Exhibit 10.14
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STOCK PURCHASE AGREEMENT
by and between
LEUCADIA NATIONAL CORPORATION
and
ALLSTATE LIFE INSURANCE COMPANY
Dated as of
December 18, 1998
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B3 359475.9 03340 00721
1/5/99 6:48 pm
TABLE OF CONTENTS
Page
1. DEFINITIONS; INTERPRETATION...........................................1
1.1. Definitions.....................................................1
1.2. Interpretation..................................................8
2. PURCHASE AND SALE OF SHARES...........................................8
2.1. Purchase and Sale of Shares.....................................8
2.2. Consideration...................................................8
2.3. Closing.........................................................8
2.4. Payment of Purchase Price; Delivery of Shares...................9
2.5. Balance Sheets..................................................9
3. CONDITIONS TO CLOSING................................................11
3.1. Conditions Precedent to Obligation of Buyer.....................11
3.1.1. Compliance by Seller...................................11
3.1.2. Compliance Certificate.................................11
3.1.3. No Injunctions or Restraints...........................11
3.1.4. Consents and Approvals.................................11
3.1.5. Opinion of Counsel to Seller...........................12
3.1.6. HSR Act................................................12
3.1.7. Termination of Agreements..............................12
3.1.8. Investment Assets......................................12
3.1.9. Resignation of Officers and Directors..................12
3.1.10. Corporate Action.......................................12
3.1.11. Surplus Debenture......................................12
3.2. Conditions Precedent to Obligation of Seller....................12
3.2.1. Compliance by Buyer....................................12
3.2.2. Compliance Certificate.................................13
3.2.3. No Injunctions or Restraints...........................13
3.2.4. Consents and Approvals.................................13
3.2.5. Opinion of Counsel to Buyer............................13
3.2.6. HSR Act................................................13
3.2.7. Corporate Action.......................................13
4. REPRESENTATIONS AND WARRANTIES OF SELLER.............................14
4.1. Corporate Existence............................................14
4.2. Authorization; Enforcement.....................................14
4.3. Capital Stock of the Company; Ownership of the
Company Shares...............................................14
4.4. Subsidiaries; Capital Stock of ILIC; Ownership
of ILIC Shares................................................15
4.5. No Conflict....................................................16
4.6. Certificate of Incorporation and By-laws.......................16
4.7. Consents.......................................................17
4.8. Compliance with Law............................................17
4.9. Products.......................................................17
4.10. Litigation....................................................18
4.11. Insurance Licenses............................................18
4.12. Regulatory Filings............................................19
4.13. Contracts.....................................................19
4.14. Finder's Fees.................................................20
4.15. Statutory Statements..........................................20
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4.16. Assets and Properties.........................................21
4.17. Employee Benefits.............................................21
4.18. No Material Adverse Change....................................21
4.19. Intangible Property...........................................21
4.20. Insurance.....................................................21
4.21. Employees.....................................................22
4.22. Security Deposits.............................................22
4.23. Powers of Attorney; Guarantees; Required
Insurance; Agents...........................................22
4.24. Bank Accounts.................................................22
4.25. Disclosure ...................................................22
4.26. Environmental Protection .....................................22
4.27. Guaranty Fund Assessments.....................................23
5. REPRESENTATIONS AND WARRANTIES OF BUYER..............................23
5.1. Corporate Existence............................................23
5.2. Authorization; Enforcement.....................................23
5.3. No Conflict ...................................................23
5.4. Consents.......................................................24
5.5. Litigation.....................................................24
5.6. Finder's Fees .................................................24
5.7. Investment Purpose.............................................25
6. COVENANTS AND AGREEMENTS.............................................25
6.1. Conduct of Business of the Companies...........................25
6.2. Restrictions...................................................25
6.3. Access to Information; Due Diligence;
Confidentiality..............................................26
6.4. Acquisition Proposals..........................................27
6.5. Approvals of Governmental Authorities..........................28
6.6. Further Assurances.............................................28
6.7. Notification of Changes........................................28
6.8. Performance of Conditions......................................29
6.9. Publicity......................................................29
6.10. Authority, Bank Accounts, Etc. ...............................29
6.11. Pre-Closing Dividends; Subsidiaries...........................30
6.12. Employee Benefits.............................................30
6.13. Administrative Services.......................................30
7. TAXES................................................................30
7.1. Tax Returns Filed and Taxes Paid by Seller.....................30
7.2. Seller's Non-Foreign Status....................................31
7.3. Post-Closing Access to Books and Records and
Cooperation....................................................31
7.4. Liability for Taxes and Related Matters........................32
7.4.1. Seller's Liability for Taxes...........................32
