................32
4.2 Notification of Certain Matters................................................................35
4.3 Access to Information..........................................................................35
ARTICLE 5
ADDITIONAL AGREEMENTS............................................................................................35
5.1 Preparation of Proxy Statement.................................................................35
5.2 Board Recommendation...........................................................................36
5.3 Fees and Expenses..............................................................................36
5.4 Additional Agreements..........................................................................36
5.5 No Solicitation................................................................................37
5.6 Governmental Filings...........................................................................39
5.7 Approval of New Fund Contracts.................................................................39
5.8 Indemnification................................................................................41
5.9 Fair Price Structure...........................................................................41
5.10 Certain Post-Sale Fund Matters.................................................................41
5.11 Continuing Employees...........................................................................42
5.12 Tax Matters....................................................................................45
5.13 Interested Persons.............................................................................49
5.14 Other Confidentiality Agreements...............................................................49
5.15 Intercompany Matters...........................................................................49
5.16 Transfer of Records............................................................................49
5.17 Assumption of Public Debt
5.18 Series A Preferred Redemption..................................................................49
ARTICLE 6
CONDITIONS.......................................................................................................50
6.1 Conditions to Obligation of Each Party to Effect the Sale......................................50
6.2 Additional Conditions to Obligation of the Company to Effect the Sale..........................50
6.3 Additional Conditions to Obligation of the Purchaser to Effect the Sale........................51
(ii)
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ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER................................................................................52
7.1 Termination....................................................................................52
7.2 Effect of Termination..........................................................................54
7.3 Amendment......................................................................................54
7.4 Waiver.........................................................................................54
7.5 Expenses; Termination Fee......................................................................54
ARTICLE 8
GENERAL PROVISIONS...............................................................................................55
8.1 Publicity......................................................................................55
8.2 Notices........................................................................................55
8.3 Interpretation.................................................................................57
8.4 Representations and Warranties; etc............................................................57
8.5 Miscellaneous..................................................................................57
8.6 Validity.......................................................................................58
(iii)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of June 4,
2001, is between FLEET NATIONAL BANK, a national banking association (the
"Purchaser"), and LIBERTY FINANCIAL COMPANIES, INC, a Massachusetts corporation
(the "Company"), and LIBERTY FINANCIAL SERVICES, INC., a Massachusetts
corporation ("LFS").
BACKGROUND
A. LFS is a wholly-owned subsidiary of the Company. The Company,
directly or through LFS, owns all of the issued and outstanding shares of
capital stock and other equity interests of each of the entities set forth on
Schedule A (collectively, the "Purchased Subsidiaries"). The Purchased
Subsidiaries, together with their direct and indirect subsidiaries, each of
which is listed in Section 3.2 of the Disclosure Schedule (such subsidiaries,
together with the Purchased Subsidiaries, the "Subsidiaries") constitute
substantially all of the asset management segment of the Company's business (the
"Business").
B. The Company and LFS wish to sell, and the Purchaser wishes to
buy, all of the outstanding shares of capital stock and other equity interests
of the Purchased Subsidiaries, on the terms and conditions set forth herein (the
"Sale"). The Board of Directors of the Company has duly approved the Sale and
the Board of Directors and the sole stockholder of LFS have duly approved the
Sale.
C. The Company, LFS and Sun Life Assurance Company of Canada (the
"Annuity Purchaser") have entered into a stock purchase agreement dated as of
May 2, 2001 (the "Annuity Purchase Agreement"), pursuant to which the Annuity
Purchaser is to acquire the subsidiaries of the Company that constitute the
annuity segment of the Company's business (the "Annuity Sale"). In connection
with such stock purchase agreement, the Annuity Purchaser and the Company
entered into a transition services and indemnification agreement (the
"Transition Services Agreement") dated as of May 2, 2001, pursuant to which,
among other things, the Annuity Purchaser has agreed to indemnify the Purchaser
and the Company from and against any losses suffered by the Purchaser and the
Company arising from past or future operations of the Company's annuity segment
and to provide the Purchaser with certain services for a transition period
following the Closing (as defined below), and, simultaneously with the execution
of this Agreement, the Company and the Purchaser are entering into (i) a letter
agreement with respect to the operation of the Transition Services Agreement in
the event the transactions contemplated by this Agreement are consummated prior
to the Annuity Sale and (ii) a separate letter agreement with respect to certain
other matters addressed in the Transition Services Agreement (together, the
"Transition Letter Agreement").
D. Simultaneously with the execution of this Agreement, (i) the
Purchaser, Liberty Mutual Insurance Company ("LMIC") and the Company are
entering into a license agreement with respect to the use of, among other
things, the "Liberty" name and logo (the "License Agreement") and (ii) LMIC and
the Purchaser are entering into an agreement with respect to indemnification by
LMIC of the Purchaser for certain tax-related liabilities (the "LMIC
Indemnification Agreement").
E. Simultaneously with the execution of this Agreement, LMIC is
entering into a voting and support agreement (the "Voting Agreement") with the
Purchaser pursuant to which LMIC has agreed to vote all shares of the Company's
common stock that it holds in favor of the Sale.
F. Simultaneously with the execution of this Agreement, the
Company is entering into a Merger Agreement with LMIC and a wholly owned
subsidiary of LMIC pursuant to which the shareholders of the Company other than
LMIC will receive in exchange for their shares the cash consideration specified
in the Merger Agreement and the Company will become a wholly owned subsidiary of
LMIC.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the Purchaser and the
Company and LFS hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Subject to the terms and conditions hereof, at
the Closing (as defined below), the Company and LFS shall sell, transfer, assign
and deliver to the Purchaser, and the Purchaser shall purchase from the Company
and LFS all outstanding shares of capital stock and other equity interests of
each Purchased Subsidiary (the "Purchased Securities"), free and clear of all
mortgages, security interests, claims, pledges, liens, charges and encumbrances
(the "Encumbrances"), other than restrictions under applicable securities laws
and other than those created by the Purchaser.
1.2 PAYMENTS AT CLOSING.
(a) At the Closing, the Purchaser shall pay to the Company and LFS
an aggregate purchase price for the Purchased Securities (the "Purchase Price")
determined in accordance with Section 1.2(b) by wire transfer of immediately
available funds to an account designated in writing by the Company to the
Purchaser not less than two Business Days (as defined below) prior to the
Closing Date. The Purchase Price shall be allocated among the Purchased
Securities in the manner set forth in Section 1.6. The parties shall report, act
and file in all respects and for all purposes in a manner consistent with that
allocation.
(b) The Purchase Price shall be $900,000,000, subject to adjustment as
follows:
(i) If the Closing Date Revenue Run Rate (as defined below)
exceeds or is less than the December 31 Revenue Run Rate (as defined
below) by more than 10%, then the Purchase Price shall be adjusted,
upward if Closing Date Revenue Run Rate is greater than December 31
Revenue Run Rate and downward if Closing Date Revenue Run Rate is less
than December 31 Revenue Run Rate. The amount of the Purchase Price
adjustment shall be $18,000,000 (i.e., 2% of the unadjusted Purchase
Price) for each percentage point that Closing Date Revenue Run Rate
exceeds (or is less than) such 10% threshold, up to a maximum
differential of 20% (so that the maximum Purchase Price
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adjustment pursuant to this clause (i) would be $180,000,000). For the
purposes of this Agreement:
"December 31 Revenue Run Rate" shall equal the sum of (i)
Initial Equity Run Rate (as defined below), (ii) Initial Taxable Fixed
Income Run Rate (as defined below), (iii) Initial Tax Exempt Run Rate
(as defined below), (iv) Initial Money Market Run Rate (as defined
below), and (v) Initial Variable Annuity Run Rate (as defined below),
where:
o "Initial Equity Run Rate" equals (x) assets contained in
primarily equity portfolios at December 31, 2000, as set forth
on Exhibit A ("Initial Equity Assets"), times (y) .66%;
o "Initial Taxable Fixed Income Run Rate" equals (x) assets
contained in primarily fixed income portfolios at December 31,
2000, as set forth on Exhibit A ("Initial Taxable Fixed Income
Assets"), times (y) .30%;
o "Initial Tax Exempt Run Rate" equals (x) assets contained in
primarily municipal bond portfolios at December 31, 2000, as
set forth on Exhibit A ("Initial Tax Exempt Assets"), times
(y) .60%;
o "Initial Money Market Run Rate" equals (x) assets contained in
money market portfolios at December 31, 2000, as set forth on
Exhibit A ("Initial Money Market Assets"), times (y) .40%; and
o "Initial Variable Annuity Run Rate" equals (x) assets
contained in variable annuity portfolios at December 31, 2000,
as set forth on Exhibit A ("Initial Variable Annuity Assets"),
times (y) .45%.
"Closing Date Revenue Run Rate" shall equal the sum of (i)
Closing Date Equity Run Rate (as defined below), (ii) Closing Date
Taxable Fixed Income Run Rate (as defined below), (iii) Closing Date
Tax Exempt Run Rate (as defined below), (iv) Closing Date Money Market
Run Rate (as defined below) and (v) Closing Date Variable Annuity Run
Rate (as defined below), where:
o "Closing Date Equity Run Rate" equals the product of (x) the
sum of Initial Equity Assets plus Equity Net Flows (as defined
below) times (y) .66%;
o "Closing Date Taxable Fixed Income Run Rate" equals the
product of (x) the sum of Initial Taxable Fixed Income Assets
plus Taxable Fixed Income Net Flows (as defined below) times
(y) .30%;
o "Closing Date Tax Exempt Run Rate" equals the product of (x)
the sum of Initial Tax Exempt Assets plus Tax Exempt Net Flows
(as defined below) times (y) .60%;
o "Closing Date Money Market Run Rate" equals the product of (x)
the sum of Initial Money Market Assets plus Money Market Net
Flows (as defined below) times (y) .40%; and
o "Closing Date Variable Annuity Run Rate" equals the product of
(x) the sum of the Initial Variable Annuity Assets plus
Variable Annuity Net Flows (as defined below) times (y) .45%.
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"Equity Net Flows," "Taxable Fixed Income Net Flows," "Tax
Exempt Net Flows," "Money Market Net Flows" and "Variable Annuity Net
Flows" mean, respectively, for the period from January 1, 2001 through
and including the Closing Calculation Date, (x) the aggregate of all
purchases (net of sales charges and commissions, if any) of and
exchanges into shares of, or other additions (excluding reinvestment of
dividends or income) to, equity, taxable fixed income, tax exempt bond,
money market and variable annuity portfolios (including, without
limitation, portfolios that are established after December 31, 2000),
minus (y) the aggregate of all redemptions, exchanges or withdrawals
(excluding dividends or other income distributions) from such equity,
taxable fixed income, tax exempt bond, money market and variable
annuity portfolios. Where a Net Flow is negative, it shall be treated
as a negative number for the purposes of all calculations in this
Section 1.2 (i.e., adding Net Flow that is negative will result in a
reduction, and subtracting a Net Flow that is negative will result in
an increase).
"Closing Calculation Date" means the end of the Interim Period
(as defined below).
(ii) The Purchase Price shall also be adjusted upward by the
amount of any increase, and downward by the amount of any decrease, in
Closing Tangible Net Worth of the Subsidiaries from $149,142,554 (the
tangible net worth of the Subsidiaries as of March 31, 2001 computed as
set forth on Exhibit B). For the purposes of this Agreement:
"Closing Tangible Net Worth" means, as of the Closing Date,
(a) estimated stockholder's equity, minus (b) all amounts in
respect of estimated goodwill and intangible assets, minus (c)
any increase (or plus any decrease) in estimated stockholder's
equity for the period from April 1, 2001 through the Closing
Date resulting from the application of the Financial
Accounting Standards Board's Statement No. 115 to investment
assets, plus (d) the amount of any estimated impairment
write-offs of deferred distribution costs during the period
from April 1, 2001 through the Closing Date, net of any
related tax benefits, all of the foregoing determined for all
of the Subsidiaries on a consolidated (or combined) basis in
accordance with generally accepted accounting principles and
in a manner consistent with the calculation of tangible net
worth of the Subsidiaries as of March 31, 2001 set forth on
Exhibit B.
(iii) If there is an AUM Market Decline (as defined below) of
more than 20%, then the Purchase Price shall be reduced by $6,300,000
(i.e., .70% of the unadjusted Purchase Price) for every 1% of AUM
Market Decline in excess of 20%. For the purposes of this provision:
o "AUM Market Decline" means the result, stated as a percentage,
of the calculation (a) March 31, 2001 AUM minus Closing AUM,
divided by (b) March 31, 2001 AUM; provided, if Closing AUM is
greater than March 31, 2001 AUM, then AUM Market Decline shall
be zero.
o "March 31, 2001 AUM" means the sum, as of 4:00 p.m. (New York
time) on March 31, 2001, of (i) the aggregate net asset
values, calculated in accordance with the Investment Company
Act of 1940, as amended, and the rules and
4
regulations thereunder, of the Funds (as hereinafter defined)
and the Offshore Funds (as hereinafter defined) plus (ii) the
aggregate net asset values, determined in substantially the
same manner, of the accounts managed by the Subsidiaries for
investment advisory clients (other than the Funds and the
Offshore Funds) ("Non-Fund Clients"). Exhibit C sets forth the
March 31, 2001 AUM.
o "Closing AUM" means (i) the aggregate net asset values of the
Funds, Offshore Funds and accounts managed by the Subsidiaries
for Non-Fund Clients, as of 4:00 p.m. (New York time) on the
Closing Calculation Date (or if the Closing Calculation Date
is not a trading day, then on the immediately preceding
trading day), prepared in the same manner as for March 31,
2001 AUM, minus (ii) Equity Net Flows, minus (iii) Taxable
Fixed Income Net Flows, minus (iv) Tax Exempt Net Flows, minus
(v) Money Market Net Flows, minus (vi)Variable Annuity Net
Flows.
(iv) The Purchase Price shall be (a) increased by the net
unpaid amount, if any, estimated to be due to the Company from the
Subsidiaries pursuant to Sections 5.12(b)(i) and 5.15 as of the Closing
and (b) decreased by the net unpaid amount, if any, estimated to be due
to the Subsidiaries from the Company pursuant to Sections 5.12(b)(ii)
and 5.15 as of the Closing, in each case such estimate to be prepared
on the fourth Business Day prior to the Closing Date.
Whenever this Section 1.2 requires that Closing Date Revenue Run Rate
or Closing AUM be determined as of a date other than the Closing
Calculation Date, or that Closing Tangible Net Worth or the adjustments
pursuant to Section 1.2(b)(iv) be determined as of a date other than
the Closing Date, such determinations shall be as of the date
specified, as if the date specified were the Closing Calculation Date
or the Closing Date, as the case may be.
(c) For purposes of this Agreement, the last day of the month
which the Purchaser and the Company shall mutually estimate to be two
(2) months prior to the Closing Date is hereinafter referred to as the
"Initial Determination Date." On or before the date which is twenty
(20) days after the Initial Determination Date, the Company will
deliver to the Purchaser draft calculations (the "Draft Initial
Calculations") setting forth a determination of (i) the Closing Date
Revenue Run Rate as of the Initial Determination Date, (ii) Closing AUM
as of the Initial Determination Date, (iii) Closing Tangible Net Worth
as of the Initial Determination Date, and (iv) any proposed adjustments
to the Purchase Price relating to subsections (i), (ii), (iii) and (iv)
of Section 1.2(b). The Draft Initial Calculations shall be determined
in accordance with generally accepted accounting principles and in a
manner consistent with this Section 1.2.
(d) If the Purchaser has any objections to the Draft Initial
Calculations or the principles used in the preparation thereof, it will
deliver a detailed statement describing its objections to the Company
within fifteen (15) days after receiving the Draft Initial
Calculations. If no such statement is delivered by the Purchaser on or
prior to the end of such fifteen (15) day period, the Draft Initial
Calculations shall be deemed accepted by the Purchaser and the Purchase
Price shall be as determined in accordance with the Draft Initial
Calculations, subject to the determination of the Interim Period
Calculations referred to in Section 1.2(e) below. Purchaser and the
Company will use reasonable
5
efforts to resolve any objections to the Draft Initial Calculations
themselves. If the parties do not obtain a final resolution of any such
objections within five (5) days after the Company has received the
statement of objections, then the remaining objections (the "Unresolved
Initial Calculations Objections") will be resolved in the manner
provided in Section 1.2(g) hereof.
(e) For purposes of this Agreement, the period between the
Initial Determination Date and the last day of the month immediately
preceding the Closing Date (or if the Closing Date is on or before the
twentieth day of any month, the last day of the second month
immediately preceding the Closing Date) is hereinafter referred to as
the "Interim Period". At least ten (10) days prior to the Closing Date,
the Company will deliver to the Purchaser draft calculations (the
"Draft Interim Period Calculations") setting forth a determination of
(i) the Closing Date Revenue Run Rate as of the last day of the Interim
Period, (ii) Closing AUM as of the last day of the Interim Period,
(iii) Closing Tangible Net Worth as of the last day of the Interim
Period and (iv) any proposed adjustments to the Purchase Price relating
to subsections (i), (ii), (iii) and (iv) of Section 1.2(b). The Draft
Interim Period Calculations shall be determined in accordance with
generally accepted accounting principles and in a manner consistent
with the Draft Initial Calculations (as finally determined) and this
Section 1.2.
(f) If the Purchaser has any objections to the Draft Interim
Period Calculations, it will deliver a detailed statement describing
its objections to the Company within two (2) Business Days after
receiving the Draft Interim Period Calculations. If no such statement
is delivered by the Purchaser on or prior to the end of such two (2)
Business Day period, the Draft Interim Period Calculations shall be
deemed accepted by the Purchaser and the Purchase Price shall be as
determined in accordance with the Draft Interim Period Calculations,
consistent with the Draft Initial Calculations (as finally determined)
and subject to the determination of the Final Calculations referred to
in Section 1.2(i). The Purchaser and the Company will use reasonable
efforts to resolve any objections to the Draft Interim Period
Calculations themselves. If the parties do not obtain a final
resolution of such objections within one (1) Business Day after the
Company has received the statement of objections, any remaining
objections to the Draft Interim Period Calculations (the "Unresolved
Interim Period Objections") will be resolved in the manner provided in
Section 1.2(g) hereof.
(g) In the event that there are any Unresolved Initial
Calculations Objections or Unresolved Interim Period Objections
(collectively, "Objections"), the Purchaser and the Company will select
an accounting firm mutually acceptable to them to resolve any such
Objections. If the Purchaser and the Company are unable to agree on the
choice of an accounting firm, they will select a "big-five" accounting
firm (other than Purchaser's public accounting firm or the Company's
public accounting firm or LMIC's public accounting firm) by lot (the
"Independent Accountant"), which shall be jointly instructed by the
Purchaser and the Company to resolve any Objections. The Independent
Accountant shall conduct its review of the Draft Preliminary Closing
Calculations and the Draft Interim Period Calculations and any
supporting documentation as the Independent Accountant in its sole
discretion deems necessary, and the Independent Accountant shall
conduct such hearings or hear such presentations by the parties as the
Independent Accountant in its sole discretion deems reasonably
necessary. The Independent
6
Accountant shall, as promptly as practicable and in no event later than
ten (10) days following the date of its retention, deliver to each of
the Purchaser and the Company its written determinations with respect
to the Objections, which will be conclusive and binding upon the
parties; provided, that, in resolving any Objection, the Independent
Accountant must adopt either the Purchaser's determination, the
Company's determination or a determination that is between the
positions of the Purchaser and the Company with respect to such
Objection. All of the fees and expenses of the Independent Accountant
retained pursuant to this Section 1.2(g) shall be paid by the
Purchaser, if the Independent Accountant agrees with the positions
asserted by the Company; shall be paid by the Company, if the
Independent Accountant agrees with the positions asserted by the
Purchaser; or shall be split evenly by the Purchaser and the Company if
the Independent Accountant does not agree with either the Purchaser or
the Company. Upon the delivery of the written determinations of the
Independent Accountant with respect to the Objections, the parties
hereto shall determine the Purchase Price pursuant to this Section 1.2
hereof in accordance with such written determinations of the
Independent Accountant subject to Section 1.2(i).