7.4.2. Buyer's Liability for Taxes............................33
7.4.3. Taxes for Short Taxable Year...........................33
7.4.4. Adjustment to Purchase Price...........................34
7.4.5. Pre-Closing Taxes......................................34
7.4.6. Post-Closing Taxes.....................................34
7.4.7. Contest Provisions.....................................35
7.5. Termination of Existing Tax Sharing Agreements.................36
7.6. Section 338(h)(10) Election....................................36
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7.7. Survival of Representations, Warranties and
Obligations..................................................37
7.8. Transfer Taxes.................................................37
7.9. Continuation of Reinsurance Agreements.........................38
7.10. Indemnification Payments Net of any
Tax Benefit..................................................38
8. INDEMNIFICATION......................................................38
8.1. Indemnification by Seller......................................38
8.2. Buyer's Obligation to Indemnify................................40
8.3. Right to Contest Third Party Claims............................41
8.4. Indemnification for Taxes......................................42
8.5. Limitations on Indemnification.................................42
9. TERMINATION..........................................................43
9.1. Termination....................................................43
9.2. Effect of Termination..........................................43
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES...........................43
11. MISCELLANEOUS........................................................44
11.1. Amendments and Waivers........................................44
11.2. Assignment....................................................44
11.3. Entire Agreement..............................................44
11.4. Governing Law.................................................44
11.5. Enforcement; Jurisdiction.....................................44
11.6. Notices.......................................................45
11.7. Counterparts..................................................45
11.8. Certain Fees and Expenses.....................................45
11.9. No Joint Venture or Partnership Intended......................46
11.10. Severability.................................................46
11.11. No Third Party Beneficiaries.................................46
EXHIBITS
Exhibit A - Form of Opinion of Weil, Gotshal & ▇▇▇▇▇▇ LLP,
counsel to Seller
Exhibit B - Form of Opinion of ▇▇▇▇▇ ▇. ▇▇▇▇, counsel to Buyer
Exhibit C - Services
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SCHEDULES
Schedule 2.2 Allocation of Purchase Price
Schedule 4.1 Jurisdictions
Schedule 4.9(a) Products
Schedule 4.10 Litigation
Schedule 4.11(a) Restricted Insurance Licenses
Schedule 4.11(b) Lines of Authority
Schedule 4.13(a) Scheduled Contracts
Schedule 4.13(b) Prior Transactions
Schedule 4.13(c) Terminated Contracts
Schedule 4.18 Exceptions To No Material Adverse Change
Schedule 4.20 Insurance
Schedule 4.22 Security Deposits
Schedule 4.23 Powers of Attorney; Guarantees
Schedule 4.24 Bank Accounts
Schedule 6.2 Restrictions
Schedule 6.11 Asset Dividend
Schedule 7.1 Taxes
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 18, 1998 (this
"Agreement"), by and between ALLSTATE LIFE INSURANCE COMPANY, an Illinois
insurance company ("Buyer"), and LEUCADIA NATIONAL CORPORATION, a New York
corporation ("Seller").
WHEREAS, Seller owns beneficially and of record 110,000 shares of
the common stock, par value $31.00 per share (the "Company Shares"), of Charter
National Life Insurance Company, a Missouri stock insurance company (the
"Company"), constituting all of the issued and outstanding shares of the capital
stock of the Company; and
WHEREAS, on or prior to the Closing Date (as defined below), the
Company will, in turn, own beneficially and of record 6,000 shares of the common
stock, par value $7.00 per share (the "Company-Owned ILIC Shares"), of
Intramerica Life Insurance Company, a New York stock insurance company ("ILIC";
and together with the Company, the "Companies"), and Seller will, in turn, own
beneficially and of record 294,000 shares (the "Seller-Owned ILIC Shares") of
the common stock, par value $7.00 per share, of ILIC, which, together with the
Company-Owned ILIC Shares, constitute all of the issued and outstanding shares
of the capital stock of ILIC (the "ILIC Shares"); and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires
to sell to Buyer, the Company Shares and the Seller-Owned ILIC Shares
(collectively, the "Shares"), on the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and of the
respective representations, warranties, covenants, agreements and conditions
contained herein, each of the parties hereto agrees as follows:
1. DEFINITIONS; INTERPRETATION.
1.1. Definitions. The terms defined in this Section 1.1,
whenever used in this Agreement, shall have the following meanings for all
purposes of this Agreement:
"Acquisition Proposal" has the meaning set forth
in Section 6.4.
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Affiliate" of a specified Person means a Person that (at the
time when the determination is to be made) directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the specified Person. As used in the foregoing sentence, the term
"control" (including, with correlative meaning, the terms "controlling",
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Allstate NY" means Allstate Life Insurance Company of New
York, a New York stock insurance company.
"Annual Statement" means, with respect to any Person, the
annual statement of such Person prepared in accordance with SAP, as filed with
or submitted to the appropriate insurance Governmental Authority in the Person's
jurisdiction of domicile on the forms prescribed or permitted by such
Governmental Authority.
"Asserted Liability" has the meaning set forth in Section
8.1(c).
"Asset Dividend" has the meaning set forth in Section 6.11.
"Books and Records" means all of the Companies' books and
records (including all data and other information stored on discs, tapes or
other media) relating to the assets, Properties, business and operations of the
Companies' business, including the Insurance Licenses and all such items
relating to the Companies' legal existence, stock ownership, corporate
management or other such corporate records.
"Business Day" means any day that is not a Saturday or a
Sunday or a day on which banks in the State of New York are authorized or
required by law to close.
"Buyer" has the meaning set forth in the first paragraph of
this Agreement.
"Buyer Indemnitees" has the meaning set forth in Section
8.1(a).
"Closing" has the meaning set forth in Section 2.3.
"Charter Coinsurance Agreement" means that certain Coinsurance
Agreement by and between the Company and Buyer dated as of September 2, 1998.
"Charter Reinsurance Agreement" means that certain Reinsurance
Agreement by and between the Company and Buyer dated as of September 2, 1998.
"Closing Balance Sheets" has the meaning set forth in Section
2.5(a).
"Closing Date" has the meaning set forth in Section 2.3.
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"Code" means the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations promulgated thereunder.
"Companies" has the meaning set forth in the second recital of
this Agreement.
"Company" has the meaning set forth in the first recital of
this Agreement.
"Company-Owned ILIC Shares" has the meaning set forth in the
second recital of this Agreement.
"Contract" means any written or oral agreement, instrument,
commitment or other contract.
"Election" has the meaning set forth in Section 7.6(a).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"Fair Market Value" means (i) in the case of securities (other
than Short Term Treasuries) listed on an exchange or in an over-the-counter
market, the closing price on such exchange or market (or the average of the
closing bid and asked prices if there is no closing price) plus all accrued but
unpaid interest on such securities through the last Business Day preceding the
Closing Date if such amount is not already reflected in such closing price (or
such bid and asked prices) and (ii) in the case of cash, cash equivalents and
Short Term Treasuries, the face amount thereof.
"Final Balance Sheets" has the meaning set forth
in Section 2.5(b).
"General Services Agreement" means that certain General
Services and Expense Reimbursement Agreement, effective January 1, 1990, between
Seller and the Company.
"Governmental Authority" means any foreign, federal, state,
local or other court, arbitration, administrative agency or commission,
insurance or securities regulatory or self-regulatory body or securities or
commodities exchange.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
"ILIC Coinsurance Agreement" means that certain Coinsurance
Agreement by and between ILIC and Allstate NY dated as of September 2, 1998.
"ILIC Dividends" has the meaning set forth in Section 6.11.
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"ILIC Shares" has the meaning set forth in the second recital
of this Agreement.
"Insurance Licenses" has the meaning set forth in Section
4.11.
"Investment Advisory Agreement" means that certain Investment
Advisory Services Agreement, dated as of January 1, 1990, between Seller and the
Company.
"Knowledge" or "Known" means, with respect to any
representation or warranty in which such term is contained, to the best
knowledge of any officer of the applicable person, after a due and diligent
inquiry.
"Laws" has the meaning set forth in Section 4.8(a).
"Liability" means, with respect to any Person, any direct or
indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility (whether known, unknown, accrued, absolute, contingent,
unliquidated or otherwise) and regardless of when such liability or obligation
was or is asserted.
"Liable Party" has the meaning set forth in Section 7.4.6(d).
"Lien" means any lien, encumbrance, pledge, mortgage, security
interest, claim, charge, lease, option, right of first refusal, easement,
servitude, encumbrance, equity, claim or other third party right (including a
right of preemption), restriction or other limitation, in each case of any
nature whatsoever.
"Losses" has the meaning set forth in Section 8.1(b).
"Market Conduct Activities" means the marketing, solicitation,
application, underwriting, acceptance, sale, purchase, operation, retention,
administration, or replacement by means of surrender, partial surrender, loans
respecting, withdrawal and/or termination of any insurance policy or annuity
(each, a "policy"), including any or all of the acts, omissions, facts, matters,
transactions, occurrences, or any oral or written statements or representations
made or allegedly made in connection with or directly or indirectly relating to
Market Conduct Activities, including those relating to: (A) the vanishing
premium concept; (B) the nature, characteristics, terms, appropriateness,
suitability, descriptions and operation of any policy; (C) whether any policy
was, would operate or could function as a pension or retirement plan, investment
or savings account, tuition-funding or mortgage-protection plan or other type of
investment, savings or thrift vehicle; (D) the fact that a part of the premiums
paid would not be credited toward an
4
investment or savings account or the policy's cash value, but would be used to
offset the insurer's commission, sales, administration or mortality expenses;
(E) the use of an existing policy's cash value or cash-surrender value by means
of a surrender, withdrawal/partial surrender or loan to purchase or maintain a
policy; and (F) the insurer's dividend, interest, crediting and cost of
insurance and administrative charge policies; dividend scales, illustrations of
dividend values, cash values or death benefits; or any other matters relating to
dividends, interest crediting rates or cost of insurance and administrative
charges.
"Material Adverse Effect" means a material adverse effect on
the assets, results of operations, business or condition (financial or
otherwise) of the Company or of ILIC.