(h) The Company will make the work papers and back-up
materials used in preparing the Draft Initial Determination Date
Calculations, the Draft Interim Period Calculations and the Final
Calculations available to the Purchaser at reasonable times and upon
reasonable notice at any time.
(i) On or before the third Business Day preceding the Closing
Date, the Company will deliver to the Purchaser calculations (the
"Final Calculations") setting forth a determination of the estimated
Closing Tangible Net Worth as of the Closing Date and any estimated net
unpaid amounts due under Sections 5.12(b)(i) and (ii) and 5.15, as of
the Closing Date. The Final Calculations shall be prepared in a manner
consistent with generally accepted accounting principles and the
Initial Determination Date Calculations and the Interim Period
Calculations, including without limitation any written determinations
of the Independent Accountant pursuant to Section 1.2(g). The Purchase
Price shall be adjusted to reflect the determination of the estimated
Closing Tangible Net Worth as of the Closing Date, which determination
shall be reasonably acceptable to the Purchaser. To the extent that
there are any net unpaid amounts due under Sections 5.12(b)(i) and (ii)
and 5.15, the Purchase Price shall be adjusted accordingly under
Section 1.2(b)(iv).
1.3 CLOSING. Subject to and in accordance with this Agreement, the
consummation of the Sale (the "Closing") will take place at Xxxxxx, Xxxx &
Xxxxxxx, Exchange Place, 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, on the third
Business Day (as defined below) (the "Closing Date") after satisfaction or
waiver of the conditions set forth in Article 6, other than those conditions
that relate to actions to be taken at the Closing. As used herein, the term
"Business Day" shall mean any day other than a Saturday, Sunday or other day on
which banks in Boston, Massachusetts are not open for business.
1.4 DELIVERIES AT CLOSING BY THE COMPANY. At the Closing, and upon
satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.2, the
Company will deliver or cause to be delivered to the Purchaser the instruments,
certificates and other documents required of it by Section 6.3.
7
1.5 DELIVERIES AT CLOSING BY THE PURCHASER. At the Closing, and upon
satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.3, the
Purchaser will deliver or cause to be delivered to the Company the Purchase
Price and the instruments, certificates and other documents required of it by
Section 6.2.
1.6 SECTION 338(h)(10) ELECTION.
(a) The Purchaser will join with the Company and LFS in making an
election under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder (and any corresponding
elections under state, local or foreign law) with respect to the purchase of the
capital stock of those Subsidiaries set forth in Section 1.6(a) of the
Disclosure Schedule (collectively, the "Section 338(h)(10) Election"). All
Section 338 Forms will be prepared by the Purchaser, subject to written approval
by the Company. The Purchaser shall submit any such Section 338 Form to the
Company at least thirty (30) days prior to its due date for review and approval.
"Section 338 Forms" shall mean all returns, documents, statements and other
forms that are required to be submitted to any federal, state, county or other
local taxing authority in connection with a Section 338(h)(10) Election,
including without limitation, any "statement of Section 338 election" and
Internal Revenue Service Form 8023 (together with any schedules or attachments
thereto) that are required pursuant to applicable Treasury Regulations.
(b) The allocation of the Purchase Price among the Purchased Securities
shall be made on the basis of the relative fair market values of the Purchased
Securities. The allocation of the "aggregate deemed sale price" as defined in
Treasury Regulation Section 1.338-4(b) for each Subsidiary shall be made with
reference to that Purchase Price allocation and in accordance with Sections 338
and 1060 of the Code and any comparable provisions of state, local or foreign
law, as appropriate. The procedures for creating a schedule setting forth such
Purchase Price and "aggregate" deemed sales price allocations shall be as
follows (the "Allocation Schedule"): (i) the Purchaser shall prepare and deliver
the Allocation Schedule to the Company no later than ninety (90) days after the
Closing Date (the "Delivery Date"); the Company shall have thirty (30) days from
the date that the Purchaser delivers the Allocation Schedule to the Company to
review the Allocation Schedule and provide reasonable written comments on such
Allocation Schedule (the "Company's Comments"); if the Company does not deliver
to the Purchaser the Company's Comments within thirty (30) days after the day
the Purchaser delivers the Allocation Schedule to the Company, the Company will
be deemed to have accepted and agreed to the allocations made on the Allocation
Schedule; (ii) if the Purchaser does not deliver the Allocation Schedule to the
Company prior to midnight Eastern Time on the Delivery Date, then the Company
shall prepare the Allocation Schedule and will deliver the Allocation Schedule
to the Purchaser within sixty (60) days after the Delivery Date; the Purchaser
shall have thirty (30) days from the date the Company delivers the Allocation
Schedule to the Purchaser to review the Allocation Schedule and provide
reasonable written comments on such Allocation Schedule ("Purchaser's Comments")
to the Company; if the Purchaser does not deliver to the Company the Purchaser's
Comments within thirty (30) days after the day the Company delivers the
Allocation Schedule to the Purchaser, the Purchaser will be deemed to have
accepted and agreed to the allocations made on the Allocation Schedule by the
Company. In case of any disagreement with respect to allocation, the parties
hereto agree to work in good faith to resolve their differences with respect to
the Allocation Schedule no later than 210 days after the Closing Date. The
8
parties shall report, act and file in all respects and for all purposes in a
manner consistent with the Allocation Schedule that they agree upon.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company and LFS that:
2.1 ORGANIZATION AND QUALIFICATION. The Purchaser is an entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all requisite power and authority to carry on
its business as now conducted or contemplated to be conducted and is, or will
cause the actual purchaser to be, an entity that is eligible to make a Section
338(h)(10) Election. The Purchaser is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing that would not, individually or in the aggregate, reasonably be
expected to materially impair the ability of the Purchaser to perform its
obligations hereunder.
2.2 AUTHORITY. The Purchaser has the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Purchaser, and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized by
the Board of Directors of the Purchaser and no other corporate proceedings on
the part of the Purchaser (including without limitation shareholder actions) are
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Purchaser and constitutes a legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its terms
subject with respect to enforceability to the effect of receivership,
conservatorship and supervisory powers of bank regulatory agencies generally and
the effect of bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, or similar laws now or hereafter affecting the enforcement of
creditors' rights generally and to the availability of equitable remedies.
2.3 COMPLIANCE.
(a) Neither the execution and delivery of this Agreement by the
Purchaser, nor the consummation by the Purchaser of the transactions
contemplated hereby nor compliance by the Purchaser with any of the provisions
hereof will (i)(x) violate, conflict with or result in a breach of any provision
of the charter documents or by-laws of the Purchaser or (y) violate, conflict
with, or result in a breach of any provision of, or constitute a default (or an
event that, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any Encumbrance upon any of the material properties or assets of the
Purchaser or any other material direct or indirect subsidiary of the Purchaser
under any note, bond, mortgage, indenture, deed of trust, license, lease, or
other agreement, instrument or obligation to which the Purchaser is a party, or
to which any of them, or any of their respective
9
properties or assets, may be subject, or (ii) subject to the exceptions and
compliance with the statutes and regulations referred to in the next paragraph,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to the Purchaser or any of its properties or assets;
except, in the case of each of clauses (i)(y) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of Encumbrances that would not, individually or in the aggregate,
reasonably be expected to materially impair the ability of the Purchaser to
perform its obligations hereunder.
(b) Other than in connection with or in compliance with the provisions
of the Massachusetts Business Corporation Law ("MBCL"), the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act"), the Investment Company Act of 1940, as amended
(the "Investment Company Act"), other applicable securities laws, state and
federal banking and insurance laws, "takeover" or "blue sky" laws of various
states, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 and the rules
and regulations thereunder (the "Xxxx-Xxxxx-Xxxxxx Act"), and the rules and
regulations of the New York Stock Exchange, the National Association of
Securities Dealers, Inc. (the "NASD") and the National Futures Association and
other applicable self-regulatory organizations and agencies (each of such laws,
rules or regulations being referred to as the "Applicable Laws") as set forth in
Section 2.3(b) of the disclosure schedule previously delivered to the Company
(the "Purchaser Required Consents"), no notice to, filing with, or
authorization, consent or approval of, any domestic or foreign public body or
authority (each a "Government Entity") or any governmental or non-governmental
self-regulatory organization or agency is necessary for the consummation by the
Purchaser of the transactions contemplated by this Agreement, unless the failure
to give such notices, make such filings, or obtain such authorizations, consents
or approvals that would not, individually or in the aggregate, reasonably be
expected to materially impair the ability of the Purchaser to perform its
obligations hereunder.
(c) As of the Closing, the Purchaser will not be subject to
disqualification pursuant to Section 203(e) of the Investment Advisers Act
regarding service as a registered investment adviser or as a person associated
with a registered investment adviser, or subject to disqualification to serve as
a broker-dealer under Section 15 of the Exchange Act unless in each case the
Purchaser has received exemptive relief from the Securities and Exchange
Commission (the "SEC") with respect to such disqualification or except as would
not, individually or in the aggregate, reasonably be expected to materially
impair the ability of the Purchaser to perform its obligations hereunder. As of
the Closing, neither the Purchaser nor any "affiliated person" (as defined under
the Investment Company Act) thereof will be subject to disqualification
regarding service as an investment adviser or any other capacity contemplated by
the Investment Company Act for any investment company under Section 9(a) of the
Investment Company Act unless in each case the Purchaser has received exemptive
relief from the SEC with respect to such disqualification or except as would
not, individually or in the aggregate, reasonably be expected to materially
impair the ability of the Purchaser to perform its obligations hereunder.
Neither the Purchaser nor any of its direct or indirect subsidiaries has entered
into or is subject to any agreement, arrangement or understanding that would
impose on any of the Funds (as defined below) an "unfair burden" within the
meaning of Section 15(f)(1)(B) of the Investment Company Act.
10
2.4 CERTAIN REGULATORY FILINGS.
(a) The information supplied in writing by the Purchaser for inclusion
in the proxy statement of the Company to be mailed to the holders of the
Company's capital stock ("the Company's Stockholders") in connection with their
authorization of the Sale (the "Proxy Statement"), on the date the Proxy
Statement is filed with the SEC, on the date the Proxy Statement is first sent
or given to the Company's Stockholders, and on the date of the meeting of the
Company's Stockholders, will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Purchaser agrees to provide in writing all
information concerning the Purchaser and its affiliates required to be included
in the Proxy Statement under the Exchange Act and the rules and regulations
thereunder. The Purchaser agrees promptly to correct such information if and to
the extent that such information shall have become false or misleading in any
material respect.
(b) The information supplied in writing by the Purchaser for inclusion
in each of the proxy solicitation materials to be distributed to the
shareholders of each Fund, on the date such materials are filed with the SEC, on
the date such materials are first sent or given to the shareholders, and on the
date of the meeting of the shareholders, shall not contain any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. The Purchaser agrees to provide in writing all information
concerning the Purchaser and its affiliates required to be included in a Fund's
proxy statement under the Exchange Act, the Investment Company Act or the rules
and regulations thereunder. The Purchaser agrees to promptly provide the Company
with any information reasonably necessary to allow the Company to correct such
information if and to the extent that the information provided by the Purchaser
(including without limitation information concerning its affiliates) for
inclusion in a Fund's proxy statement becomes false or misleading in any
material respect.
2.5 BROKER'S FEES. Except for Xxxxxxx, Xxxxx & Co. (the fees of which
shall be paid by the Purchaser), no agent, broker, person or firm acting on
behalf of the Purchaser is or will be entitled to any financial advisory,
commission or broker's or finder's fee from any of the parties hereto in
connection with any of the transactions contemplated herein.
2.6 FINANCING. At the Closing, the Purchaser will have immediately
available funds sufficient to consummate the Sale and to fulfill its obligations
hereunder. The Purchaser understands that there is no financing condition to the
obligations of the Purchaser hereunder.
2.7 LITIGATION. There is no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation pending or, to the
knowledge of the Purchaser, threatened, to which the Purchaser is a party which,
considered individually or in the aggregate, would reasonably be expected to
materially impair the Purchaser's ability to perform its obligations under this
Agreement. For purposes of this Section 2.7 and all certificates and other
documents delivered in connection herewith, the terms "Purchaser's knowledge,"
"knowledge of the Purchaser," "Purchaser's best knowledge," "best knowledge of
the Purchaser" and similar phrases shall mean the actual knowledge (after giving
effect to things actually forgotten) of the Chief Executive Officer, the Chief
Financial Officer and the General Counsel of the Purchaser.
11
2.8 TAXES. The Purchaser represents that it has no plan or intention to
liquidate and that it has no plan or intention to transfer the shares of the
Subsidiaries set forth on Section 1.6(a) of the Disclosure Schedule to any
entity that is not treated as a corporation (or a division or branch of a
corporation) for federal income tax purposes.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND LFS
The Company and LFS, jointly and severally, represent and warrant to
the Purchaser that except as set forth on a disclosure schedule previously
delivered to the Purchaser (the "Disclosure Schedule") (it being understood that
the disclosure of any fact or item in a section of the Disclosure Schedule shall
be deemed to modify only the corresponding section of this Agreement and other
sections of this Agreement to the extent it is explicit from a reading of the
disclosure that the disclosure is applicable to such other sections):
3.1 ORGANIZATION AND QUALIFICATION. Each of the Company and LFS is a
corporation duly organized, validly existing and in good standing under the laws
of Massachusetts and has all requisite corporate power and authority to carry on
its business as it is now being conducted or contemplated to be conducted.
3.2 SUBSIDIARIES. Section 3.2 of the Disclosure Schedule sets forth for
each Subsidiary (a) its name and jurisdiction of organization and (b) the amount
of capital stock or other equity interests authorized, issued and outstanding
and the names of the record holders thereof. No securities of any of the
Subsidiaries are or may become required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any Subsidiary. There are no contracts,
commitments, understandings or arrangements by which the Subsidiary is bound to
purchase shares of a Subsidiary's capital stock (or its equivalent) or
securities convertible into or exchangeable for such shares or similar interests
and there are no agreements or understandings to which the Company, LFS or any
of the Subsidiaries is a party with respect to voting the capital stock (or its
equivalent) of any Subsidiary. All of the outstanding capital stock and other
equity interests of each Subsidiary has been and is duly authorized, validly
issued, fully paid and non-assessable, and, other than the Purchased Securities,
are held beneficially and of record by a Subsidiary, free and clear of any
Encumbrances of any kind other than restrictions under applicable securities
laws and other than those created by the Purchaser. The Purchased Securities are
owned by the Company or LFS, beneficially and of record, free and clear of any
Encumbrances of any kind other than restrictions under applicable securities
laws and other than those created by the Purchaser. Each Subsidiary is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
has the requisite power and authority to carry on its business as it is now
being conducted. Each Subsidiary is duly qualified to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary,
except for failures to be so qualified or in good standing that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect (as defined below). Copies of the charter documents,
by-laws and corporate record books of each Subsidiary have heretofore been
12
made available to the Purchaser and are accurate and complete as of the date
hereof. Except as set forth in Section 3.2 of the Disclosure Schedule, none of
the Subsidiaries has any subsidiaries or direct or indirect equity or related
interest in any partnership, corporation, limited liability company, joint
venture, business association or other entity constituting 5% of the voting
stock or equity of such entity.
For purposes of this Agreement, "Company Material Adverse Effect" shall
mean any change, effect or circumstance that (A) is or would reasonably be
expected to be materially adverse to the assets, condition (financial or
otherwise), business, operations or results of operations of the Subsidiaries
taken as a whole, or (B) would prevent the performance by the Company or LFS of
their respective obligations under this Agreement or would reasonably be
expected to delay the performance by the Company or LFS of their respective
obligations under this Agreement beyond the Outside Date (as defined below),
other than (1) changes, effects or circumstances that (x) result from changes in
general economic or debt or equity market conditions or (y) are the result of
factors generally affecting the asset management industry or are the result of
any changes in any regulation or statute that has or would reasonably be
expected to have an industry-wide effect, or (2) changes in generally accepted
accounting principles or changes in laws or regulations or the interpretation
thereof by courts or any Government Entity; provided that in the case of either
clause (1) or (2), to be excluded, such changes, effects or circumstances must
not reasonably be expected to result in a materially more adverse effect on the
assets, condition (financial or otherwise), business, operations or results of
operations of the Subsidiaries taken as a whole, as compared to the effects
generally on other asset management businesses. Notwithstanding the foregoing,
(i) Company Material Adverse Effect shall not include any adverse change, effect
or circumstance arising out of or resulting from actions contemplated by the
parties in connection with this Agreement (including, without limitation, any
adverse change, effect or circumstance arising as a result of compliance with
Section 4.1 of this Agreement) or that is attributable to the announcement,
pending status or performance of this Agreement (including, without limitation,
the fact that the subsidiaries of the Company other than the Subsidiaries are
not being sold to the Purchaser) and (ii) neither any adverse change in the
Company's stock price nor a negative Interim Run Rate nor decrease in Tangible
Net Worth nor a failure to obtain any of the approvals or consents contemplated
by Section 5.7(a), (d) or (e) shall be taken into account in determining whether
there has been a Company Material Adverse Effect.
3.3 AUTHORITY.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement, and, subject to the approval of the Company's
Stockholders referred to in Section 3.19 of this Agreement, to perform its
obligations hereunder and consummate the transactions contemplated hereby. LFS
has all requisite corporate power and authority to enter into this Agreement,
and, subject to the approval of the Company's Stockholders referred to in
Section 3.19 of this Agreement, to perform its obligations hereunder and
consummate the transactions contemplated hereby.
(b) The Company's Board of Directors has duly adopted resolutions (i)
authorizing the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and (ii)
approving the Sale. The Company's
13
Board of Directors has, in addition, duly adopted resolutions (i) determining
that the Sale is fair to, advisable and in the best interests of the Company's
Stockholders and (ii) recommending authorization of the Sale by the Company's
Stockholders. LFS's Board of Directors and sole stockholder have duly adopted
resolutions authorizing the execution and delivery of this Agreement and the
consummation by LFS of the transactions contemplated hereby by LFS.
(c) Except for the approval of the Company's Stockholders referred to
in Section 3.19 of this Agreement, no further corporate proceedings on the part
of the Company or LFS are necessary to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
(d) This Agreement has been duly executed and delivered by each of the
Company and LFS and constitutes a legal, valid and binding obligation of the
Company and LFS, enforceable against the Company and LFS, respectively, in
accordance with its terms subject with respect to enforceability to the effect
of receivership, conservatorship and supervisory powers of regulatory agencies
generally and the effect of bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, or similar laws now or hereafter affecting the
enforcement of creditors' rights generally and to the availability of equitable
remedies.
3.4 COMPLIANCE.
(a) Neither the execution and delivery of this Agreement by the Company
and LFS, nor the consummation by the Company and LFS of the Sale, nor compliance
by the Company and LFS with any of the provisions hereof will (i)(x) violate,
conflict with, or result in a breach of any provision of the charter or by-laws
of the Company, LFS or any of the Subsidiaries, or (y) provided that all
notices, filings, authorizations, consents and approvals contemplated by
Sections 3.4(b) and 5.7 or otherwise set forth in Section 3.4(a) of the
Disclosure Schedule (collectively, the "Necessary Consents") have been obtained
prior to the Closing, violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event that, with notice or lapse of
time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance or payment required by, or result in a right
of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of any of the Company, LFS or
the Subsidiaries, under any note, bond, mortgage, indenture, deed of trust,
license, lease, joint venture agreement or any other agreement, instrument or
obligation to which any of Company, LFS or the Subsidiaries is a party or to
which any of them or any of their respective properties or assets may be subject
or (ii) subject to the requirement to obtain the Necessary Consents, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to any of the Company, LFS or the Subsidiaries or any of their
respective properties or assets; except, in the case of each of clauses (i)(y)
and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of Encumbrances that, would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
(b) Except as set forth in Section 3.4(b) of the Disclosure Schedule
(the "Necessary Regulatory Consents"), no notice, filing with, or authorization,
consent or approval of, any Government Entity or any governmental or
non-governmental self-regulatory organization or agency is necessary for the
consummation by the Company, LFS, the Subsidiaries and the Funds
14
of the Sale. As of the date hereof, neither the Company nor LFS is aware of any
reason why the Necessary Regulatory Consents could not be obtained.
(c) Except as disclosed in Section 3.4(c) of the Disclosure Schedule,
none of the Company, LFS, the Subsidiaries or the Funds, or any officer,
director or employee thereof, is a party or subject to any order, directive,
decree, condition or similar arrangement or action (other than exemptive orders)
relating to the business of the Company, LFS, the Subsidiaries or the Funds,
with or by any federal, state, local or foreign regulatory authority, except for
any such orders, directives, decrees or similar arrangements that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
3.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed with the SEC all required reports, schedules,
forms, statements and other documents required to be filed under the Exchange
Act from January 1, 1999 through the date hereof. All documents (including
exhibits and financial statement schedules) filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act from January 1, 1999 through
the date hereof are referred to herein as the "Prior SEC Filings". The Prior SEC
Filings (i) comply in all material respects with the applicable requirements of
the Exchange Act and the rules and regulations thereunder, (ii) did not at the
time they were filed contain, or have been amended to correct, any untrue
statement of material fact, (iii) did not at the time they were filed omit to
state a material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or have been amended to
correct any such omission, and (iv) in the event of subsequent modifications of
the circumstances or the basis on which they had been made, were, to the extent
required by the Securities Act or the Exchange Act, amended in order to make
them not misleading in any material respects in the light of such new
circumstances or basis.
(b) Each of the most recent audited consolidated financial statements
and most recent unaudited interim consolidated financial statements (including,
in each case, any related notes or schedules) included in the Prior SEC Filings
was prepared in accordance with generally accepted accounting principles applied
on a consistent basis, except as may be indicated therein or in the notes or
schedules thereto, and fairly presented in all material respects the
consolidated financial position of the Company and its subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and the absence of
complete notes (to the extent permitted by SEC rules).
(c) The Proxy Statement and any written information provided by or on
behalf of the Company which is included in the Proxy Statement, on the date the
Proxy Statement is filed with the SEC, and on the date the Proxy Statement is
first published, sent or given to security holders and on the date of the
meeting of the Company's Stockholders will comply in all material respects with
the provisions of applicable federal securities laws and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, provided
that no representation or warranty is made pursuant to this Section 3.5(c) with
respect to any written information provided by or on behalf of the Purchaser
15
for inclusion in the Proxy Statement. The Company agrees promptly to correct the
Proxy Statement if and to the extent that it shall have become false or
misleading in any material respect (provided that, with respect to any false or
misleading information provided by or on behalf of the Purchaser for inclusion
in the Proxy Statement, the Purchaser shall have provided the Company with
correct information) and the Company shall take all steps necessary to cause the
Proxy Statement as so corrected to be filed with the SEC and mailed to the
Company's Stockholders to the extent required by the Exchange Act.
3.6 LITIGATION. Except as disclosed in Section 3.6 of the Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Company, threatened against the Company, LFS or any of
the Subsidiaries or their respective properties or assets, nor are the Company,
LFS or any of the Subsidiaries subject to any order, judgment, writ, injunction
or decree.
3.7 CHANGES. Except as specifically set forth in or contemplated by
this Agreement, in Section 3.7 of the Disclosure Schedule or as disclosed in the
Prior SEC Filings (but only since January 1, 2000), since December 31, 2000 (a)
each of the Subsidiaries has conducted its business in all material respects
only in the ordinary course of business and in a manner consistent with past
practice, (b) there has not been any event, change or effect that, individually
or in the aggregate, has resulted, or would reasonably be expected to result, in
a Company Material Adverse Effect, (c) none of the Company, LFS or any
Subsidiary has changed any accounting principles or tax methods, and (d) none of
the Company, LFS or any Subsidiary has taken any of the actions specified in
Section 4.1(b).
3.8 TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section 3.8 of
the Disclosure Schedule or the Prior SEC Filings (but only since January 1,
2000) or as set forth in or contemplated by this Agreement, since January 1,
2000, none of the Subsidiaries has entered into any transaction (a) with any
current director or officer of the Company or of any Subsidiary or any
transaction which would be subject to proxy statement disclosure under the
Exchange Act pursuant to the requirements of Item 404 of Regulation S-K, or (b)
with LMIC or its affiliates (other than the Subsidiaries) pursuant to which the
consideration in such transaction exceeded or is reasonably likely to exceed
$500,000.
3.9 EMPLOYEE BENEFITS AND CONTRACTS.
(a) Except as set forth in Section 3.9(a) of the Disclosure Schedule,
none of the Subsidiaries is a party to any collective bargaining agreement and
there is no certified or recognized collective bargaining agent for any
employees of any Subsidiary. As of the date hereof, no claim of representation
(as such term is defined in the National Labor Relations Act) is being made, no
representation proceeding is pending or, to the knowledge of the Company,
threatened, and no organizing campaign is in progress or, to the knowledge of
the Company, threatened, involving employees of any Subsidiary.
(b) Section 3.9(b) of the Disclosure Schedule lists all "employee
benefit plans" (as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or
16
other benefit plans, programs or arrangements, and all employment, termination,
severance or other contracts or agreements to which any of the Company, LFS or
any Subsidiary is a party, with respect to which any of the Company, LFS or any
Subsidiary has any obligation or contingent obligation or which are maintained,
contributed to or sponsored by any of the Company, LFS or any Subsidiary, for
the benefit of any employee, consultant, officer or director or former employee,
consultant, officer or director of any Subsidiary or in which any current or
former employee or consultant of any Subsidiary is eligible to participate
(collectively, the "Company Benefit Plans"). Except as set forth in Section
3.9(b) of the Disclosure Schedule, each of the Company Benefit Plans complies
and has been administered in form and operation in all material respects with
all its terms and requirements of ERISA, the Code, the regulations and other
published authority thereunder and all other applicable law, except to the
extent the failure to so comply would not reasonably be expected to result in a
Company Material Adverse Effect. No transaction prohibited by Sections 406 or
407 of ERISA and no "prohibited transaction" (as such term is defined in Section
4975(c) of the Code) has occurred with respect to any Company Benefit Plan that,
individually or in the aggregate, would reasonably be expected to result in a
Company Material Adverse Effect. The Company, LFS and each Subsidiary have
performed all of their respective obligations under the Company Benefit Plans,
including but not limited to, the full payment of all amounts required to be
made as contributions to such plans or otherwise, except for failures to so
perform that would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect.
(c) Each Company Benefit Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service (the "IRS") confirming such qualification and which
covers all amendments to such plan for which the remedial amendment period
(within the meaning of Section 401(b) of the Code and applicable regulations)
has expired and nothing has occurred that could cause the loss of such
qualification. Except as set forth in Section 3.9(c) of the Disclosure Schedule,
none of the Company, LFS or any Subsidiary or any of their ERISA Affiliates (as
defined below) participate in or has any obligation to contribute to a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA. Except as set
forth in Section 3.9(c) of the Disclosure Schedule, there are no material
unfunded obligations under any Company Benefit Plan providing benefits after
termination of employment to any employee, officer or director or former
employee, officer or director of any of the Subsidiaries, including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code (collectively, the "Deferred Compensation Obligations"). The Deferred
Compensation Obligations have been accrued on the books of the appropriate
Subsidiaries in accordance with generally accepted accounting principles. For
purposes of this Agreement, the term "ERISA Affiliate" means, with respect to
the Company, LFS or any Subsidiary, any corporation, trade or business that,
together with the Company, LFS or any Subsidiary, as applicable, is a member of
a controlled group of corporations or a group of trades or businesses under
common control within the meaning of Section 414 of the Code.
17
(d) Except as provided in Section 5.11, neither the execution of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will:
(i) except as set forth in Section 3.9(d)(i) of the Disclosure
Schedule, either alone or in combination with any other event, accelerate the
time of payment or vesting, or increase the amount, of compensation or benefits
due under any Company Benefit Plan;
(ii) constitute or result in a prohibited transaction with respect to
any Company Benefit Plan under Section 4975 of the Code or Section 406 or 407 of
ERISA for which an exemption is not available; or
(iii) except as provided in the Liberty Financial Companies, Inc. and
Subsidiaries Non-Commissioned Employee Severance and Retention Plan and the
Liberty Financial Companies, Inc. and Subsidiaries Commissioned Employees
Severance and Retention Plan (together, and as applicable to the employees of
the Subsidiaries and duly approved by the Board of the Company prior to any
Potential Change of Control (as that term is defined in said plans) as to such
employees, the "Retention Plan"), constitute a deemed severance or deemed
termination under any Company Benefit Plan or under any applicable law. The
Company has delivered to the Purchaser the respective final forms of the
Retention Plan.
(e) Except for the payments required to be made under, and the
acceleration of vesting of stock options and restricted common stock provided
in, the Retention Plan with respect to those persons listed on Section 3.9(e) of
the Disclosure Schedule, none of the Company, LFS or any Subsidiary is obligated
to make any "excess parachute payment", as defined in Section 280G(b)(1) of the
Code, nor will any excess parachute payment be deemed to have occurred as a
result of or arising out of any of the transactions contemplated by this
Agreement.
(f) There are no actions, suits or claims (other than routine claims
for benefits) pending or threatened against the Company Benefit Plans or their
assets, or arising out of such plans, and, to the knowledge of the Company, no
facts exist which could give rise to any such actions, suits or claims, that
would, individually or in the aggregate, reasonably be expected to result in a
Company Material Adverse Effect.
(g) Each Company Benefit Plan which is an employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) has been duly authorized by the
appropriate board of directors of the Company, LFS or the participating
Subsidiary, as the case may be. Each such plan is qualified in form and
operation under Section 401(a) of the Code and each trust under each such plan
is exempt from tax under Section 501(a) of the Code and, to the knowledge of the
Company, is not subject to any excise tax under the Code, except to the extent
any failure to be so qualified or so exempt would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. To the knowledge of the Company, no event has occurred that will or
could give rise to disqualification or loss of tax-exempt status of any such
plan or any trust established in connection with any Company Benefit Plan under
such sections. To the knowledge of the Company, no event has occurred that will
or could subject any such plans or trusts to tax under Section 501(a) of the
Code.
(h) With respect to each Company Benefit Plan maintained for employees
of the Subsidiaries or any of their ERISA Affiliates, there has occurred no
failure to meet the minimum funding standard of Section 412 of the Code (whether
or not waived in accordance with Section
18
412(d) of the Code) or failure to make by its due date a required installment
under Section 412(m) of the Code, except for such failures that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
(i) Except as set forth on Section 3.9(i) of the Disclosure Schedule,
with respect to each Company Benefit Plan in which any Subsidiary or any ERISA
Affiliate participates and which is subject to Title IV of ERISA, except for
matters which would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect:
(i) neither any Subsidiary nor any ERISA Affiliate has withdrawn
from such plan during a plan year in which it was a "substantial employer" (as
such term is defined in Section 4001(a)(2) of ERISA) where such withdrawal could
result in liability of such substantial employer pursuant to Section 4062(e) or
4063 of ERISA;
(ii) neither any Subsidiary nor any ERISA Affiliate has filed a
notice of intent to terminate any such plan or acted to treat any such plan as
terminated;
(iii) the Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate such plan;
(iv) no other event or condition has occurred which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such plan;
(v) no accumulated funding deficiency, whether or not waived,
exists with respect to any such plan, and no condition has occurred or exists
which by the passage of time would be expected to result in an accumulated
funding deficiency as of the last day of the current plan year of any such plan;
(vi) no reportable event, as described in Section 4043 of ERISA,
has occurred with respect to any such plan;
(vii) no excise taxes are payable under the Code; and
(viii) no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made.
(j) There has been no act or omission by the Company, LFS, any
Subsidiary or any ERISA Affiliate that has given rise to or may give rise to
fines, penalties, taxes or related charges under ERISA Sections 502(c), 502(i),
502(l) or 4071, or Chapters 43, 47, 68 or 100 of the Code, except to the extent
that they would not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect.
(k) A true and correct copy of each of the Company Benefit Plans and
all contracts relating thereto, including, without limitation, all trust
agreements, insurance contracts, administration contracts, investment management
agreements, subscription and participation agreements, and recordkeeping
agreements, each as in effect on the date hereof, has been made available to the
Purchaser. In the case of a Company Benefit Plan which is not in written form,
19
an accurate description in written form of such Company Benefit Plan as in
effect on the date hereof has been made available to the Purchaser. A true and
correct copy of the most recent annual report, actuarial report, accountant's
opinion of the plan's financial statements, summary plan description and IRS
determination letter with respect to each Company Benefit Plan has been made
available to the Purchaser.
3.10 LIENS. The assets (whether personal or mixed and whether tangible
or intangible) of the Subsidiaries reflected in the balance sheet of the Company
for the fiscal year ended December 31, 2000 included in the Company's Annual
Report on Form 10-K/A (the "Balance Sheet") or acquired in the ordinary course
of business since December 31, 2000 (except those assets sold or disposed of in
the ordinary course of business), are free and clear of all Encumbrances, other
than (A) as reflected in the Balance Sheet (including the notes thereto) or as
set forth in Section 3.10 of the Disclosure Schedule and (B) Encumbrances on
assets that would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect.
3.11 TAXES.
(a) Except for matters that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, the
Company and LFS and each Subsidiary have timely filed all material Tax Returns
(as defined below) and have paid when due all Taxes owed by the Company and LFS
and any Subsidiary (whether or not shown on any such Tax Returns) to any such
tax authority. There are no liens on any of the assets of the Company, LFS or
any Subsidiary that arose in connection with any failure (or alleged failure) to
pay any Tax except for liens that would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect. "TAX" OR
"TAXES" shall mean (i) any federal, state, local, or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, net worth, intangibles, social
security, unemployment, disability, payroll, license, employee, withholding, or
other tax or levy, of any kind whatsoever, including any interest, penalties, or
additions to tax in respect of the foregoing, (ii) any liability for payment of
amounts described in clause (i) as a result of transferee liability, or of being
a member of an affiliated, consolidated, combined or unitary group for any
period (including without limitation by operation of section 1.1502-6 of the
Treasury Regulations), or otherwise through operation of law; and (iii) any
liability for payment of amounts described in clauses (i) and (ii) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person for Taxes. "TAX
RETURN" shall mean any return, declaration, report, claim for refund,
information return, or other document (including any attached or related or
supporting estimates, elections, schedules, statements, or information) filed or
required to be filed in connection with the determination, assessment, or
collection of any Tax or the administration of any laws, regulations, or
administrative requirements relating to any Tax.
(b) Except as provided in Section 3.11(b) of the Disclosure Schedule,
no dispute or claim concerning any Tax liability of the Company, LFS or any
Subsidiary has been claimed or raised by any authority in writing or to the
Company's knowledge, otherwise, except for matters
20
that would not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect.
(c) Except as provided in Section 3.11(c) of the Disclosure Schedule,
as of the date hereof, none of the Company, LFS or any Subsidiary has waived any
statute of limitations in respect of material Taxes or agreed to any extension
of time with respect to a material Tax assessment or deficiency.
(d) Except as set forth in Section 3.11(d) of the Disclosure Schedule,
no Subsidiary has any liability for the Taxes of any person (other than the
Company and the Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise, except for liabilities which would not, individually
or in the aggregate, reasonably be expected to result in a Company Material
Adverse Effect.
(e) (i) The Company has made available to the Purchaser a copy of any
Tax-sharing, allocation or indemnity agreement or arrangement involving the
Company or any of the Subsidiaries and a description of any such unwritten or
informal agreement or arrangement; (ii) all Taxes required to be withheld,
collected or deposited by the Company or any Subsidiary or Fund, Offshore Fund
or Investment Pool (as defined below) have been timely withheld, collected or
deposited and, to the extent required, have been paid to the relevant Tax
authority; and (iii) the Company and each Subsidiary and all Funds, Offshore
Funds and Investment Pools managed thereby are in compliance with respect to all
backup withholding and information reporting requirements in the Code and the
regulations thereunder, including, but not limited to all necessary due
diligence mailings and the proper and timely filing of Forms W-3, and such
Funds, Offshore Funds and Investment Pools are similarly in compliance with all
withholding and information reporting requirements of any state, local or
foreign jurisdiction to which any of them may be subject, except in the case of
clauses (ii) and (iii) for such instances of non-compliance that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
(f) The amounts accrued on the books and financial statements of each
Subsidiary for Taxes, whether or not due and payable, imposed on or with respect
to the operations or assets of such Subsidiary for all periods (or portions
thereof) ending on or before the date hereof are sufficient for payment of all
Taxes payable for such periods, except to the extent any failure would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Each Subsidiary shall continue to determine and reserve
for Taxes for purposes of the accrual of such amounts on the books and financial
statements of such Subsidiary in a manner that is consistent with the procedure
in effect at the time the provision for Taxes by such Subsidiary for purposes of
the most recent financial statements was determined, and no amount will be paid,
accrued or reserved for Taxes by such Subsidiary as a result of the transaction
contemplated hereby or the Section 338(h)(10) Election.
(g) As of the date hereof, there are no record retention agreements in
effect between any Subsidiary and any tax authority.
21
(h) Except as set forth in Section 3.11(h) of the Disclosure Schedule,
no Subsidiary has (i) received any tax ruling relating to or affecting it from
any governmental authority, or (ii) executed or entered into a closing agreement
relating to or affecting any of the Subsidiaries pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar provision of any state,
local or foreign law.
(i) The Company and LFS are eligible to and have the authority to
consent to the Section 338(h)(10) Election and similar state elections with
respect to this transaction.
(j) Except as set forth in Section 3.11(j) of the Disclosure Schedule,
no Subsidiary has any permanent establishment in any foreign country, as defined
in the relevant tax treaty between the United States of America and such foreign
country, and no Subsidiary otherwise operates or conducts business through any
branch in any foreign country.
(k) No Subsidiary has agreed to, or is required to, make any
adjustments under Section 481(a) of the Code or pursuant to any other analagous
provision of the Tax laws of any other jurisdiction, by reason of a change in
accounting method or otherwise, that could increase Taxes or taxable income, or
reduce any tax credits, net operating losses, or capital losses of the Purchaser
or any Subsidiary in any taxable period ending after the Closing Date, (ii) no
Subsidiary has an application pending with any taxing authority requesting
permission to change any accounting method, and (iii) no taxing authority has
proposed any such adjustment or change in accounting method.