"New York Court" has the meaning set forth in Section 11.5.
"1940 Act" has the meaning set forth in Section 4.8(c).
"Owned Property" has the meaning set forth in Section 4.26.
"Person" means any individual, corporation, limited liability
company, partnership, firm, joint venture, association, trust, unincorporated
organization, Governmental Authority or other entity.
"Plan" means any "employee benefit plan" (as that term is
defined in Section 3(3) of ERISA), as well as any other written or unwritten
plan or Contract involving direct or indirect compensation, established,
maintained or contributed to by the Company or ILIC, or under which the Company
or ILIC has any present or future Liability on behalf of its employees or former
employees or their dependents or beneficiaries, including each retirement,
pension, profit-sharing, thrift, savings, target benefit or employee stock
ownership plan, cash or deferred, each other deferred or incentive compensation,
bonus, stock option, employee stock purchase, "phantom stock" or stock
appreciation right plan, each other program providing payment or reimbursement
for or of medical, dental or visual care, psychiatric counseling, or vacation,
sick or disability pay and each other "fringe benefit" plan or arrangement.
"Preparer" has the meaning set forth in Section
7.4.6(d).
"Prior Transactions" has the meaning set forth in
Section 4.13(a).
"Property" means real, personal or mixed property,
tangible or intangible.
5
"Proposed Balance Sheets" has the meaning set forth in Section
2.5(b).
"Purchase Agreement" means that certain Purchase Agreement,
dated as of February 11, 1998 by and among Buyer, Allstate NY, the Company, ILIC
and Seller, as amended by Amendment To Purchase Agreement, dated August 5, 1998,
and Second Amendment To Purchase Agreement, dated September 2, 1998.
"Purchase Price" has the meaning set forth in Section 2.2.
"Quarterly Statement" means, with respect to any Person, the
quarterly statement of such Person prepared in accordance with SAP, as filed
with or submitted to the appropriate insurance Governmental Authority in such
Person's jurisdiction of domicile on the forms prescribed or permitted by such
Governmental Authority.
"SAP" means, with respect to any Person, the statutory
accounting practices prescribed or permitted by the insurance commissioner (or
similar authority) of such Person's jurisdiction of domicile, applied on a basis
consistent with that of prior years (other than where a lack of consistency
results from changes in the statutory accounting practices so prescribed or
permitted).
"Scheduled Contracts" has the meaning set forth in Section
4.13(a).
"Seller" has the meaning set forth in the first paragraph of
this Agreement.
"Seller Indemnitees" has the meaning set forth in Section
8.2(a).
"Seller-Owned ILIC Shares" has the meaning set forth in the
second recital of this Agreement.
"Seller's Group" shall mean any "affiliated group" (as defined
in Section 1504(a) of the Code, without regard to the limitations contained in
Section 1504(b) of the Code) that includes Seller or any predecessor of or
successor to Seller.
"Separate Accounts" means the investment accounts maintained
by the Company or ILIC to which funds have been allocated for certain life
insurance policies and annuity contracts issued by the Company or ILIC under
provisions of applicable state insurance law.
"Shares" has the meaning set forth in the third recital of
this Agreement.
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"Short Term Treasuries" means U.S. Treasury obligations having
a remaining term to maturity as of the last Business Day preceding the Closing
Date of less than 90 days.
"Statutory Capital" means (i) capital and surplus determined
in accordance with SAP (as reflected in line 38 of the "Liabilities, Surplus and
Other Funds" page of the 1997 NAIC Annual Statement Blank) plus (ii) asset
valuation reserve (as reflected in line 24.1 of such Annual Statement Blank)
plus (iii) interest maintenance reserve (as reflected in line 11.4 of such
Annual Statement Blank), in each case adjusted to reflect investment assets held
in the general account at their Fair Market Value. Statutory Capital with
respect to the Company shall be determined without regard to its ownership of
shares of common stock of ILIC.
"Statutory Statements" has the meaning set forth
in Section 4.15(a).
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, limited or general partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
or other entity analogous to any of the foregoing of which a majority of the
equity ownership (whether voting stock or comparable interest) is, at the time,
owned, directly or indirectly, by such Person.
"Subsidiary Dividend" has the meaning set forth in
Section 6.11.
"Surplus Debenture" means the surplus debenture, dated July
31, 1992, issued by the Company to Seller in the original principal amount of
$25 million, together with all interest accrued thereon.
"Tax Allocation Agreements" means (i) that certain Tax
Allocation Agreement, dated as of August 16, 1991, among Seller, ILIC and the
other parties thereto and (ii) that certain Federal Income Tax Allocation
Agreement, dated September 15, 1986, between Seller and the Company.
"Tax Returns" shall mean all reports, returns, statements,
forms or other documents or information required to be filed with a taxing
authority with respect to the Taxes of the Company, ILIC or the Seller's Group
including consolidated federal income tax returns of the Seller's Group.
"Taxes" means all United States federal, state, county, local,
foreign and other taxes (including income taxes, premium taxes, excise taxes,
sales taxes, use taxes, gross receipts taxes, franchise taxes, ad valorem taxes,
severance taxes, capital levy taxes, transfer taxes, employment and
payroll-related taxes, property taxes, import duties and other governmental
charges and assessments (other than state guaranty fund assessments)), and
includes interest, additions to tax,
7
penalties and reasonable attorneys' fees and accountants' fees and disbursements
with respect thereto.
"Third Party Accountant" has the meaning set forth
in Section 2.5(b).
1.2. Interpretation. When a reference is made in this
Agreement to a Section, Article, Schedule or Exhibit, such reference shall be to
a Section, Article, Schedule or Exhibit of this Agreement unless otherwise
indicated or unless the context shall otherwise require. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. The
definitions of terms in this Agreement shall be applicable to both the plural
and the singular forms of the terms defined when either such form is used in
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder", and other words of
similar import, refer to this Agreement as a whole and not to any particular
Article, Section, subsection, paragraph or clause.
2. PURCHASE AND SALE OF SHARES.
2.1. Purchase and Sale of Shares. On the terms and subject to
the conditions set forth herein, Seller agrees to sell, transfer and deliver to
Buyer, free and clear of all Liens, and Buyer agrees to purchase from Seller,
the Shares for the consideration specified in Section 2.2.
2.2. Consideration. As consideration for the purchase of the
Shares, Buyer shall pay to Seller an aggregate amount (the "Purchase Price")
equal to the sum of (a) $3.575 million plus (b) an amount equal to the aggregate
Statutory Capital of the Company and ILIC as of the Business Day immediately
preceding the Closing Date. The Purchase Price shall be determined and paid in
accordance with the provisions of Sections 2.4 and 2.5. The Purchase Price shall
be allocated between the Company Shares and the ILIC Shares in the manner set
forth in Schedule 2.2 hereto.
2.3. Closing. The closing of the purchase and sale of the
Shares (the "Closing") shall take place at the offices of LeBoeuf, Lamb, ▇▇▇▇▇▇
& ▇▇▇▇▇▇, L.L.P., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇-▇▇▇▇ at 10:00
a.m., New York City time, on the later of (i) April 1, 1999, (ii) if elected by
Buyer, April 5, 1999 or (iii) the last day of the month in which the last
remaining condition set forth in Article 3 has been satisfied or waived, or at
such other place, time or date as the parties may mutually determine in writing.
(The actual date the Closing occurs is referred to herein as the "Closing
Date".)
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2.4. Payment of Purchase Price; Delivery of Shares. At the
Closing:
(a) Buyer shall deliver to Seller, by wire transfer to a bank
account designated by Seller, immediately available funds in an amount equal to
the Purchase Price; and
(b) Seller shall deliver to Buyer (i) a certificate or
certificates representing all of the Shares, duly endorsed in blank or
accompanied by duly executed instruments of transfer acceptable to Buyer and
accompanied by all requisite stock transfer tax stamps, and (ii) the Books and
Records.
2.5. Balance Sheets. (a) On the Closing Date, Seller will
deliver to Buyer estimated balance sheets of the Company and ILIC as of the
Business Day immediately preceding the Closing Date (the "Closing Balance
Sheets"), together with a calculation in reasonable detail of the Statutory
Capital of the Company and ILIC as of the date of the Closing Balance Sheets and
a certification of the chief financial officer of Seller that (i) the Closing
Balance Sheets were prepared from and in accordance with the Books and Records
and in accordance with SAP and (ii) the general account reserves and separate
account liabilities set forth therein (A) were determined in accordance with
generally accepted actuarial standards consistently applied, (B) were fairly
stated in accordance with sound actuarial principles, (C) were based on
actuarial assumptions that were appropriate for obligations of the Company and
ILIC, respectively, and (D) met the requirements of SAP. Such certification
shall also set forth Seller's calculation of the Statutory Capital of the
Company and ILIC as of the date of the Closing Balance Sheets and shall certify
that such calculation was made in accordance with the definition of Statutory
Capital set forth in Section 1.1.