(l) No consent under Section 341(f) of the Code concerning collapsible
corporations has been executed or filed by or on behalf of any Subsidiary.
(m) Xxxxxxx Xxxxxx Asset Management, L.P. ("LWAM") has never made any
election to be excluded from all or part of Subtitle A, Chapter 1, Subchapter K
of the Code.
(n) No final partnership administrative adjustment (or similar
adjustment for state, local or foreign Tax purposes) has been proposed or made
as a result of any audit or administrative proceeding involving LWAM. No issue
involving any Tax item of LWAM has been resolved in any audit or examination in
a manner that, by application of the same principles, could be expected to
result in deficiency for Taxes of LWAM or the partners of LWAM for any other
period for which a Tax Return has been filed.
(o) XXXX has made a valid election under Section 754 of the Code, and
that election will be in effect as of the Closing Date.
(p) Progress-Highcrest Advisors LLC (i) has always been treated and
properly classified as a partnership for all applicable federal, state, local,
and foreign Tax purposes, and (ii) has never filed, or had filed on its behalf,
any election to be treated as an association taxable as a corporation for
federal, state, local, or foreign Tax purposes. XXXX has never been a "publicly
traded partnership" within the meaning of Section 7704 of the Code.
3.12 COMPLIANCE WITH LAWS; PERMITS. Except as set forth in Section 3.12
of the Disclosure Schedule, none of the Subsidiaries (a) is in violation of, or
has violated, any
22
applicable provisions of any laws, statutes, ordinances or regulations
(including any rules or regulations of any governmental or non-governmental
self-regulatory organization or agency) or (b) since January 1, 1999, has
received any notice from any governmental or non-governmental self-regulatory
organization or agency or any Governmental Entity or any other person that such
Subsidiary is in violation of, or has violated, any applicable provisions of any
laws, statutes, ordinances or regulations or (c) has any officers, directors or
employees who, since January 1, 1999, have been the subject of any investigation
(excluding routine examinations by regulatory or self-regulatory organizations
or agencies), disciplinary proceeding or enforcement order arising under any
applicable provisions of any laws, statutes, ordinances or regulations
(including any rules or regulations of any non-governmental self-regulatory
organization or agency), and no such investigation, disciplinary proceeding or
proceedings for the issuance of any enforcement order is pending or threatened,
except in the case of each of clauses (a), (b) and (c) for violations or alleged
violations that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. Each of the
Subsidiaries has all federal, state and local approvals, registrations,
consents, certificates, filings, notices, rights, permits, licenses and
franchises from Governmental Entities necessary for the lawful ownership and use
of its properties and assets or required to conduct its business as now being
conducted, except for such approvals, registrations, consents, certificates,
filings, notices, rights, permits, licenses and franchises the absence of that
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect. Each Subsidiary has made all filings required
to be made by it under applicable regulatory requirements since December 31,
1999, and all such filings have complied with the applicable regulatory
requirements, except for such failures that would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. No Subsidiary or any associated person of any Subsidiary is subject to a
statutory disqualification that could be the basis for a suspension, revocation
or limitation of the license of, or ability to obtain a license for such
Subsidiary, except for such failures that would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. Subject to receipt of the Necessary Regulatory Consents, the
consummation of the transactions contemplated by this Agreement will not result
in any revocation, cancellation, limitation or suspension of any such approval,
permit, registration, consent, certificate, filing, notice, right, license and
franchise, except for such revocations, cancellations, limitations and
suspensions that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
3.13 INTELLECTUAL PROPERTY. Except as set forth in Section 3.13 of the
Disclosure Schedule, each Subsidiary and each Fund owns or has all necessary
rights to use, each trademark (whether or not registered), trademark
application, trade name, service mark, copyright and other trade secret or
proprietary intellectual property (collectively, "Intellectual Property") used
in and material to the respective businesses of the Subsidiaries or the Funds,
and none of the previous or current development, marketing or distribution of
products or services of or by any Subsidiary or Fund, as the case may be,
infringes the right of any other person, except for the failure to own or have
such necessary rights to use such Intellectual Property, or any such
infringements, that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. Except as set forth in
Section 3.13 of the Disclosure Schedule or as would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect, (a) no claim by any third party contesting the validity, enforceability,
23
use or ownership of any of the Intellectual Property has been made, is currently
outstanding or, to the Company's knowledge, has been threatened against the
Company or any Subsidiaries, and, to the Company's knowledge, there are no
grounds for the same, (b) none of the Company or any of the Subsidiaries has
received any notices of any infringement or misappropriation by any of them with
respect to, or conflict with, any third party with respect to the Intellectual
Property, and (c) none of the Company or any of the Subsidiaries has infringed,
misappropriated or otherwise conflicted with any intellectual property rights of
any third parties.
3.14 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of
any of the Subsidiaries or the Funds of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, that would,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect, except as disclosed in the Prior SEC Filings (but only
since January 1, 2000), referenced on the Disclosure Schedule or liabilities and
obligations incurred under this Agreement.
3.15 OPINION OF FINANCIAL ADVISOR; BROKERS.
(a) The Board of Directors of the Company has received the opinion of
Credit Suisse First Boston Corporation (the "Financial Advisor"), dated the date
of this Agreement, to the effect that, as of such date, the consideration to be
received by the Company and LFS pursuant to this Agreement is fair, from a
financial point of view to the Company. The Company has been authorized by the
Financial Advisor, subject to prior review by the Financial Advisor, to permit
the inclusion of such written fairness opinion in the Proxy Statement.
(b) Except for the Financial Advisor (the fees of which will be paid by
the Company), no agent, broker, person or firm acting on behalf of the Company
is or will be entitled to any advisory commission or broker's or finder's fee
from any the parties hereto in connection with any of the transactions
contemplated herein.
3.16 INVESTMENT ADVISORY ACTIVITIES. Except as would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect, none of the Company, any of the Subsidiaries that are registered under
the Investment Advisers Act, or any other "person associated with" (as defined
under the Investment Advisers Act) the Company or any of such Subsidiaries has
been, at any time within five years prior to the date hereof, convicted of any
crime (other than traffic violations and other minor offenses), or subject to
disqualification pursuant to Section 203(e) of the Investment Advisers Act
regarding service as a registered investment adviser or as a person associated
with a registered investment adviser, or subject to disqualification pursuant to
Rule 206(4)-3 under the Investment Advisers Act or subject to disqualification
to serve as a broker-dealer under Section 15 of the Exchange Act or the subject
of a rebuttable presumption pursuant to Rule 206(4)-4(b) under the Investment
Advisers Act, and, to the Company's knowledge, except as set forth in Section
3.16 of the Disclosure Schedule, there is no basis for, or proceeding or
investigation that, individually or in the aggregate, would reasonably be
expected to become the basis for, any such disqualification that would result in
a Company Material Adverse Effect; and except as disclosed in Section 3.16 of
the Disclosure Schedule, the Company or the applicable Subsidiary has received
exemptive relief from the SEC with respect to any such disqualification. Except
as would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, none of
24
the Company, any of the Subsidiaries, or any "affiliated person" (as defined
under the Investment Company Act) thereof has been at any time within five years
prior to the date hereof subject to disqualification from serving or acting as
an investment adviser or in any other capacity contemplated by the Investment
Company Act for any investment company under Section 9(a) of the Investment
Company Act and to the Company's knowledge, except as set forth in Section 3.16
of the Disclosure Schedule, there is no basis for, or proceeding or
investigation that would reasonably be expected to become the basis for, any
such disqualification that would result in a Company Material Adverse Effect.
Without limiting the foregoing, each of the Subsidiaries which is, and each of
its officers and employees who are, required to be registered as an investment
adviser, broker dealer, transfer agent, commodity pool operator, commodity
trading advisor, associated person, registered representative or salesperson
with the SEC, the Commodity Futures Trading Commission (the "CFTC"), the
securities commission of any state or any self-regulatory organization or
agency, is duly registered as such and such registration is in full force and
effect, except, in the case of any Subsidiary or any officer or employee, where
any such failure to be registered as a registered representative or salesperson,
individually or in the aggregate, would not reasonably be expected to have
Company Material Adverse Effect.
3.17 REGISTERED INVESTMENT COMPANIES, ETC.
(a) Section 3.17(a) of the Disclosure Schedule contains a list, as of
the date hereof, of all of the investment companies registered under the
Investment Company Act for which any Subsidiary acts as investment adviser,
administrator or sub-advisor (the "Funds"). Each Fund is, and at all times as
required under the Investment Company Act has been, duly registered with the SEC
as an investment company under the Investment Company Act and each of the Funds
and the Investment Pools (as defined below) has been duly organized, and is
validly existing and in good standing under the laws of the jurisdiction of its
organization and has the requisite power and authority to own its material
properties and assets, and to carry on its business as it is now being
conducted.
(b) Except as set forth in Section 3.17(b) of the Disclosure Schedule,
each of the Funds has at all times as required under the Securities Act and any
other applicable securities or blue sky laws duly registered all securities of
which it is the issuer under the Securities Act and such other laws, and each of
the Funds and the Investment Pools has duly filed all registration statements,
prospectuses, financial statements, other forms, reports, sales literature, and
advertising, and any other documents required to be filed with applicable
Governmental Entities, and any amendments thereto, in accordance with applicable
laws and regulations, except for instances of noncompliance which would not,
individually or in the aggregate, have a Company Material Adverse Effect. Except
as set forth in Section 3.17(b) of the Disclosure Schedule, to the Company's
knowledge (i) the annual report to shareholders of each of the Funds with
respect to such Fund's most recently completed fiscal year, all other documents
filed subsequent to such fiscal year end under Section 30(a) or 30(b) of the
Investment Company Act, in each case in the form filed with the SEC or delivered
to shareholders (each, a "Fund Financial Report"), and the annual report of each
of the Investment Pools with respect to each of such Investment Pool's most
recently completed fiscal year filed with any Governmental Entity or delivered
to shareholders or other interest holders of such Investment Pool (each, an
"Investment Pool Financial Report"), did not, and the Fund Financial Reports and
Investment Pool Financial
25
Reports filed with any Government Entity or delivered to shareholders or
interest holders after the date hereof will not, as of their respective dates
contain (without giving effect to any amendment thereto filed after the date
hereof) any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were or are made, not misleading;
and (ii) each of the financial statements contained in or incorporated by
reference into the Fund Financial Reports or the Investment Pool Financial
Reports (including the related notes and schedules thereto) fairly presents in
all material respects the financial position of the entity or entities to which
it relates as of its date, in accordance with generally accepted accounting
principles consistently applied, except in each case as may be noted therein,
subject to normal year end audit adjustments in the case of unaudited
statements, except in the cases of clauses (i) and (ii) for instances of
noncompliance which would not, individually or in the aggregate, have a Company
Material Adverse Effect.
(c) Neither the execution and delivery of this Agreement by the Company
and LFS, nor the consummation by the Company and LFS of the Sale, nor compliance
by the Company and the Subsidiaries with any of the provisions hereof will,
assuming that the Necessary Consents pertaining to the Funds and the Investment
Pools have been obtained prior to the Closing (i) (x) violate, conflict with, or
result in a breach of any provision of the charter, by-laws or other
organizational documents of any of the Funds or Investment Pools, or (y)
violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event that, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance or payment required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any of the
properties or assets of any of the Funds or Investment Pools, under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, distribution agreement, investment advisory agreement,
joint venture agreement or other agreement to which any of the Funds or
Investment Pools is a party or to which any of them or any of their respective
properties or assets may be subject or (ii) assuming that the Necessary Consents
pertaining to the Funds or Investment Pools have been obtained prior to the
Closing, violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to any of the Funds or Investment Pools or any of
their respective properties or assets; except, in the case of each of clauses
(i)(y) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of Encumbrances that, individually or
in the aggregate, would not reasonably be expected to have a Company Material
Adverse Effect.
(d) Each of the Funds is governed by a board of trustees (each, a "Fund
Board") at least 75% of whom are not "interested persons" (as defined in the
Investment Company Act) of the investment adviser to such Fund.
(e) To the knowledge of the Company, none of the Funds or Investment
Pools (including in the conduct of each of their businesses) (i) except as set
forth in Section 3.17(e) of the Disclosure Schedule, is in violation of, or
since January 1, 1999 has violated, any applicable provisions of any laws,
statutes, ordinances or regulations (including any rules or regulations of any
self-regulatory organization or agency) or (ii) has received any notice from any
self-regulatory organization or Government Entity or any other person that any
Fund or Investment Pool is in violation of, or has violated, any applicable
provisions of any laws, statutes,
26
ordinances or regulations, except for violations or alleged violations which,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect.
(f) Each Fund has elected to qualify and, for all taxable years with
respect to which applicable statute of limitations (including any extensions)
has not expired ("open taxable years"), has continuously qualified to be treated
as a "regulated investment company" under Subchapter M of the Code (a "RIC") and
has continuously been eligible to compute, and has for each such taxable year
computed, its federal income tax under Section 852 of the Code and has no
earnings and profits accumulated in any taxable year that is not an open taxable
year, except to the extent that the failure to comply with any of the foregoing
would not, individually and in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. At the Closing, all federal, state, local and
foreign Tax Returns, reports, declarations, forms or information statements with
respect to Taxes for any taxable period for which the applicable statute of
limitations (including any extensions) has not expired and were or are required
to be filed on or before such date by or on behalf of a Fund, an Offshore Fund
or an Investment Pool ("Fund Tax Returns") were or shall have been timely filed
and were or shall be complete and correct and all federal and other Taxes shown
or required to be shown as due on such returns, shall have been paid or withheld
and remitted to the appropriate tax authority, or provided for, except to the
extent that any failure to so file, be complete and correct, pay or withhold, or
provide for would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. None of the Funds, Offshore Funds or
Investments Pools is delinquent in the payment of any Tax, assessment, or
governmental charge, except for delinquencies that, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect. Except as set forth in Section 3.17(f) of the Disclosure Schedule, there
is no judicial or administrative claim, audit, action, suit, proceeding or
investigation now pending or to the knowledge of the Company, threatened in
writing against a Fund, an Offshore Fund or an Investment Pool or in respect of
any Tax.
(g) Except as set forth in Section 3.17(g) of the Disclosure Schedule,
as of the date of this Agreement, there are no actions, suits, proceedings or
investigations pending or to the knowledge of the Company, threatened against
any of the Funds or Investment Pools, nor is any Fund or Investment Pool subject
to any order, judgment, writ, injunction or decree naming such Fund or
Investment Pool, except in either case for matters that, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect.
(h) (i) Each contract or agreement pursuant to which a Subsidiary
renders investment advisory or management services (including without limitation
sub-advisory services), administration, transfer agency, pricing and bookkeeping
or distribution services to any Fund, Offshore Fund or Non-Fund Client (each, an
"Investment Contract") and any subsequent renewal affected prior to the date
hereof has been duly authorized, executed and delivered by a Subsidiary and, if
applicable, the Fund, the Offshore Fund or other Investment Pool party thereto
and, to the knowledge of the Company, each other party thereto and, to the
extent applicable, has been adopted in compliance with Section 15 of the
Investment Company Act and Rule 12b-1 thereunder and in compliance with any
statute, order, ordinance, rule or regulation to which such Subsidiary, Fund,
Offshore Fund or Investment Pool, or such Investment Contract is subject and is
a valid and binding agreement of the Subsidiary and, if applicable, the Fund,
the Offshore Fund or other Investment Pool party thereto and, to the Company's
knowledge, each other party
27
thereto, enforceable in accordance with its terms (subject to bankruptcy,
insolvency, moratorium, fraudulent transfer and similar laws affecting
creditors' rights generally and to general equity principles); (ii) each of the
Subsidiaries, and, to the Company's knowledge, each Fund, Off-Shore Fund or
Non-Fund Client party thereto is in compliance with the terms of each Investment
Contract to which it is a party, and is not currently in default under any of
the terms of any such Investment Contract; (iii) to the Company's knowledge, no
event has occurred or condition exists that with notice or the passage of time
or both would constitute such a default; (iv) all payments due since December
31, 1999 under each distribution or principal underwriting agreement to which
any Fund is a party have been made in compliance with the related distribution
plan adopted by the relevant Fund Board under Rule 12b-1 under the Investment
Company Act (a "12b-1 Plan"); (v) each 12b-1 Plan adopted by a Fund and the
operation of each such 12b-1 Plan currently complies with Rule 12b-1; and (vi)
each such Investment Contract is in full force and effect, except in the case of
each of clauses (i) through (vi) above, for such exceptions as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(i) The accounts of each Non-Fund Client that is subject to ERISA have
been managed by a subsidiary in compliance with all the applicable requirements
of ERISA, except to the extent that any failure that would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(j) There exists no "out of balance", "out of proof" or similar
condition with respect to any shareholder account maintained by the Company, any
Subsidiary or any Fund or Investment Pool, except for any such conditions that
would not reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect.
(k) To the knowledge of the Company, each of (i) the proxy solicitation
materials to be distributed to the shareholders of each Fund, (ii) the material
provided to the Fund Boards in connection with the Necessary Consents, and (iii)
Forms ADV and BD of those Subsidiaries that are registered as investment
advisers under the Investment Advisers Act or as broker-dealers under the
Exchange Act (as the case may be), and Forms 7-R and updates thereto of those
Subsidiaries that are registered as commodity pool operators or commodity
trading advisors under the Commodity Exchange Act, as amended, as in effect as
of the Closing Date, have provided and will provide all information necessary in
order to make the disclosure of information therein satisfy the requirements of
the Exchange Act, the Investment Company Act, the Advisers Act, the Commodity
Exchange Act, as amended and such Forms ADV, BD and 7-R as applicable, and such
materials and information will be complete in all material respects and will not
contain (at the time such materials or information is distributed, filed or
provided, as the case may be) any statement which, at the time and in the light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, and will not omit to state any material fact necessary in
order to make the statements therein not false or misleading or (with respect to
information included in proxy statements) necessary to correct any statement or
any earlier communication with respect to the solicitation of a proxy for the
same meeting or subject matter which has become false or misleading.
(l) (i) Each of the pooled investment vehicles, other than the Funds,
for which any Subsidiary serves as investment adviser, administrator,
sub-adviser, commodity pool operator or
28
commodity trading adviser, or for which it acts as a general partner or managing
member (such pooled investment vehicles other than Funds being referred to
collectively as the "Investment Pools") is not an "investment company" within
the meaning of, or is otherwise exempt from registration under, the Investment
Company Act, and has offered and sold its securities pursuant to an applicable
exemption from the registration requirements of the Securities Act and has duly
registered or qualified its securities in accordance with, or has offered and
sold such securities pursuant to an available exemption under, all applicable
securities or blue sky laws of any jurisdiction, (ii) each of the Investment
Pools and each Fund, if any, that is a "commodity pool" within the meaning of
the Commodity Exchange Act, has been operated, and has offered all securities of
which it is the issuer, in accordance with the applicable requirements of such
act and the applicable rules and regulations of the CFTC and the National
Futures Association, and (iii) each of the Offshore Funds is duly licensed or
registered in each jurisdiction where such registration or license is required,
and has been operated, and has offered all securities of which it is the issuer,
in compliance with all applicable laws, rules and regulations to which it is
subject, except in the case of each of clauses (i) through (iii) above, for such
exceptions that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
(m) None of the current prospectuses, registration statements or
statements of additional information for the Funds, and none of the other
current offering materials for the Funds or the current offering materials for
any Investment Pool (including without limitation offering memoranda, private
placement memoranda, offering circulars, supplemental advertising, and marketing
material of the Funds and Investment Pools, or amendments or supplements to any
of them), in connection with the offering or sale of securities of any Fund or
Investment Pool, as of their respective dates and the dates when delivered to
investors or prospective investors, included any untrue statement of material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were or are made, not misleading, except to the extent any such
failure would not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect.
3.18 MATERIAL CONTRACTS. Section 3.18 of the Disclosure Schedule sets
forth a complete and correct list as of the date hereof of all of the following
contracts, agreements (written or oral), indentures, leases, mortgages, licenses
and instruments (collectively, "Contracts") to which any Subsidiary is a party
or under which any Subsidiary may be liable or to which the Company is a party
or under which the Company may be liable, in both cases, which relates to the
Business (other than (i) any Investment Contracts and (ii) any other contracts
entered into in the ordinary course of business consistent with past practices
in connection with the distribution of products):
(a) any Contract with any director or officer of any Subsidiary other
than (i) noncompetition and confidentiality agreements with such persons, (ii)
Contracts terminable by the Company upon no more than sixty (60) days' notice
without penalty or payment of any kind (other than amounts accrued through the
effective date of termination) and (iii) the Company Benefit Plans;
29
(b) any Contract that is a "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K promulgated by the SEC under the Exchange
Act) of any Subsidiary to be performed in whole or in part after the date of
this Agreement;
(c) any Contract that, after the Closing, will restrict the conduct of
any line of business by the Subsidiaries or upon consummation of the Sale will
restrict the ability of the Subsidiaries to engage in any line of business in
which they may lawfully engage (it being understood that the exceptions set
forth in clauses (i) and (ii) of the introductory paragraph of this Section 3.18
shall not apply to this Section 3.18(c));
(d) any Contract with a labor union (including any collective
bargaining agreement);
(e) except for the Retention Plan and the vesting of benefits under
qualified and non-qualified retirement and savings plans listed on Section 3.18
of the Disclosure Schedule, any Contract pursuant to which any of the benefits
of which will or could be increased, or the vesting of the benefits of which
will or could be accelerated, by the consummation of the Sale, or the value of
any of the benefits of which will or could be calculated on the basis of the
Sale;
(f) any Contract (other than the Company Benefit Plans) not otherwise
disclosed pursuant to this Section 3.18 calling for payments aggregating more
than $500,000, whether payable by or to any Subsidiary;
(g) any partnership, joint venture or other similar contract;
(h) any Contract (other than the Company Benefit Plans) not otherwise
disclosed pursuant to this Section 3.18 calling for payments aggregating
$500,000 or more with or for the benefit of any affiliate of the Company (other
than the Subsidiaries) other than as disclosed in Section 3.8 of the Disclosure
Schedule;
(i) any tax sharing, tax allocation, tax indemnity or similar Contract;
(j) any funding agreement, indenture, credit agreement, loan agreement,
note, mortgage, guarantee security agreement or other Contract for financing or
funding pursuant to which any Subsidiary is the obligor; and
(k) any Contract pursuant to which the Company or LFS acquired any
Subsidiary, any Subsidiary acquired another Subsidiary or any Subsidiary
acquired or agreed to acquire any of the capital stock or other equity interest
of another entity, or all or materially all of the assets of another entity,
except for Contracts of such nature under which neither the Company nor LFS nor
any Subsidiary has any obligations that are to be performed after the date of
this Agreement.
All of the foregoing are collectively referred to in this Agreement as
the "Material Contracts." To the extent that a Material Contracts is evidenced
by documents, copies thereof (including any amendments or waivers with respect
thereto) have been made available to the Purchaser. To the extent that a
Material Contract is not evidenced by documents, the Company has made available
to the Purchaser a written description of all of the material terms and
conditions of such Material Contract. Each Material Contract is in full force
and effect and is enforceable against the applicable Subsidiary in accordance
with its terms, except where the
30
failure to be in full force and effect or to be enforceable would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. There does not exist under any Material Contract any
default or condition or event that, after notice or lapse of time or both, would
constitute a default on the part of the Company or any Subsidiary or, to the
knowledge of the Company, on the part of any other parties to such Material
Contracts, except for such defaults, conditions or events that would not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Except as set forth in Section 3.4(a) of the Disclosure
Schedule, the execution, delivery and performance by the Company and LFS of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not conflict with, or result in the breach or termination of, any
provision of, or constitute a default (with or without the giving of notice or
the lapse of time or both) under, or give rise to any right of termination,
cancellation or loss of any benefit to which the Company or any Subsidiary is
entitled under any provision of a Material Contract.
3.19 VOTE REQUIRED. After the redemption or conversion of the Company's
Series A Redeemable Convertible Preferred Stock (the "Series A Preferred") as
contemplated by Section 5.17, the affirmative vote of the holders of a majority
of outstanding shares of the Common Stock of the Company (the "Shares") is the
only vote of the holders of any class or series of capital stock of the Company
necessary to approve the Sale under the MBCL and the Company's charters and
by-laws and other organizational documents.
3.20 KNOWLEDGE. For purposes of this Agreement and all certificates and
other documents delivered in connection herewith, the term "Company's
knowledge", "knowledge of the Company", "Company's best knowledge", "best
knowledge of the Company" or similar phrases shall mean the actual knowledge
(after giving effect to things actually forgotten) of the Chief Executive
Officer, Chief Financial Officer and General Counsel of the Company.
3.21 TAKEOVER STATUTES. Except as have been waived by the board of
directors of the Company, no "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation is applicable
to the transactions contemplated by this Agreement.
3.22 CERTAIN INTERCOMPANY TRANSFERS. All transactions reflected as
"Reclassifications from Corporate" on the pro forma balance sheet attached as
Section 3.22 of the Disclosure Schedule have been completed or, prior to the
Closing, will be completed by the Company.
3.23 ASSETS TRANSFERRED. Except for matters addressed in the Transition
Services Agreement, the Subsidiaries include the entire asset management
business conducted by the Company, LFS and their respective subsidiaries,
including all of their respective rights and assets in such business, including,
without limitation, all of the agreements between the Company, LFS or their
respective subsidiaries and distributors with respect to the sale of asset
management products.
3.24 ENVIRONMENTAL LIABILITY. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose or that could reasonably be
expected to result in the imposition, on a Subsidiary of any liability or
obligation arising under common law or under any local, state or federal
environmental statute,
31
regulation or ordinance, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
pending or threatened against the Company or a Subsidiary, which liability or
obligation would, individually or in the aggregate, be reasonably expected to
result in a Company Material Adverse Effect. There is no reasonable basis for
any such proceeding, claim, action or governmental investigation that would
impose any liability or obligation that would, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.
3.25 INSURANCE. The Subsidiaries are insured with reputable insurers
against such risks and in such amounts as the management of the Company
reasonably has determined to be prudent in accordance with industry practices,
except to the failure to be so insured would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect.
ARTICLE 4
CONDUCT OF BUSINESS
4.1 CONDUCT PRIOR TO CLOSING. Except as otherwise specifically
contemplated by this Agreement, as disclosed in Section 4.1 of the Disclosure
Schedule, as required in connection with the Sale, or as required by law, the
Company covenants and agrees that, unless the Purchaser shall otherwise consent
(which consent, in the case of subsections (viii), (ix), (x) and (xii) in
Section 4.1(b) below and, only as it relates to subsections (viii), (ix), (x)
and (xii), subsection (xv) in Section 4.1(b) below, shall not be unreasonably
withheld, delayed or conditioned) in writing, during the period from the date of
this Agreement until the earlier of the termination of this Agreement or the
Closing:
(a) The business of the Subsidiaries shall in all material respects be
conducted only in the ordinary course of business consistent with past
practices, and the Company shall use commercially reasonable efforts, to
maintain and preserve substantially intact in all material respects the business
organization, employees and advantageous business relationships of the
Subsidiaries;
(b) In addition, but without limiting the generality of the foregoing,
the Company shall not, or shall cause the Subsidiaries not to, as applicable,
directly or indirectly do any of the following:
(i) issue or sell, or authorize or agree to the issuance or sale
of, any shares of, or any options or rights of any kind to acquire any shares
of, or any securities convertible into or exchangeable or exercisable for any
shares of, capital stock of any class of any Subsidiary;
(ii) acquire, transfer, sell, lease, pledge or encumber any assets
material to any Subsidiaries;
(iii) amend the charter or by-laws or similar organizational
documents of any of the Subsidiaries;
32
(iv) split, combine or reclassify any shares of the capital stock
of the Subsidiaries or declare, set aside for payment or pay any dividend or
distribution, payable in cash, stock, property or otherwise, with respect to any
of the capital stock of any of the Subsidiaries, other than, with respect to
dividends or distributions, cash dividends and distributions by a Subsidiary to
another Subsidiary;
(v) except in compliance with Section 5.5, enter into an agreement
with respect to any merger, consolidation, liquidation or business combination
involving any Subsidiary, or any acquisition or disposition of all or
substantially all of the assets or securities of any of the Subsidiaries;
(vi) except in compliance with Section 5.5, enter into an agreement
with respect to the disposition a material amount of assets of any Subsidiary,
or any release or relinquishment of any material contract rights of any
Subsidiary;
(vii) with respect to any Subsidiary, (A) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof or (B) make any material
investment either by purchase of stock or securities, contributions to capital
(other than to wholly-owned Subsidiaries), property transfer or purchase of any
property or assets of any other individual or entity;
(viii) with respect to any Subsidiary, (A) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for, the obligations of any
other individual or entity, or (B) make any loans or advances other than in the
ordinary course of business consistent with past practices and, with respect to
both (A) and (B) on a combined basis, not in excess of $2,000,000 in the
aggregate;
(ix) (A) permit any Subsidiary to enter into any new Contract that
would satisfy the definition of Material Contract if in effect on the date
hereof and that would obligate the Subsidiaries to pay an amount in excess of
$500,000 or (B) terminate, amend, modify or waive compliance of any provision of
any Material Contract in any respect materially adverse to any of the
Subsidiaries;
(x) except as set forth in Section 4.1 of the Disclosure Schedule,
make or change any material Tax election, release, assign, settle or compromise
any material Tax liability, dispute or controversy, or waive any statute of
limitations for any Tax claim or assessment unless such action would not
reasonably be expected to increase the Tax liability of the Subsidiaries or the
tax sharing obligation of any Subsidiary under this Agreement;
(xi) subject to applicable fiduciary responsibilities to the Funds,
the Offshore Funds and the Investment Pools, cause any Fund, Offshore Fund or
Investment Pool to make or change any material Tax election, release, assign,
settle or compromise any Tax liability, dispute, or controversy, or waive any
statute of limitations for any Tax claim or assessment;
(xii) except as may be required as result of a change in law,
regulation or in generally accepted accounting principles, change any accounting
principles or practices used by any Subsidiary;
33
(xiii) release, assign, settle or compromise any material claim or
litigation relating to any Subsidiary;
(xiv) with respect to any Subsidiary, pay, discharge or satisfy any
claims, liabilities or obligations, other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practices;
and
(xv) agree or commit to do any of the foregoing.
(c) Neither the Company nor any Subsidiary, except as may be required
by their respective fiduciary duties or as contemplated by this Agreement, will
seek to cause any Fund Board to take any action with respect to any Fund other
than in the ordinary course of business of such Fund.
(d) Neither the Company nor any of the Subsidiaries shall adopt or
amend in any material respect (except as may be required by law or permitted
under this Agreement) any bonus, profit sharing, compensation, stock option,
stock purchase, pension, retirement, deferred compensation, or other employee
benefit plan, agreement, trust, fund or other arrangement for the benefit or
welfare of any director, officer or employee or former director, officer or
employee of any Subsidiary (other than commercially reasonable arrangements
entered into with any new hires) or increase the compensation or fringe benefits
of any employee or former director, officer or employee of any Subsidiary or pay
any benefit not required by any existing plan, arrangement or agreement, except
compensation increases for employees and non-executive officers in the ordinary
course of business consistent with past practices.
(e) Neither the Company nor any of the Subsidiaries shall take any
action with respect to the grant of any severance or termination pay or with
respect to any increase of benefits payable under its retention, severance or
termination pay policies in effect on the date hereof with respect to employees
of any of the Subsidiaries. The Company shall not amend or modify the Retention
Plan after the date hereof to the extent any such amendment or modification
relates to employees of the Subsidiaries or increases the costs to the Purchaser
or any of the Subsidiaries under Section 5.11 hereof. The Company has made
available to the Purchaser a true and complete copy of the Retention Plan.
(f) Other than in the ordinary course of business consistent with past
practices and except as otherwise required or permitted pursuant to this
Agreement, neither the Company nor any Subsidiary shall (i) enter into any
transaction, agreement or arrangement with, or make any payment to, any
affiliate which would be required to be disclosed on Section 3.8 of the
Disclosure Schedule, if such transaction, agreement, arrangement or payment had
existed as of the date of this Agreement, or (ii) modify or amend any of the
matters disclosed on Section 3.8 of the Disclosure Schedule.
4.2 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to the Purchaser, upon obtaining knowledge of the occurrence, or failure
to occur, of any event which occurrence or failure to occur causes (x) any
representation or warranty made by the Company and contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Closing or (y) any material failure of the Company or of any
officer,
34
director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall be deemed to
cure any breach or otherwise affect the representations or warranties of the
Company or the conditions to the obligations of the parties hereunder. The
Purchaser shall give prompt notice to the Company, upon obtaining knowledge of
the occurrence, or failure to occur, of any event which occurrence or failure to
occur causes (x) any representation or warranty made by the Purchaser contained
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Closing or (y) any material failure of the
Purchaser, or of any officer, director, employee or agent thereof, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that no such
notification shall be deemed to cure any breach or otherwise affect the
representations or warranties of the Purchaser or the conditions to the
obligations of the parties hereunder.
4.3 ACCESS TO INFORMATION. Except as prohibited by confidentiality
agreements to which the Company or a Subsidiary is a party or as restricted
under applicable law or to the extent the Company reasonably believes the same
would result in the disclosure of any trade secrets of third parties, the
Company shall, and shall cause the Subsidiaries, and the Company's and
Subsidiaries' respective officers, directors, employees and agents to, afford to
the Purchaser and to the officers, employees and agents of the Purchaser
reasonable access upon reasonable notice and at mutually agreeable times, to the
Company's and any Subsidiary's officers, employees, agents, properties, books,
records and contracts, and shall furnish the Purchaser such financial, operating
and other data and information as the Purchaser, through its officers, employees
or agents, may reasonably request. All such information shall be governed by the
Confidentiality Agreement (as defined below).
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF PROXY STATEMENT. The Company shall prepare, in
cooperation with LMIC and the Purchaser, the Proxy Statement and use its
commercially reasonable efforts to obtain and furnish the information required
to be included by it in the Proxy Statement, shall file the Proxy Statement with
the SEC, and respond promptly to any comments made by the SEC with respect to
the Proxy Statement and any preliminary version thereof and cause the Proxy
Statement to be mailed to the Company's Stockholders at the earliest practicable
time following the execution of this Agreement. The Purchaser and its counsel
shall be given reasonable opportunity to review and discuss with the Company's
counsel the Proxy Statement prior to its filing with the SEC, and shall be
provided with any comments that the Company and its counsel may receive from the
SEC or its staff with respect to the Proxy Statement promptly after receipt of
such comments. If prior to the Closing any event shall occur which is required
to be set forth in an amendment or a supplement to the Proxy Statement, the
Company will promptly prepare and mail to the Company's Stockholders such an
amendment or supplement, provided, however, that, with respect to any event or
information relating to the Purchaser giving rise to such requirement, the
Purchaser shall have notified the Company thereof in a timely fashion.
5.2 BOARD RECOMMENDATION. Except to the extent otherwise permitted
pursuant to Section 5.5 below, the Company through its Board of Directors shall
recommend the
35
authorization of the Sale in the Proxy Statement, shall take all steps necessary
to duly call, give notice of, convene and hold, and use its commercially
reasonable efforts to obtain the necessary authorization of the Sale by the
Company's Stockholders at a stockholders' meeting (including any adjournments
thereof, the "Company Stockholders' Meeting") as promptly as practicable
following the execution of this Agreement.
5.3 FEES AND EXPENSES.
(a) Except as otherwise provided in Section 7.5, each party shall bear
all of the fees and expenses incurred by it in connection with the negotiation
and performance of this Agreement (it being understood that the Company shall
bear all of the fees and expenses of the Company, LFS and the Subsidiaries), and
neither party may recover any such fees and expenses from the other party upon
any termination of this Agreement, provided, however, that (i) so long as the
Closing shall occur, the Purchaser shall pay one-half of the reasonable costs of
printing and mailing the Proxy Statement to the Company's Stockholders,
provided, however, that the Purchaser shall pay one-quarter of such costs if the
Proxy Statement includes a solicitation of approval of the Annuity Sale and (ii)
the Purchaser shall pay one-half of (A) the reasonable costs of preparing,
printing and mailing to the shareholders of the Funds the proxy material
contemplated by Section 5.7, (B) the reasonable fees and expenses of counsel to
the Funds in connection with the transactions contemplated by this Agreement,
including, without limitation, the approvals contemplated by Section 5.7, (C)
the reasonable costs of a solicitor for each of the Funds and (D) the reasonable
costs incurred in connection with the actions contemplated by Sections 5.7(d)
and (e).
(b) The provisions contained in this Section 5.3 shall survive any
termination of this Agreement.
5.4 ADDITIONAL AGREEMENTS. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto agrees to use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement, and to cooperate with each of the other parties hereto in connection
with the foregoing, including using commercially reasonable efforts: (A) to
obtain all authorizations, consents and approvals required by the Applicable
Laws; and (B) to lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby. Each party agrees to use commercially
reasonable efforts to fulfill all conditions to this Agreement. For purposes of
the foregoing and the provisions of Sections 5.7 and 5.11, the obligation of the
Company and the Purchaser to use "commercially reasonable efforts" or
"reasonable efforts" to obtain waivers, consents and approvals shall not
include, with respect to loan agreements, leases and other contracts agreeing to
a material modification of the terms of such documents, except as expressly
contemplated hereby, or making any material guaranty or material monetary
payment in consideration of such waiver, consent or approval.