(b) Seller shall, on or before the date that is 45 days after
the Closing Date, prepare proposed balance sheets of the Company and ILIC as of
the Business Day immediately preceding the Closing Date (the "Proposed Balance
Sheets"), in the same format as the Closing Balance Sheets, together with a
calculation in reasonable detail of the Statutory Capital of the Company and
ILIC as of the date of the Proposed Balance Sheets and a certification of the
chief financial officer of Seller to the same effect with respect to the
Proposed Balance Sheets and the Statutory Capital of the Company and ILIC as the
certification provided by such officer with respect to the Closing Balance
Sheets and the Statutory Capital of the Company and ILIC pursuant to Section
2.5(a). Buyer agrees that Seller and its accountants may have access to the
Books and Records (including accounting records) for purposes of preparing the
Proposed Balance Sheets and calculating the Statutory Capital of the Company and
ILIC as of the Business Day immediately preceding the Closing Date. Promptly
after their preparation, Seller shall deliver copies of the Proposed Balance
Sheets and calculation of the Statutory Capital of the Company and ILIC to
Buyer. Buyer
9
shall have the right to review such balance sheets and calculation of the
Statutory Capital of the Company and ILIC and comment thereon for a period of 45
days after receipt thereof. Seller agrees that Buyer and its accountants may
have access to the accounting records of Seller relating to its preparation of
the Proposed Balance Sheets and calculation of the Statutory Capital of the
Company and ILIC for the purpose of conducting their review. Any changes in the
Proposed Balance Sheets or calculation of the Statutory Capital of the Company
and ILIC that are agreed to by Buyer and Seller within 45 days of the
aforementioned delivery of such balance sheets by Seller shall be incorporated
into final balance sheets of the Companies as of the Business Day immediately
preceding the Closing Date (the "Final Balance Sheets") and a final calculation
of the Statutory Capital of the Company and ILIC as of the date of the Final
Balance Sheets. In the event that Buyer and Seller are unable to agree on the
manner in which any item or items should be treated in the preparation of the
Final Balance Sheets or calculation of the Statutory Capital of the Company and
ILIC within such 45-day period, separate written reports of such item or items
shall be made in concise form and shall be referred to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (the
"Third Party Accountant"). The Third Party Accountant shall determine within 14
days the manner in which such item or items shall be treated on the Final
Balance Sheets or calculation of the Statutory Capital of the Company and ILIC,
as the case may be; provided, however, that the dollar amount of each item in
dispute shall be determined between the range of dollar amounts proposed by
Seller and Buyer, respectively. The determinations by the Third Party Accountant
as to the items in dispute shall be in writing and shall be binding and
conclusive on Seller and Buyer and shall be so reflected in the Final Balance
Sheets and the calculation of the Statutory Capital of the Company and ILIC. The
fees, costs and expenses of retaining the Third Party Accountant shall be
allocated by the Third Party Accountant between Seller and Buyer, in accordance
with the Third Party Accountant's judgment as to the relative merits of Seller's
and Buyer's proposals in respect of the disputed items. Such determination shall
be binding and conclusive on Seller and Buyer. Following the resolution of all
disputed items, Seller shall prepare the Final Balance Sheets and calculation of
the Statutory Capital of the Company and ILIC and shall deliver copies of such
balance sheets and such calculation to Buyer.
(c) In the event the aggregate amount of the Statutory Capital
of the Company and ILIC reflected on the Closing Balance Sheets is less than the
amount of the Statutory Capital of the Company and ILIC reflected on the Final
Balance Sheets, Buyer shall transfer to Seller additional cash in the amount of
such difference, together with interest thereon from and including the Closing
Date to but not including the date of such transfer computed at an annual rate
equal to the 90-day Treasury rate in effect on the Closing Date. In the event
the aggregate amount of the Statutory Capital of the Company and ILIC reflected
on the Closing Balance Sheets is more than the amount of the Statutory Capital
of the Company and ILIC reflected on the
10
Final Balance Sheets, Seller shall transfer to Buyer cash in the amount of such
difference, together with interest thereon computed at the annual rate as
specified above from and including the Closing Date to but not including the
date of such transfer. Any transfer of cash required under this Section 2.5(c)
shall be made within ten Business Days of the date of the delivery of the Final
Balance Sheets and calculation of the Statutory Capital of the Company and ILIC
to Buyer.
3. CONDITIONS TO CLOSING.
3.1. Conditions Precedent to Obligation of Buyer. The
obligation of Buyer to consummate the Closing is subject to satisfaction of the
following conditions on or prior to the Closing Date (unless expressly waived in
writing by Buyer on or prior to the Closing Date):
3.1.1. Compliance by Seller. All of the
terms, covenants and conditions of this Agreement to be complied with and
performed by Seller on or prior to the Closing Date shall have been complied
with and performed by it in all material respects, and the representations and
warranties made by Seller in this Agreement shall be true and correct in all
material respects on and as of the Closing Date (except that representations and
warranties qualified by the terms "material" or "Material Adverse Effect" shall
be true and correct in all respects) with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date,
except as a result of actions contemplated or permitted by this Agreement and
except that any such representations and warranties that are given as of a
particular date and relate solely to a particular date or period shall be true
and correct as of such date or period.
3.1.2. Compliance Certificate. Seller shall
deliver to Buyer a certificate dated as of the Closing Date and signed by an
executive officer of Seller certifying that the conditions specified in this
Section 3.1 have been fulfilled.
3.1.3. No Injunctions or Restraints. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any Governmental Authority or other legal restraint or prohibition
preventing the consummation of the Closing shall be in effect.
3.1.4. Consents and Approvals. All
consents, approvals, authorizations, licenses, permits and orders of, and
registrations and filings with, and notices to, any Governmental Authority
required to be obtained, made or given prior to the Closing Date in connection
with the consummation of the transactions contemplated hereby shall have been
duly obtained, made or given and shall be in full force and effect at the
Closing, without the imposition of any conditions or limitations other than
conditions customarily imposed by
11
insurance regulatory authorities in connection with similar transactions.