36
5.5 NO SOLICITATION.
(a) During the period from the date of this Agreement and until the
earlier of the Closing or the termination of this Agreement, none of the
Company, LFS or any of the Subsidiaries or any of their respective affiliates,
subsidiaries, officers, directors, employees, representatives and agents
(including, without limitation the Financial Advisor) shall, directly or
indirectly, (i) solicit or initiate any proposals or offers from any
corporation, partnership, person or other entity or group other than the
Purchaser or an affiliate of the Purchaser (a "Third Party") concerning any
acquisition, consolidation, tender or exchange offer, merger, business
combination, sale of securities or substantial assets of any of the Subsidiaries
or any other transaction that would result in the sale of all or any of the
Subsidiaries or the Business (other than sales of assets in the ordinary course
of business) or that would otherwise adversely affect the ability of the
Company, LFS and the Purchaser to consummate the Sale (any such transaction
being referred to herein as an "Acquisition Proposal"); or (ii) have any
discussions or negotiations with or provide any non-public or confidential
information to any Third Party relating to any inquiry, proposal or offer
concerning an Acquisition Proposal; provided, however, that the term Acquisition
Proposal shall not include, and this Agreement shall not limit the Company or
any of its subsidiaries with respect to, any proposal for a transaction with
respect to the Company or any of its subsidiaries or any portion of the Company
or any of its subsidiaries not including any of the Subsidiaries or the
Business, regardless of the form of such transaction, so long as such proposal
or transaction would not adversely affect the ability of the Company and LFS and
the Purchaser to consummate the Sale. Notwithstanding the foregoing, the
Company, LFS, the Subsidiaries, and their respective affiliates, subsidiaries,
officers, directors, employees, representatives and agents (i) may furnish or
cause to be furnished information concerning the Company's, LFS's and their
respective subsidiaries' businesses, properties or assets to a Third Party
(subject to such Third Party executing a confidentiality agreement on terms no
less favorable in the aggregate to the Company than those in the Confidentiality
Agreement between the Purchaser and the Company dated December 13, 2000 (the
"Confidentiality Agreement"), and may enter into, participate in, conduct or
engage in discussions or negotiations with such Third Party, if and only to the
extent that in connection with this clause (i) the Board of Directors of the
Company shall have determined in good faith, after consultation with its
external financial advisors and external legal counsel, that such actions are
necessary in order for the directors to comply with their fiduciary duties under
applicable law, (ii) may take any position with respect to an Acquisition
Proposal in accordance with Rules 14d-9 and 14e-2 under the Exchange Act (or any
similar communication to stockholders in connection with the making or amendment
of a tender offer or exchange offer) and may make disclosure to the Company's
Stockholders if, in the good faith judgment of the Board of Directors of the
Company, after consultation with its external financial advisors and external
legal counsel, failure to so disclose would be inconsistent with its obligations
under applicable law; and (iii) may, only in the case of a Qualified Acquisition
Proposal and only in compliance with the provisions of Section 5.5(c), enter
into one or more agreements to consummate a Qualified Acquisition Proposal. As
used herein, "Qualified Acquisition Proposal" means a bona fide written
Acquisition Proposal or Acquisition Proposals to either (x) acquire all or
substantially all of the capital stock or assets of the Subsidiaries as a whole
on terms and subject to conditions that the Company's Board of Directors
believes in good faith, taking into account all of the terms and conditions of
such Acquisition Proposal or Acquisition Proposals, would, if consummated, be
superior to the Sale and in the best interests of the Company's Stockholders or
(y) acquire all or substantially all of the capital stock or assets of the
Company on terms and
37
subject to conditions that the Company's Board of Directors believes in good
faith, taking into account all of the terms and conditions of such Acquisition
Proposal or Acquisition Proposals, would, if consummated, be in the best
interests of the Company's Stockholders; provided, however, that if any of the
Company or the Subsidiaries, or any of their respective affiliates,
subsidiaries, officers, directors, employees, representatives or agents have
breached any provision of this Section 5.5 in any respect (other than an
inadvertent breach) in connection with the receipt of such bona fide written
Acquisition Proposal, such Acquisition Proposal shall not be deemed to be a
Qualified Acquisition Proposal.
(b) The Company will promptly (and in no event later than 36 hours
after receipt) notify the Purchaser in writing of, and will disclose to the
Purchaser all material details (including, without limitation, the identity of
the Third Party making such Acquisition Proposal) of, any Acquisition Proposal,
whether oral or written, that any of the Company, LFS or the Subsidiaries or any
of their respective affiliates, subsidiaries, officers, directors, employees,
representatives or agents (including, without limitation, the Financial Advisor)
receives. If any of the Company, LFS or the Subsidiaries or any of their
respective affiliates, subsidiaries, officers, directors, employees,
representatives or agents furnishes any nonpublic information or confidential
information to any Third Party pursuant to Section 5.5(a), the Company shall
provide the Purchaser on a concurrent basis with copies of or access to such
information.
(c) Except as expressly permitted by this Section 5.5(c), neither the
Company's Board of Directors nor any committee thereof shall or shall resolve to
(i) not recommend or withdraw its approval or recommendation, of the Sale, (ii)
modify or qualify such approval or recommendation in a manner adverse to the
Purchaser, (iii) approve or recommend any proposed Acquisition Proposal or (iv)
cause the Company to enter into any letter of intent, agreement in principle,
merger agreement, acquisition agreement, option agreement or other similar
agreement relating to an Acquisition Proposal. Notwithstanding the foregoing, if
prior to the Company's Stockholders' Meeting the Board of Directors of the
Company determines in good faith, after it has received a Qualified Acquisition
Proposal and after consultation with external legal counsel, that it must take
such action to comply with its fiduciary duties to the Company's stockholders
under applicable law, then the Company's Board of Directors may (subject to this
sentence) take any of the actions contemplated by clauses (i), (ii), (iii) and
(iv) of the immediately preceding sentence (a "Subsequent Action") and terminate
this Agreement pursuant to Section 7.1(c), but only if (x) the Company delivers
to the Purchaser a written notice advising the Purchaser that the Company's
Board of Directors has received a Qualified Acquisition Proposal and specifying
the material terms and conditions of such Qualified Acquisition Proposal,
identifying the person making such Qualified Acquisition Proposal and stating
that, not earlier than the third Business Day following receipt by the Purchaser
of such notice, the Company's Board of Directors intends to take a Subsequent
Action; (y) during such three Business Day period, the Company shall have
considered, and shall have caused its affiliates, subsidiaries, officers,
directors, employees, representatives and agents to have considered, in good
faith any adjustments in the terms and conditions of this Agreement that the
Purchaser may propose; and (z) the Purchaser does not, within such three
Business Day period, offer to make such adjustments in the terms and conditions
of this Agreement or other proposals regarding the Company such that the
Company's Board of Directors determines in its good faith judgment (after
consultation with the Financial Advisor or another independent financial advisor
of nationally recognized reputation)
38
that this Agreement, together with such adjustments offered by the Purchaser, is
at least as favorable to the Company's Stockholders as such Qualified
Acquisition Proposal.
(d) The Company shall immediately cease and cause to be terminated any
activities, discussions, or negotiations, existing on the date hereof, with any
Third Party with respect to any Acquisition Proposal or that may reasonably be
expected to lead to an Acquisition Proposal.
5.6 GOVERNMENTAL FILINGS. Each of the parties hereto shall use
commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings and to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all Necessary Regulatory Consents, with respect to the
Company, and the Purchaser Regulatory Consents, with respect to the Purchaser.
The Company shall promptly provide the Purchaser (or its counsel) with copies of
all filings made by the Company or LFS with the SEC or the NASD (or any other
self-regulatory organization or agency) or any other state or federal Government
Entity in connection with this Agreement and the Sale. The Purchaser shall
promptly provide the Company (or its counsel) with copies of all filings made by
them with the SEC or any other state or federal Government Entity in connection
with this Agreement and the transactions contemplated hereby. Subject to
applicable laws relating to the exchange of information, the Company and the
Purchaser shall have the right to review in advance, and to the extent
practicable each will consult the other with respect to all information relating
to the Subsidiaries or the Purchaser, as the case may be, and any of their
respective subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or Government Entity in connection
with the Sale and the other transactions contemplated by this Agreement.
5.7 APPROVAL OF NEW FUND CONTRACTS.
(a) The Purchaser, LFS and the Company recognize that the Sale shall
constitute an assignment and termination of certain of the Investment Contracts
and the underwriting agreement for each Fund under the terms thereof and the
Investment Company Act. The Company will, and the Purchaser will use all
commercially reasonable efforts to cooperate to, solicit the approval ("Fund
Board Resolutions") of each of the Fund Boards, in accordance with the
requirements of the Investment Company Act and subject to the terms of Section
5.10, with respect to the Fund Transactions pertaining to such Fund. The term
"Fund Transactions", with respect to a Fund, means (i) adoption by or on behalf
of such Fund of (A) an investment management agreement with the applicable
Subsidiary (which agreement shall be in form and substance substantially
identical to such Fund's existing investment management agreement with such
Subsidiary), (B) an underwriting agreement on behalf of such Fund with Liberty
Funds Distributor, Inc., a Massachusetts corporation and a Subsidiary of the
Company ("LFDI") (which agreement shall be in form and substance substantially
identical to LFDI's existing underwriting agreement with such Fund), provided,
however, that this clause (B) shall not apply to any Fund which as of the date
hereof does not have an underwriting agreement with LFDI, and (C) administrative
services, transfer agency services and pricing and bookkeeping services
agreements with the applicable Subsidiaries with respect to other services
provided to the Funds (which agreements shall be in form and substance
substantially identical to such Funds' existing agreements with such
Subsidiaries for such services) and (ii) all required actions under federal or
state securities laws in connection with the foregoing.
39
(b) The Purchaser and the Company will expeditiously use all
commercially reasonable efforts and cooperate to (i) cause to be prepared and
filed with the SEC, cleared by the SEC, and mailed to the shareholders of the
Funds, proxy statements pertaining to such of the Fund Transactions as may
require approval of such shareholders under the Investment Company Act, such
proxy statements to contain all required information and disclosures and to be
subject to the Purchaser's review and approval, which will not be unreasonably
withheld or delayed, (ii) cause special meetings of the shareholders of the
Funds to be called to vote on such Fund Transactions and (iii) cause the
shareholders of the Funds to approve such Fund Transactions.
(c) The Purchaser and its affiliates will provide to the Trustees of
the respective Funds, their counsel and the Company all information regarding
them and the applicable Fund Transactions reasonably requested in connection
therewith.
(d) The Purchaser and the Company will use commercially reasonable
efforts and cooperate to solicit approval of the governing boards of each of the
Offshore Funds, and each of their respective regulatory bodies, as appropriate,
with respect to the transactions contemplated by this Agreement. The term
"Offshore Fund" shall mean those entities listed in Section 5.7(d) of the
Disclosure Schedule.
(e) The appropriate Subsidiary shall inform each of its Non-Fund
Clients in writing of the transactions contemplated by this Agreement by sending
such client a notice of and will use commercially reasonable efforts to seek
such client's consent to the continuation of its investment advisory agreements
with such Subsidiary following consummation of the transactions contemplated
hereby, which notice shall be subject to the Purchaser's review and approval,
which will not be unreasonably withheld or delayed. To the extent consistent
with applicable law or SEC pronouncements, such consent may take the form of a
so-called implied or negative consent; provided that, in order for such implied
or negative consent to be deemed a consent for purposes of this Agreement, the
Company or the appropriate Subsidiary shall have provided, prior to the Closing
Date, at least sixty (60) days prior written notice of the transactions
contemplated by this Agreement to each Non-Fund Client in accordance with the
Investment Advisers Act. The Purchaser and its affiliates will provide to the
Company all information regarding them reasonably required in connection
therewith.
(f) Subject to applicable fiduciary duties to the Funds, the Offshore
Funds and the Investment Pools, the Company will use commercially reasonable
efforts to ensure that the Funds, the Offshore Funds and the Investment Pools
take no action (i) that would prevent any Fund from qualifying as an RIC, (ii)
that would cause any Offshore Fund to be subject to taxation on a net income
basis under the Code or (iii) that would be inconsistent with any Fund's or
Offshore Fund's or Investment Pool's prospectus and other offering, advertising
and marketing materials.
5.8 INDEMNIFICATION. The Purchaser agrees that all rights to
indemnification, advancement of expenses, exculpation, limitation of liability
and any and all similar rights now existing in favor of the employees, agents,
directors or officers of the Subsidiaries (the "Indemnified Parties") as
provided in the charter or by-laws of the Company or in the respective charters
or by-laws or other agreements of the Subsidiaries in effect on the date hereof
(copies of which have been made available to the Purchaser), shall survive the
Sale and shall continue in
40
full force and effect for a period of six years from the Closing; provided,
however, that if any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect to any such claim or claims
shall continue until the disposition of any and all such claims.
5.9 FAIR PRICE STRUCTURE. If any "fair price" or "control share
acquisition" or "anti-takeover" statute, or other similar statute or regulation
or any state "blue sky" statute shall become applicable to the transactions
contemplated hereby, the Company and the Company's Board of Directors shall
grant, subject to the terms of this Agreement, such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
and thereby may be consummated as promptly as practicable on the terms
contemplated hereby and thereby, and otherwise act to minimize the effects of
such statute or regulation on the transactions contemplated hereby or thereby.
5.10 CERTAIN POST-SALE FUND MATTERS. The Purchaser acknowledges that
the Sale is intended to qualify for the treatment described in Section 15(f) of
the Investment Company Act. In this regard, the Purchaser shall, and from and
after the Closing shall cause each of the Subsidiaries to, (i) use all
reasonable efforts to assure that, for a period of three years after the
Closing, at least 75% of the members of each Fund Board or any permitted
successor thereto are not "interested persons" of the Company or the Purchaser,
as that term is defined under applicable provisions of the Investment Company
Act and interpreted by the SEC; such efforts to include causing any employee,
officer, director or agent of the Company or any Subsidiary, any affiliate of
the Company, the Purchaser or any affiliate of the Purchaser who shall be a
director or trustee of any fund to resign when otherwise required to maintain
such percentage, (ii) refrain from imposing or seeking to impose, for a period
of two years after the Closing, any "unfair burden" on any Fund, within the
meaning of the Investment Company Act as a result of the Sale or any express or
implied terms, conditions or understandings applicable thereto, and (iii) use
all reasonable efforts to ensure that all vacancies on any Fund Board due to the
resignation or removal of a trustee who is not an "interested person" of the
Purchaser, the Company or any Subsidiary shall be filled by a person who is not
a "interested person" of the Purchaser, the Company or any Subsidiary and who
has been selected and proposed for election by a majority of the Directors or
Trustees who are not such "interested persons." The Purchaser agrees to (or the
Purchaser shall cause the Subsidiaries to) indemnify and hold harmless the
Company and its affiliates from and against any lawsuit, judgment, claim, action
or proceeding of any nature based upon any violation of Section 15(f) of the
Investment Company Act, except to the extent that such violation arises as a
result of the representation and warranty in Section 3.17(d) not being true
immediately prior to the Closing.
5.11 CONTINUING EMPLOYEES.
(a) Effective as of the Closing, each Subsidiary shall cease to be a
participating employer in the Company Benefit Plans (other than Company Benefit
Plans which as of the date of this Agreement are sponsored by the Subsidiaries
solely for the benefit of employees of the Subsidiaries (the "Subsidiary Benefit
Plans")) and, on or after the Closing Date, the Purchaser and the Subsidiaries
shall have no obligations or liabilities to, under or with respect to any
Company Benefit Plan, other than the Subsidiary Benefit Plans, including without
limitation any responsibility as alleged successor or otherwise for the
provision of COBRA under any group health plan which is a Company Benefit Plan
but not a Subsidiary Benefit Plan. The Company
41
will take all action necessary or appropriate so that each Business Employee (as
defined in Section 5.11(b) below) will be fully vested in his or her accrued
benefit under the Company's Pension Plan as of the Closing Date.
(b) For all periods after the Closing, the Purchaser will provide (or
cause to be provided) to each employee of any of the Subsidiaries who continues
his or her employment after the Closing (the "Business Employees") employee
benefit plans, agreements, programs, policies and arrangements (the "Purchaser's
Plans") that are substantially comparable in the aggregate to the corporate
level employee benefits maintained from time to time by the Purchaser for its
similarly situated corporate level employees. Notwithstanding the preceding
sentence, (i) the Purchaser shall not be required to provide any benefit to any
Business Employee to the extent the provision of such benefit would result in
the duplication of benefits, (ii) the Purchaser shall be permitted to provide to
Business Employees benefits under employee welfare benefit plans which are
substantially comparable to those provided to such Business Employees under
Company Benefit Plans which are employee welfare benefit plans immediately prior
to the Closing Date, and (iii) for purposes of the "substantially comparable"
requirement set forth in the first sentence of this Section 5.11(b), any
continuation of a Subsidiary Benefit Plan will be considered the provision of
benefits of the type addressed by such Plan which are substantially comparable
to the Purchaser's corporate level benefits of the same type. For the purposes
of any of the Purchaser's Plans for which the benefits depend on length of
service for eligibility and vesting purposes and for all other benefits for
which benefit levels depend on length of service (but not benefit accrual
purposes under any defined benefit pension plan), the Purchaser shall give (or
cause to be given) to each continuing Business Employee full credit for past
service as of the Closing Date with the Company, LFS and/or the Subsidiaries and
for any additional periods for which the Company, LFS and/or a Subsidiary has
previously granted the Business Employee with service credit for comparable
benefit purposes under a corresponding Company Benefit Plan ("Prior Service").
In addition, and without limiting the generality of the foregoing: (i) each
Business Employee shall be given credit for Prior Service for purposes of
eligibility to participate, satisfaction of any waiting periods, evidence of
insurability requirements, or the application of any pre-existing condition
limitations and shall be given credit for amounts paid under a corresponding
Company Benefit Plan during the same period for purposes of applying
deductibles, co-payments and out-of-pocket maximums as though such amounts had
been paid in accordance with the terms and conditions of the Purchaser's Plans.
Nothing in this Section 5.11 shall prevent Purchaser or the Subsidiaries from
terminating the employment of any of the Business Employees at any time after
the Closing.
(c) Effective as of the Closing Date, the Purchaser shall establish or
designate one or more defined contribution plans maintained by the Purchaser or
its affiliates (which may include Subsidiary Benefit Plans) in which, subject to
the terms and conditions of such plan (taking into account the provisions of
this Section 5.11), Business Employees shall be eligible to participate (the
"Purchaser's Defined Contribution Plan"). The Company sponsors the Liberty
Financial Companies, Inc. Savings and Investment Plan (the "Companies' Defined
Contribution Plan"). Subject to the provisions of this Section 5.11(c), the
Company and the Purchaser shall take (or cause to be taken) all actions
necessary to cause the assets and, to the extent of the assets transferred, the
liabilities of the Companies' Defined Contribution Plan attributable to the
accrued benefits of Business Employees to be transferred from the trustee of the
Companies' Defined Contribution Plan to the trustee of the Purchaser's Defined
Contribution Plan. However,
42
no transfer of assets or liabilities shall occur with respect to any Business
Employee whose annuity starting date occurs prior to the effective date of the
transfer and further Purchaser's Defined Contribution Plan shall not be required
to accept any transfer of assets or liabilities unless the effective date
thereof, determined under this Section 5.11(c), is within six (6) months of the
Closing Date. The assets to be transferred pursuant to the preceding sentence
shall consist solely of cash and promissory notes evidencing outstanding loans
to Business Employees. The transfer of assets and liabilities from the
Companies' Defined Contribution Plan to the Purchaser's Defined Contribution
Plan shall conform in all respects with Section 411(d)(6) and 414(1) of the
Code. No transfer of assets and liabilities from the Companies' Defined
Contribution Plan to the Purchaser's Defined Contribution Plan shall occur
before the latest of (i) the Closing Date, (u) the date on which the IRS issues
a favorable determination letter with respect to the Companies' Defined
Contribution Plan, which letter addresses said Plan's compliance with applicable
law through the effective date of the transfer, and the Company has taken all
actions required by the IRS as a condition of such favorable determination
letter, and (iii) 90 days after the Company shall have provided the Purchaser
with such evidence as it may reasonably request to establish both (A) that as of
the effective date of the transfer Purchaser's Defined Contribution Plan will
have no obligation to offer any annuity form of distribution with respect to the
accrued benefits then to be transferred and (B) that Business Employees have
been provided with a summary of any plan amendment necessary to eliminate all
annuity forms of distribution from the Companies' Defined Contribution Plan and
that satisfies the requirements of ERISA and applicable Department of Labor
regulations relating to summaries of material modifications.