3.1.5. Opinion of Counsel to Seller. Buyer
shall have received an opinion, dated as of the Closing Date, of Weil, Gotshal &
▇▇▇▇▇▇ LLP, counsel to Seller, in the form attached hereto as Exhibit A.
3.1.6. HSR Act. The waiting period (and any
extensions thereof) applicable to the transactions contemplated hereby under the
HSR Act shall have been terminated or shall have otherwise expired.
3.1.7. Termination of Agreements. Seller
shall have delivered to Buyer evidence, satisfactory in form and substance to
Buyer, that all Contracts listed on Schedule 4.13(c) shall have been terminated
as to the Company and/or ILIC, as applicable, and Seller will have caused the
Company and ILIC to be fully released from all Liabilities with respect to such
Contracts.
3.1.8. Investment Assets. Buyer shall have
received the certificate of the chief financial officer of Seller
as set forth in Section 2.5(a).
3.1.9. Resignation of Officers and
Directors. Buyer shall have received the written resignation of
each officer and director of each of the Company and ILIC,
effective as of the Closing Date.
3.1.10. Corporate Action. Buyer will have
received from Seller a certificate of its Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Board of Directors of Seller
approving this Agreement and authorizing the consummation of the transactions
contemplated hereby and (ii) the incumbency and signatures of the officers of
Seller executing this Agreement.
3.1.11. Surplus Debenture. Seller shall have
used all commercially reasonable efforts to (i) cause the Company to pay in full
to Seller the principal amount of the Surplus Debenture, plus any interest, fees
or expenses due or accrued thereon or arising out of such payment or (ii)
contribute the Surplus Debenture to the capital of the Company and caused the
Company to cancel the Surplus Debenture.
3.2. Conditions Precedent to Obligation of Seller. The
obligation of Seller to consummate the Closing is subject to satisfaction of the
following conditions on or prior to the Closing Date (unless expressly waived in
writing by Seller on or prior to the Closing Date):
3.2.1. Compliance by Buyer. All of the
terms, covenants and conditions of this Agreement to be complied
with and performed by Buyer on or prior to the Closing Date shall
12
have been complied with and performed by it in all material respects, and the
representations and warranties made by Buyer in this Agreement shall be true and
correct in all material respects on and as of the Closing Date (except that
representations and warranties qualified by the terms "material" or "material
adverse effect" shall be true and correct in all respects) with the same force
and effect as though such representations and warranties had been made on and as
of the Closing Date, except as a result of actions contemplated or permitted by
this Agreement and except that any such representations and warranties that are
given as of a particular date and relate solely to a particular date or period
shall be true and correct as of such date or period.
3.2.2. Compliance Certificate. Buyer shall
deliver to Seller a certificate dated as of the Closing Date and signed by an
executive officer of Buyer certifying that the conditions specified in this
Section 3.2 have been fulfilled.
3.2.3. No Injunctions or Restraints. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any Governmental Authority or other legal restraint or prohibition
preventing the consummation of the Closing shall be in effect.
3.2.4. Consents and Approvals. All
consents, approvals, authorizations, licenses, permits and orders of, and
registrations and filings with, and notices to, any Governmental Authority
required to be obtained, made or given prior to the Closing Date in connection
with the consummation of the transactions contemplated hereby shall have been
duly obtained, made or given and shall be in full force and effect at the
Closing, without the imposition of any conditions or limitations other than
conditions customarily imposed by insurance regulatory authorities in connection
with similar transactions.
3.2.5. Opinion of Counsel to Buyer. Seller
shall have received the opinion, dated as of the Closing Date, of ▇▇▇▇▇ ▇. ▇▇▇▇,
counsel to Buyer, in the form attached hereto as Exhibit B.
3.2.6. HSR Act. The waiting period (and any
extension thereof) applicable to the transactions contemplated hereby under the
HSR Act shall have been terminated or shall have otherwise expired.
3.2.7. Corporate Action. Seller will have
received from Buyer a certificate of its Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Board of Directors of Buyer
approving this Agreement and authorizing the consummation of the transactions
contemplated hereby and (ii) the incumbency and signatures of the officers of
Buyer executing this Agreement.
13
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer as follows:
4.1. Corporate Existence. Each of Seller, the Company and ILIC
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized. Each of the Company and ILIC
has full power and authority to own, lease and operate its assets and Properties
and to conduct its business as now being conducted. Except as otherwise
disclosed on Schedule 4.1, each of the Company and ILIC is licensed to transact
business and is in good standing in each of the respective jurisdictions listed
on Schedule 4.1.