(d) Notwithstanding the foregoing provisions of this Section 5.11, the
Purchaser and the Company shall, prior to the Closing Date, cooperate and
negotiate in good faith to achieve further agreements relating to the
establishment of and/or the transition or transfer of employee benefit plans;
such further agreements may include, without limitation, arrangements intended
(i) to facilitate the Purchaser's establishing the Purchaser's Plans relating to
the Business Employees on or as of the Closing Date; (ii) to enable the
Purchaser or any Subsidiary to continue participation in any Company Benefit
Plan for a specified period after the Closing Date; (iii) to transfer from the
Company to the Purchaser or any Subsidiary after the Closing Date a portion or
all of the assets or liabilities or any policies, contracts or other properties,
rights or obligations of any Company Benefit Plan; provided, however, that any
such transfer shall be effected in a manner that is consistent with the best
interests of all participants in the applicable Company Benefit Plan. The
primary objectives of the parties in cooperating and negotiating any such
further agreements shall be to provide for uninterrupted coverage of employees
under appropriate employee benefit plans from and after the Closing Date and to
provide for transfers of Company Benefit Plans or elements of Company Benefit
Plans where such transfers shall be beneficial to employees and not unduly
costly or otherwise burdensome to the Company and/or LFS, the Purchaser, any
Subsidiary or any other participants in such Company Benefit Plans. The
foregoing provisions of this Section 5.11(d) notwithstanding, no such further
agreement with respect to employee benefit plans shall be effective unless and
until it has been set forth in a written agreement duly executed on behalf of
the Company and the Purchaser.
(e) Notwithstanding the foregoing provisions of this Section 5.11, as
of the Closing each of the Purchaser and the Subsidiaries shall pay and perform
or cause their affiliates to pay and perform, all of the obligations with
respect to the employees and former employees of the
43
Subsidiaries (other than persons that the Company has transferred to the Company
or to direct or indirect subsidiaries of the Company other than the
Subsidiaries) under each of (i) Sections 2 and 6 of the Retention Plan
(pertaining to severance and Gross-Up Payments (as such term is defined in the
Retention Plan)) and (ii) the Deferred Compensation Obligations; provided,
however, that the Company shall pay and perform all obligations to such persons
under Sections 3, 4 and 5 of the Retention Plan (pertaining to retention
bonuses, stock options and restricted stock), and the Company acknowledges and
agrees that none of the Purchaser or any of the Subsidiaries are assuming any
obligations with respect to such provisions; provided, further, that the
Purchaser and the Subsidiaries (and not the Company) shall be responsible for
the entire amount of any Gross-Up Payments. In addition, the Company shall be
responsible for the payment of a pro-rata portion of any 2001 bonuses for the
period prior to the Closing Date and the Purchaser shall be only be responsible
for the payment of that portion of any 2001 bonuses applicable to the period
after the Closing Date. The Company shall administer the Retention Plan in
accordance with the terms thereof and, following the Closing, shall (to the
extent it continues to administer the Retention Plan with respect to the
Business Employees) shall consult with the Purchaser before making any
determinations thereunder. The Purchaser shall provide reasonable administrative
assistance to the Company in connection with the making of payments pursuant to
Sections 3, 4 and 5 of the Retention Plan and payments of bonuses pursuant to
the immediately preceding sentence. The Company and the Purchaser shall allocate
the "base amount" of parachute payments made or to be made to (or for the
benefit of) any "disqualified individual" (in each case, as defined in Section
280G of the Code) in accordance with prop. Treasury Regulation 1.280G-1 (Q&A
38); provided that all parachute payments made or to be made to (or for the
benefit of) that individual, including, without limitation, any Gross-Up
Payments, shall be taken into account for purposes of such allocation. Except
for the obligations with respect to the Retention Plan and the Deferred
Compensation Obligations set forth in the immediately preceding sentence,
nothing in this Section 5.11 shall in any way restrict the ability of the
Purchaser or any Subsidiary to terminate any employee benefit plan, policy,
program or arrangement after the Closing Date in accordance with the terms
thereof. No Business Employee's election to defer the receipt of compensation
shall cause the Purchaser to become responsible for any payment of compensation
under the Retention Plan for which the Company is otherwise responsible under
this Agreement. To effect any such deferral for which the Company is
responsible, the Company shall make the payment to the Purchaser of the amount
otherwise due to the Business Employee at the time otherwise due to the Business
Employee absent the deferral; the Purchaser or the Subsidiaries shall pay or
cause to be paid to such Business Employee in accordance with the terms of the
applicable deferral arrangement such amount, together with all interest and
investment increment due thereon, at the time due under such Business Employee's
deferral election. The Company agrees that after the Closing it will retain in a
segregated account funds sufficient to satisfy its obligations under Section 3
of the Retention Plan.
5.12 TAX MATTERS.
(a) Subject to the provisions of this Section 5.12, the Company and LFS
shall cause each tax allocation or sharing agreement or arrangement, whether or
not written, that may have been entered into by the Company and any Subsidiary,
to be terminated as to such Subsidiary to the extent it relates to such
Subsidiary as of or after the Closing Date, and no payments which would be owed
by or to such Subsidiary pursuant thereto shall be made thereunder.
44
(b) (i) The Company shall cause the Subsidiaries with which the Company
and/or LFS files a consolidated federal income tax return or combined or unitary
state tax return to pay distributions, whether denominated as dividends,
payments pursuant to tax sharing agreements or otherwise (the "Tax
Distributions") to the Company and/or LFS prior to the close of business on the
fourth Business Day prior to the Closing Date that are equal to the liabilities
for current Taxes shown in the Final Calculations. Notwithstanding the
foregoing, any such liabilities referred to in the preceding sentence, which are
not paid by the Subsidiaries prior to the Closing, shall be satisfied by the
Purchaser through an adjustment to the Purchase Price pursuant to Section
1.2(b)(iv).
(ii) The Company and/or LFS shall make a payment to each Subsidiary
prior to the close of business on the fourth Business Day prior to the Closing
Date that is equal to that Subsidiary's current Tax assets shown in the Final
Calculations.
(c) RESPONSIBILITY FOR TAXES--INCOME TAXES
(i) Subject to Sections 1.2(b)(iv) and 5.12(b), the Company and
LFS, jointly and severally, shall be responsible for and shall pay (and shall
indemnify and hold Purchaser harmless from and against) all federal, state,
local, or foreign Income Taxes (as defined below) of each Subsidiary (and of any
affiliated, consolidated, combined, unitary, or other similar group that
includes any Subsidiary) attributable to:
(A) any Tax period ending on or prior to the Closing Date,
including without limitation (x) any Income Taxes described in clauses (ii) and
(iii) of the definition of "Taxes" herein (including without limitation any
Taxes attributable to or resulting from the operation of section 1.1502-6 of the
Treasury Regulations or any analogous provision of state, local, or foreign law)
and (y) any Taxes attributable to or resulting from the Section 338(h)(10)
Election (including without limitation any corresponding elections under state,
local, or foreign tax law), any deferred income triggered by sections 1.1502-13
and 1.1502-14 of the Treasury Regulations; and any such tax consequences related
to the intercompany sale between Liberty Funds Group and Liberty Funds
Distributor Inc. of mutual fund B shares (the "LFG Deferred Income") shall not
be reflected as a tax liability in Closing Tangible Net Worth. The estimated tax
on the LFG Deferred Income as of the date of this Agreement is approximately $20
million.
For purposes of this Section 5.12, "Income Taxes" means any Taxes based upon or
relating to income, including without limitation any Taxes calculated in whole
or in part based on gross receipts or net revenues.
(ii) The Company shall prepare (or cause to be prepared) and file
(or cause to be filed) on a timely basis any Tax Returns of a Subsidiary for Tax
periods described in Section 5.12(c)(i), regardless of when they become due. The
Company and LFS shall timely pay (or cause to be paid) all Taxes shown or
required to be shown to be due on such Tax Returns.
(iii) With respect to any Income Taxes of a Subsidiary attributable
to any Tax period that includes but does not end on the Closing Date:
(A) The Company and LFS, jointly and severally, shall be
responsible for and shall pay (and shall indemnify and hold Purchaser harmless
from and against) all such
45
Income Taxes attributable to the period through the Closing Date. The Income
Taxes of a Subsidiary attributable to the period through the Closing Date shall
be computed by taking into account any applicable items consistent with the
principles of Section 5.12(c)(i)(A); and
(B) Purchaser shall be responsible for and shall pay (and shall
indemnify and hold the Company and LFS harmless from and against) all such
Income Taxes attributable to the period after the Closing Date, determined
consistently with clause (A) above.
(C) Purchaser shall prepare (or cause to be prepared) and file
(or cause to be filed) on a timely basis any applicable Tax Returns of a
Subsidiary for applicable Income Tax periods that include but do not end on the
Closing Date. Such Tax Returns shall be prepared on a basis consistent with the
Subsidiary's prior Tax Returns to the extent permitted under all applicable
Income Tax laws, rules and regulations. Purchaser shall pay (or cause to be
paid) all Taxes shown to be due on such Tax Returns. To the extent that the
Company and LFS are responsible for any portion of such Income Taxes pursuant to
Section 5.12(c)(iii)(A), the Company and LFS, jointly and severally, shall be
liable for and shall reimburse Purchaser for that portion of such Income Taxes.
Any such reimbursement shall occur within five (5) Business Days of receipt of
notice of payment by Purchaser.
(iv) The Company shall be entitled to all refunds of Income Taxes
of the type and for all Tax periods referred to in Section 5.12(c)(i)-(iii),
except with respect to any Tax Return for which Purchaser has paid a portion of
the relevant Income Taxes as provided in Section 5.12(c)(iii), in which case
Purchaser shall be entitled to a PRO RATA portion of such refund based on the
proportion of applicable Income Taxes paid by Purchaser and the principles of
this Section 5.12(c).
(d) RESPONSIBILITY FOR TAXES--NON-INCOME TAXES.
(i) The Company and LFS, jointly and severally, shall be
responsible for and shall pay (and shall indemnify and hold Purchaser harmless
from and against) all Taxes other than Income Taxes ("Non-Income Taxes") of the
Subsidiaries attributable to any Tax period ending on or prior to the Closing
Date, including any Non-Income Taxes attributable to or resulting from the
Section 338(h)(10) Election (including without limitation any corresponding
elections under state, local, or foreign tax law). With respect to any
Non-Income Taxes of a Subsidiary attributable to any Tax period that includes
but ends after the Closing Date, (i) the Company and LFS, jointly and severally,
shall be responsible for and shall pay (and shall indemnify and hold Purchaser
harmless from and against) the Non-Income Taxes of the Subsidiary attributable
to the period prior to and including the Closing Date and (ii) Purchaser shall
be responsible for and shall pay (and shall indemnify and hold the Company and
LFS harmless from and against) the Non-Income Taxes of the Subsidiary
attributable to the period after the Closing Date. For any Taxes based on sales
or revenue, the allocation of responsibility shall be based on the sales or
revenues, as applicable, taken into account during the applicable periods. For
any real estate Taxes or other property or asset-based Taxes, the allocation of
responsibility shall be based on the number of days the applicable asset was
held by the applicable Subsidiary in the applicable Tax period through the
Closing Date as compared to the number of days the applicable asset was held by
the applicable Subsidiary in the applicable Tax period after the Closing Date.
For all other Non-Income Taxes, the allocation of responsibility shall be made
by reference to the specific asset, activity or payment producing such Tax
liability,
46
and if the Tax liability cannot practically be so allocated, then PRO RATA based
on the number of days in the applicable Tax period through the Closing Date as
compared to the number of days in the Tax period after the Closing Date, or
based on some other method determined jointly by Purchaser and the Company to be
more appropriate.
(ii) Purchaser shall prepare (or cause to be prepared) and file (or
cause to be filed) on a timely basis any Tax Returns for Non-Income Taxes of the
Subsidiaries that are due (including all applicable extensions) after the
Closing Date. Such Tax Returns shall be prepared on a basis consistent with the
Subsidiaries' prior Tax Returns to the extent permitted under all applicable Tax
laws, rules and regulations. Purchaser shall pay (or cause to be paid) all
Non-Income Taxes shown or required to be shown to be due on such Tax Returns.
The Company and LFS, jointly and severally, shall be liable for and shall
reimburse Purchaser for that portion of such Taxes for which they are
responsible pursuant to Section 5.12(d)(i). Any such reimbursement shall occur
within five (5) Business Days of receipt of notice of payment by Purchaser.
(iii) The Company shall be entitled to all refunds of Non-Income
Taxes of the type and for the Tax periods referred to in the first sentence of
Section 5.12(d)(i) above. With respect to any refunds of Non-Income Taxes of the
type and for the Tax periods referred to in the remainder of Section 5.12(d)(i),
the Company and Purchaser shall each be entitled to a PRO RATA portion of such
refund based on the respective proportions of applicable Non-Income Taxes paid
by the Company or LFS on the one hand, or Purchaser on the other and the
principles of this Section 5.12(d).
(e) RIGHT TO REVIEW TAX CLAIMS. For purposes of Section
5.12(c)(iii)(C), 5.12(c)(iv), 5.12(d)(ii) and 5.12(d)(iii), the Purchaser shall
afford the Company a reasonable opportunity (but not less than 30 days) prior to
the Filing of any Tax Return, claim for refund, or other document that contains
an item that affects the liabilities of the Company for Taxes or its rights to a
refund of Taxes under this Section 5.12 (a "Filing") to review any such Filing.
The Company shall have the right to approve any such Filing to the extent that
the preceding sentence applies. The failure of the Company to notify the
Purchaser in writing of its objection to the treatment of any such item within
25 days after it has received a copy of the Filing shall be treated as approval
of such Filing. If the Purchaser and the Company are unable to agree on the
contents of a Filing, the matter shall be referred for final and binding
arbitration to a person reasonably acceptable to both parties. The costs of such
arbitration shall be borne equally by the Company and the Purchaser.
(f) COOPERATION ON TAX MATTERS; CONDUCT OF PROCEEDINGS
(i) Purchaser and the Company shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the
preparation and filing of Tax Returns pursuant to Sections 5.12(c) and (d)
hereof and any audit, litigation or other proceeding with respect to Taxes of
any Subsidiary, any Fund, or any Offshore Fund. Such cooperation shall include
the retention and (upon the other party's request) the provision of records and
documentation that are reasonably relevant to such preparation and filing and to
any audit, litigation or other proceeding relating thereto and making employees
reasonably available on a mutually convenient basis to provide additional
available information and explanation of any material provided hereunder. For
purposes of the preceding sentence, the Company, LFS, and the Purchaser shall
(and shall cause their affiliates to) preserve all such records and
47
documentation until the expiration of any applicable statute of limitations,
including extensions thereof of which they have not less than thirty (30) days'
prior written notice.
(ii) The Company shall be solely responsible for defending any
audit, litigation or other proceeding with respect to Taxes of Subsidiaries for
which the Company or LFS is liable hereunder (but only with respect to matters
for which they are so liable), and shall have the sole authority to negotiate,
compromise and settle any such audit, litigation or other proceeding (but only
with respect to those issues). The Company shall keep Purchaser reasonably
informed as to the progress of any such audit, litigation or other proceeding
with respect to such Taxes, and shall, if Purchaser so requests in writing,
permit Purchaser at its expense to participate in any such audit, litigation or
other proceeding insofar as it relates to the Subsidiaries; PROVIDED THAT the
Company shall not settle any such audit, litigation, or other proceeding without
Purchaser's consent (not to be unreasonably withheld) if such settlement would
increase the Tax liabilities of Purchaser or any of its affiliates (including
any Subsidiary) for any period after the Closing Date. If, as a result of any
such audit, litigation or proceeding the Company is required to pay any
additional Taxes hereunder, and, in the case of any settlement Purchaser's prior
written consent shall have been duly obtained hereunder, Purchaser shall
reimburse the Company for that portion of such Taxes for which it is responsible
under Sections 5.12(c) or 5.12(d) hereof, within five (5) Business Days after
receipt of notice of payment.
(g) Except for taxes paid pursuant to Sections 5.12(b)(i) and
5.12(b)(ii), all payments made by the parties under this Section 5.12 shall be
treated, to the fullest extent permissible, as adjustments in the Purchase
Price.
(h) The parties' obligations under this Section 5.12 shall survive the
Closing.
5.13 INTERESTED PERSONS. The Company shall cause the Closing condition
contained in Section 6.2(d)(i) to be satisfied to the extent it is within the
Company's ability to do so.
5.14 OTHER CONFIDENTIALITY AGREEMENTS. The Company shall promptly
inform the Purchaser of any breach of any confidentiality agreement (and the
basic facts of such breach) entered into by the Company or any of its affiliates
or representatives on behalf of the Company in connection with the sale of the
Business (each such agreement, a "Company Confidentiality Agreement"). The
Company shall use commercially reasonable efforts, at the Company's expense, to
take reasonable actions necessary to enforce the provisions of any such Company
Confidentiality Agreement.
5.15 INTERCOMPANY MATTERS. All intercompany accounts, agreements or
other arrangements (other than (i) the Transition Services Agreement and (ii)
agreements or other arrangements to continue after the Closing pursuant to (A)
Section 1.6, 5.8, 5.10, 5.11, 5.12 or 5.15 of this Agreement, (B) the License
Agreement and (C) the LMIC Indemnification Agreement) between any of the Company
or any affiliate or subsidiary of any of the Companies (other than the
Subsidiaries), on the one hand, and any Subsidiary, on the other hand, as of the
Closing shall be settled in accordance with their terms and consistent with past
practices in the manner provided in this Section 5.15 (all such accounts,
agreements and arrangements, the "Interconnects"). At least five Business Days
prior to the Closing, the Company shall prepare and deliver to the Purchaser a
statement setting out in reasonable detail the calculation of all
48
intercompany account balances in respect of the Interconnects to be settled
hereunder based upon the latest available financial information as of such date
and, to the extent reasonably requested by the Purchaser, provide the Purchaser
with supporting documentation to verify the underlying intercompany charges and
transactions. Such statement will include actual amounts reflected in the most
recently closed monthly books and records and estimates for the period through
the Closing Date based on the latest financial information available as of such
date. Except as contemplated by (i) the Transition Services Agreement or (ii)
agreements or other arrangements to continue after the Closing pursuant to
Section 1.6, 5.8, 5.10, 5.11, 5.12 or 5.15 of this Agreement, (B) the License
Agreement or (C) the LMIC Indemnification Agreement, all Interconnects will be
terminated effective as of the Closing.
5.16 TRANSFER OF RECORDS. On or promptly following the Closing Date,
except to the extent that such books of account, records and files are in
possession of the Subsidiaries, the Company shall use commercially reasonable
efforts to deliver or cause to be delivered to the Purchaser originals or copies
of, or extracts of information containing, all of the Business's books of
account, records and files that are in the possession of any of the Company or
any affiliate of the Company, including, without limitation, all employee files
(for Business Employees only), monthly financial statements, trial balances,
general ledgers, accounting records, forms, marketing materials, sales training
manuals, sales promotional data, customer lists, business plans, correspondence
and litigation files, in each case used in or related to the Business.
5.17 SERIES A PREFERRED REDEMPTION. The Company shall call for the
redemption, and to the extent not converted prior to the redemption date in
accordance with the terms thereof shall redeem, all outstanding shares of the
Series A Preferred pursuant to the charter of the Company effective as of a date
prior to the record date for determining the holders of the Company capital
stock entitled to vote at the Company Stockholders' Meeting.
5.18 CRABBE HUSON AGREEMENt. The Company shall use its commercially
reasonable efforts to cause that certain Asset Acquisition Agreement by and
between Crabbe Huson Group, Inc., Xxxxx X. Xxxxxx and Xxxxxxx X. Xxxxx and the
Company and LFC Acquisition Corp. dated June 10, 1998, to be amended to
eliminate the requirement that 10% of contingent purchase price payments
thereunder be payable in shares of the Company's Common Stock.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE SALE. The
respective obligations of each party to effect the Sale shall be subject to the
fulfillment or waiver at or prior to the Closing of each of the following
conditions:
(a) The Sale shall have been authorized by the affirmative vote of the
holders of a majority of the Shares as of the applicable record date voting as a
single class;
(b) Any waiting period (and any extension thereof) applicable to the
consummation of the Sale under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or
been terminated and the Company and the Purchaser shall have received all of the
other consents and approvals required
49
under Applicable Law the failure of which to obtain would prevent the
consummation of the Sale or reasonably be expected, individually or in the
aggregate, to result in a Company Material Adverse Effect, and such consents or
approvals shall be in full force and effect and all statutory waiting periods in
respect thereof shall have expired;
(c) No order, decree or ruling issued by a court of competent
jurisdiction or by a Government Entity nor any statute, rule, regulation or
executive order promulgated or enacted by any Government Entity shall be in
effect that would prohibit the Sale or make illegal the acquisition or ownership
of the Purchased Securities by the Purchaser or otherwise prevent the
consummation of the Sale; provided, that the party seeking to assert this
condition shall have complied with its obligations under Section 5.4; and
(d) The Transition Services Agreement, the Transition Letter Agreement,
the License Agreement and the LMIC Indemnification Agreement shall be in full
force and effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
SALE. The obligation of the Company to effect the Sale is further subject to
fulfillment (or waiver by the Company) of the following conditions:
(a) The representations and warranties of the Purchaser contained
herein shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date with the same effect as though made as of
the Closing except (x) for changes specifically permitted by the terms of this
Agreement, (y) that the accuracy of representations and warranties that by their
terms speak as of the date of this Agreement or some other date will be
determined as of such date and (z) where the failure of the representations and
warranties to be true and correct (without giving effect to any qualifications
as to "material" or similar qualifications) would not, individually or in the
aggregate, reasonably be expected to impair materially the ability of the
Purchaser to perform its obligations hereunder;
(b) The Purchaser shall have performed in all material respects all
obligations and complied in all material respects with all covenants required by
this Agreement to be performed or complied with by it prior to the Closing;
(c) The Purchaser shall have delivered to the Company a certificate,
dated the Closing Date and signed by a duly authorized officer, to the effect
that each of the conditions specified in clauses (a) and (b) of this Section 6.2
is satisfied;
(d) (i) At least 75% of the members of each Fund Board which has
approved a new investment advisory contract (including an interim investment
advisory contract under Investment Company Act Rule 15a-4) with a Subsidiary (or
such other entity that will act as investment adviser to such Funds following
the Closing) shall not be "interested persons" (as such term is defined in the
Investment Company Act) of the Company (or such other entity that will act as
investment adviser to such Funds following the Closing) or of the Purchaser; and
(ii) no "unfair burden" or any express or implied terms, conditions or
understandings applicable thereto as contemplated by Section 15(f)(1)(B) of the
Investment Company Act shall have been imposed on any of the Funds as a result
of this Agreement;
50
(e) The Purchaser shall have executed and delivered a counterpart
signature page to the Transition Services Agreement; and
(f) The Purchaser shall have paid the Purchase Price, as contemplated
by Section 1.2.
6.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE PURCHASER TO EFFECT THE
SALE. The obligation of the Purchaser to effect the Sale is further subject to
the fulfillment (or waiver by the Purchaser) of the following conditions:
(a) The representations and warranties of the Company and LFS contained
herein shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date with the same effect as though made as of
the Closing Date, except (x) for changes specifically permitted by the terms of
this Agreement, (y) that the accuracy of representations and warranties that by
their terms speak as of the date of this Agreement or some other date will be
determined as of such date and (z) where the failure of such representations and
warranties to be true and correct (without giving effect to any qualifications
as to Company Material Adverse Effect, "material" or similar qualifications)
would not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect;
(b) The Company and LFS shall have performed in all material respects
all obligations and complied in all material respects with all covenants
required by this Agreement to be performed or complied with by it prior to the
Closing;
(c) The Company and LFS shall have delivered to the Purchaser a
certificate, dated the Closing Date and signed by its Chief Executive Officer to
the effect that each of the conditions specified in clauses (a) and (b) of this
Section 6.3 with respect to the Company and LFS is satisfied;
(d) The Company shall have obtained all consents, waivers, or
approvals, necessary to provide that the consummation of the Sale does not
constitute a default under, or effect or give rise to a right of termination of
the Material Contracts identified in Section 6.3(d) of the Disclosure Schedule;
(e) There shall not have been a Company Material Adverse Effect since
the date of this Agreement;
(f) The Fund Board Resolutions and any shareholder approvals, other
approvals or consents contemplated by Sections 5.7 (a), (b), (d) and (e) shall
have been received and shall be in full force and effect from Funds, Offshore
Funds and Non-Fund Clients that represented, as of March 31, 2001, at least 80%
of the March 31, 2001 AUM; provided that a so-called implied or negative consent
shall be deemed an approval or consent of a Non-Fund Client for purposes of this
Section 6.3(f) as long as the Company or a Subsidiary has complied with Section
5.7(e) hereof with respect to such Non-Fund Client; provided, however, that
anything herein to the contrary notwithstanding, a Fund Board Resolution or
other approval or consent with respect to a Fund, Offshore Fund or a Non-Fund
Client shall be deemed not to have been received for purposes of this Agreement
if (a) any of the Company, LFS or any of the Subsidiaries, or any of their
respective representatives or agents, has agreed or entered into an
understanding to cap, reduce, waive, reimburse or otherwise modify the fees
payable by such client in connection with
51
obtaining any Fund Board Resolution or other approval or consent with respect to
such client, or (b) such consent was obtained pursuant to Investment Company Act
Rule 15a-4.
(g) The Closing Date Revenue Run Rate shall be not less than 80% of the
December 31 Revenue Run Rate;
(h) The Company and LFS shall have delivered to the Purchaser
certificates representing the Purchased Securities duly endorsed in blank or
with duly executed stock powers in blank, in proper form for transfer; and
(i) Each of Company and LFS shall deliver to the Purchaser a
certificate of Non-Foreign Status duly executed by an officer of the Company, in
a form reasonably acceptable to Purchaser meeting the requirements of Treasury
Regulation Section 1.1445-2(c)(3).
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated and the Sale may be
abandoned at any time prior to the Closing, whether prior to or (except as
provided in Section 7.1(c)) after approval of the Sale by the Company's
Stockholders, as follows:
(a) by mutual written consent of the Purchaser and the Company;
(b) by either the Purchaser or the Company if (i) the Closing shall not
have occurred on or before April 30, 2002 (the "Outside Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)(i)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date or (ii) there shall be any order which
is final and nonappealable preventing the consummation of the Sale;
(c) prior to (but not subsequent to) the approval by the Company's
Stockholders at the Company Stockholders' Meeting, by the Purchaser or the
Company if (i) the Board of Directors of the Company withdraws, modifies,
changes or fails to reaffirm (within a reasonable period of time after a request
by the Purchaser) its recommendation of the Sale in a manner adverse to the
Purchaser, (ii) the Board of Directors of the Company shall have recommended to
the Company's Stockholders another Acquisition Proposal, or (iii) a tender offer
or exchange offer for 20% or more of the outstanding shares of capital stock of
the Company is commenced, and the Board of Directors of the Company fails within
the time provided in Rule 14e-2 under the Exchange Act to recommend against
acceptance of such tender offer or exchange offer by the Company's Stockholders
(including by taking no position with respect to the acceptance of such tender
offer or exchange offer by its Stockholders); provided, however, that the
Company may not terminate this Agreement pursuant to this Section 7.1(c) unless
the Company shall have complied in all respects with Section 5.5 (except for
inadvertent failures to so comply) and shall have paid to the Purchaser the
Termination Fee; provided further, that any public statement by the Company that
(A) it has received an Acquisition Proposal or otherwise taken any action
permitted by Section 5.5(a) or (B) otherwise describes the operation of the
provisions of this Agreement relating to an Acquisition Proposal, termination,
the Board of Directors' recommendation of the Sale, or the transactions
contemplated hereby, shall not, in and of
52
themselves, be deemed to be a proposal to withdraw, modify or change the Board
of Directors' recommendation for purposes of this Section 7.1(c);
(d) by either the Purchaser or the Company if the Sale or any of the
Transactions shall fail to receive the affirmative vote of the holders of a
majority of the Shares as of the applicable record date for approval when voted
on by the Company's Stockholders at the Company Stockholders' Meeting (or any
permitted adjournment thereof);
(e) by the Purchaser upon a breach of any representation or warranty or
material covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied ("Terminating Company Breach"); provided,
however, that, if such Terminating Company Breach is curable by the Company
within a thirty day period, the Purchaser may not terminate this Agreement under
this Section 7.1(e) during such thirty day period for so long as the Company
continues to exercise commercially reasonable efforts as may be appropriate to
cure such Terminating Company Breach; or
(f) by the Company upon a breach of any representation or warranty or
material covenant or agreement on the part of the Purchaser set forth in this
Agreement, or if any representation or warranty of the Purchaser shall have
become untrue, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b) would not be satisfied ("Terminating Purchaser
Breach"); provided, however, that, if such Terminating Purchaser Breach is
curable by the Purchaser within a thirty day period, the Company may not
terminate this Agreement under this Section 7.1(f) during such thirty day period
for so long as the Purchaser continues to exercise commercially reasonable
efforts as may be appropriate to cure such Terminating Purchaser Breach.
7.2 EFFECT OF TERMINATION. On termination of this Agreement as provided
in Section 7.1, all obligations and agreements of the parties set forth in
Articles 1 through 6, except Section 5.3, shall forthwith terminate and be of no
further force or effect; provided that if the Purchaser receives the Termination
Fee contemplated by Section 7.5, neither the Purchaser nor any of its affiliates
shall assert, prosecute or pursue in any manner, directly or indirectly, any
claim or cause of action against the Company or LFS or any of their officers,
directors or affiliates; provided further that the foregoing shall not relieve
any party of liability for damages actually incurred as a result of any willful
breach of any of such provisions in Articles 1 through 6, prior to such
termination. Neither the Purchaser nor the Company may elect to terminate this
Agreement pursuant to more than one clause of Section 7.1.
7.3 AMENDMENT. This Agreement may not be amended except by action of
each of the parties hereto set forth in an instrument in writing signed on
behalf of each of the parties hereto; provided, however, that after approval of
the Sale by the Company's Stockholders, without the further approval of the
Company's Stockholders no amendment may be made that would: (i) reduce the
Purchase Price or change the form thereof; or (ii) change any other terms and
conditions of this Agreement if any of the changes, alone or in the aggregate,
would materially adversely affect the Company's Stockholders (other than the
Purchaser and its affiliates).
53
7.4 WAIVER. At any time prior to the Closing, whether before or after
the Company Stockholders' Meeting, subject to the proviso contained in Section
7.3, any party may waive compliance by any other party with any agreements of
such other party. Any agreement on the part of a party hereto to any such waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party by a duly authorized officer. The failure of any party to assert any
of its rights under this Agreement shall not constitute a waiver of such rights.
7.5 EXPENSES; TERMINATION FEE.
(a) If this Agreement is terminated by the Purchaser pursuant to
Section 7.1(e) or by the Company pursuant to Section 7.1(f), then the party
terminating this Agreement shall be entitled to reimbursement by the other party
of all reasonable out-of-pocket costs and expenses (including, without
limitation, fees and disbursements of counsel, financial advisors, actuaries and
accountants) incurred by it in connection with this Agreement and the
transactions contemplated hereby. Notwithstanding the foregoing, if either (i)
the Company has received an Acquisition Proposal at the time this Agreement is
terminated by the Purchaser pursuant to Section 7.1(e) or receives an
Acquisition Proposal within three months after the date of such termination
under Section 7.1(e) and within 12 months after the date of termination the
Company consummates a sale of the Purchased Subsidiaries or all or substantially
all of the assets of the Subsidiaries as a whole for an amount greater than the
Purchase Price (a "Subsequent Deal") or (ii) this Agreement is terminated by the
Purchaser pursuant to Section 7.1(e) as a result of a breach by the Company of
Section 5.5, then the Company shall pay the Purchaser within ten Business Days
after (a) the consummation of the Subsequent Sale, in the case of the
circumstances described in clause (i), or (b) the termination date, in the case
of the circumstances described in clause (ii), the Termination Fee (as defined
below) in immediately available funds, less any expenses of the Purchaser
previously reimbursed by the Company.
(b) If this Agreement is terminated by the Company pursuant to Section
7.1(c), then the Company shall pay the Purchaser as a condition precedent to
such termination a fee of $45,000,000 (the "Termination Fee") in immediately
available funds. If this Agreement is terminated by the Purchaser pursuant to
Section 7.1(c), then the Company shall pay to the Purchaser within five Business
Days after the date of such termination the Termination Fee.
(c) The parties acknowledge that the agreements contained in this
Section 7.5 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, the parties would not enter into
this Agreement. Accordingly, if any party fails to pay any payments due to the
other party pursuant to this Section 7.5 and, in order to obtain such payment,
the party that has not received such payment commences a suit that results in a
judgment against the other party, such other party shall pay to such party that
had not received such payment (in addition to the amount of such judgment) all
reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel, financial advisors, actuaries and
accountants) incurred by the party that had not received such payment in
connection with such suit, together with interest on the amount of such judgment
at the prime rate of Citibank N.A. in effect on the date that such payment was
required to be made (in lieu of and not in addition to any other interest
payable under applicable law).
(d) This Section 7.5 shall survive any termination of this Agreement.
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ARTICLE 8
GENERAL PROVISIONS
8.1 PUBLICITY. For so long as this Agreement is in effect, except as
such party may be required by applicable law or applicable national stock
exchange, SEC or NASD or other regulatory requirements, neither the Company nor
the Purchaser shall, nor shall either permit any of its subsidiaries to, issue
or cause the publication of any press release or other public announcement with
respect to the Sale without the consent of the other party, which consent shall
not be unreasonably withheld or delayed. Whenever the Company or the Purchaser
proposes to make a required press release or public announcement, it shall use
its reasonable efforts to allow the other reasonable time to comment on such
release or announcement in advance, but the final form and content of any such
required release or announcement shall be at the discretion of the disclosing
party.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been properly given if (i) delivered
personally, (ii) sent by certified or registered mail, return receipt requested,
(iii) sent by overnight courier for delivery on the next Business Day, or (iv)
sent by confirmed telecopy, provided that a hard copy of all such telecopied
materials is thereafter sent within 24 hours in the manner described in clauses
(i), (ii) or (iii), to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(a) If to the Purchaser:
Fleet National Bank
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
Telecopy No.: (000) 000-0000
with copies to:
Fleet National Bank
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxx
Telecopy No.: (000) 000-0000
and
Fleet National Bank
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxxxx
Telecopy No.: (000) 000-0000
and
Xxxxxxx Xxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
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(b) If to the Company:
Liberty Financial Companies, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxxxx Xxxx, Executive Vice President
Telecopy No.: (000) 000-0000
and
Liberty Financial Companies, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxx, Senior Vice President
and General Counsel
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx, Xxxx & Xxxxxxx
Exchange Place
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Xx., Esq.
Telecopy No.: (000) 000-0000
Notices provided in accordance with this Section 8.2 shall be deemed delivered
(i) on the date of personal delivery, (ii) on the date such notice is actually
received or delivery thereof is refused at the specified address, or (iii) on
the date of confirmation of receipt of the telecopy transmission, as the case
may be.
8.3 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of the Purchaser or the Company, the word "subsidiary" or
"subsidiaries" means any corporation more than 50% of whose outstanding voting
securities, any or partnership, joint venture or other entity more than 50% of
whose total equity interests are, directly or indirectly, owned by the Purchaser
or the Company, as the case may be; and the word "affiliates" (as distinguished
from the words "affiliated person" when used with reference to the Investment
Company Act) shall have the meaning assigned to such term under Rule 405 of the
Securities Act. For purposes of this Agreement, the Company shall not be deemed
to be an affiliate or subsidiary of the Purchaser. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Inclusion of information in the
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Disclosure Schedule shall not be taken as an admission or acknowledgment of the
materiality of such information.
8.4 REPRESENTATIONS AND WARRANTIES; ETC. The representations and
warranties of the Company, LFS and the Purchaser contained herein shall expire
with, and be terminated and extinguished upon, consummation of the Sale. This
Section 8.4 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the consummation of the Sale.
8.5 MISCELLANEOUS.
(a) This Agreement together with the Confidentiality Agreement
constitutes the entire agreement and supersedes all other prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement is not intended to confer
upon any other person any rights or remedies hereunder, create any agreement of
employment with any person or otherwise (except for Sections 5.8) create any
third-party beneficiary hereto. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective permitted
successors and assigns. The rights of the parties under this Agreement shall not
be assigned prior to the consummation of the Sale, or a termination pursuant to
Article 7, provided, however, that the Purchaser may assign its rights and
obligations in whole or in part to any of its affiliates, but no such assignment
shall relieve the Purchaser of its obligations hereunder. This Agreement shall
be governed in all respects, including validity, interpretation and effect, by
the internal laws of Massachusetts, without giving effect to the principles of
conflict of laws. This Agreement may be executed in one or more counterparts
(including by facsimile transmission) which together shall constitute a single
agreement. Any reference herein to any agreement shall be deemed to mean such
agreement as it may be amended from time to time.
(b) Each party hereby irrevocably and unconditionally consents and
submits to the jurisdiction of the courts of Massachusetts and the United States
of America located in Massachusetts for any actions, suits or proceedings
arising out of or relating to this Agreement and the transactions contemplated
hereby (and each party agrees not to commence any action, suit or proceeding
relating thereto except in such courts), and further agree that service of any
process, summons, notice or document by United States registered mail to the
respective addresses set forth in Section 8.2 shall be effective service of
process for any action, suit or proceeding brought against each party in any
such court. Each party hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby, in the courts of
Massachusetts or the United States of America located in Massachusetts, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
(c) VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect so
long as the economic substance of the transactions contemplated hereby is not
affected in any manner adverse to any party.
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8.6 WAIVER OF JURY TRIAL. Each party hereto waives its rights to a jury
trial with respect to any action or claim arising out of any dispute in
connection with this Agreement, any agreement, contract or other document or
instrument executed in connection herewith, or any of the transactions
contemplated hereby.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]
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IN WITNESS WHEREOF, the Purchaser, the Company and LFS have caused this
Agreement to be duly executed as of the date first above written by their
respective officers thereunto duly authorized.
FLEET NATIONAL BANK LIBERTY FINANCIAL COMPANIES, INC.
By: /s/ XXXXXXXX X. XXXXXXXX
---------------------------
By: /s/ XXXX X. XXXXXXXXXX
-------------------------------
President
LIBERTY FINANCIAL SERVICES, INC.
By: /s/ XXXX X. XXXXXXXXXX
-------------------------------
President
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