4.2. Authorization; Enforcement. Seller has the full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Seller has taken all necessary corporate action to duly
and validly authorize its execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Seller. This Agreement, assuming due execution
and delivery by Buyer, constitutes a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except to the extent
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar Laws affecting creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3. Capital Stock of the Company; Ownership of the Company
Shares. (a) The authorized capital stock of the Company consists of 110,000
shares of common stock, par value $31.00 per share, of which 110,000 are issued
and outstanding and constitute the Company Shares. All of the Company Shares
have been duly authorized and validly issued, are fully paid and non-assessable.
The Company Shares have not been issued in violation of, and none of the Company
Shares is subject to, any preemptive or subscription rights, right of first
refusal or any other right of any Person. Except as set forth above and except
for the Surplus Debenture, there are no shares of capital stock or other
securities of the Company outstanding. There are no outstanding warrants,
options, Contracts, convertible or exchangeable securities or other commitments
(other than this Agreement) pursuant to which Seller or the Company is or may be
obligated to issue, sell, purchase, return or redeem any shares of capital stock
or other securities of the Company, and there are no equity securities of the
Company reserved for issuance for any purpose.
(b) Seller is the record and beneficial owner of the Company
Shares, free and clear of any Liens (other than restrictions imposed by
applicable Laws with respect to the offering, distribution, acquisition and
disposition of securities
14
generally and of securities of insurance companies in particular). Upon
consummation of the transactions contemplated by this Agreement, Buyer will
acquire record and beneficial ownership of the Company Shares, free and clear of
any Liens (other than Liens created by, or permitted to be created by, Buyer,
and other than restrictions imposed by applicable Laws with respect to the
offering, distribution, acquisition and disposition of securities generally and
of securities of insurance companies in particular). Other than this Agreement,
the Company Shares are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding, including any
such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the Company
Shares.
4.4. Subsidiaries; Capital Stock of ILIC; Ownership of ILIC
Shares. (a) As of the Closing Date, the Company will not directly or indirectly
own of record or beneficially any capital stock of or other equity interest in
any Person, other than the Company-Owned ILIC Shares. ILIC does not have any
Subsidiaries and, as of the Closing Date, will not directly or indirectly own of
record or beneficially any capital stock of or other equity interest in any
Person.
(b) The authorized capital stock of ILIC consists of 300,000
shares of common stock, par value $7.00 per share, of which 300,000 are issued
and outstanding and constitute the ILIC Shares. All outstanding shares of
capital stock of ILIC have been duly authorized and validly issued, are fully
paid and non-assessable. The ILIC Shares have not been issued in violation of,
and none of the ILIC Shares is subject to, any preemptive or subscription
rights, right of first refusal or any other right of any Person. Except as set
forth above, there are no shares of capital stock or other securities of ILIC
outstanding. There are no outstanding warrants, options, Contracts, convertible
or exchangeable securities or other commitments (other than this Agreement)
pursuant to which Seller, the Company or ILIC is or may be obligated to issue,
sell, purchase, return or redeem any shares of capital stock or other securities
of ILIC, and there are no equity securities of ILIC reserved for issuance for
any Person.
(c) Seller is the record and beneficial owner of the
Seller-Owned ILIC Shares, and Seller is the beneficial owner (by virtue of its
ownership of the Company) of the Company-Owned ILIC Shares, in each case free
and clear of any Liens (other than restrictions imposed by applicable Laws with
respect to the offering, distribution, acquisition and disposition of securities
generally and voting or equity securities of insurance companies in particular).
The Company is the record owner of the Company-Owned ILIC Shares, free and clear
of any Liens (other than restrictions imposed by applicable Laws with respect to
the offering, distribution, acquisition and disposition or securities generally
and voting or equity securities of insurance companies in particular). Upon
consummation of the transactions
15
contemplated by this Agreement, Buyer will acquire record and beneficial
ownership of the Seller-Owned ILIC Shares, and beneficial ownership (by virtue
of its ownership of the Company) of the Company-Owned ILIC Shares, free and
clear of any Liens (other than Liens created by, or permitted to be created by,
Buyer, and other than restrictions imposed by applicable Laws with respect to
the offering, distribution, acquisition and disposition of securities generally
and of securities of insurance companies in particular). Other than this
Agreement, the ILIC Shares are not subject to any voting trust agreement or
other contract, agreement, arrangement, commitment or understanding restricting
or otherwise relating to the voting, dividend rights or disposition of the ILIC
Shares.
4.5. No Conflict. Neither the execution, delivery and
performance by Seller of this Agreement nor the consummation of the transactions
contemplated hereby will: (i) violate any provision of the certificate of
incorporation, by-laws or other charter or organizational document of Seller,
the Company or ILIC; (ii) violate, conflict with or result in the breach of any
of the terms of, result in any modification of the effect of, otherwise give any
other contracting party the right to terminate, or constitute (or with notice or
lapse of time or both constitute) a default under, any Contract to which Seller,
the Company or ILIC is a party or by or to which either of them or their assets
or Properties may be bound or subject, except for such violations, conflicts or
breaches that individually or in the aggregate do not have and could not
reasonably be expected to have a Material Adverse Effect; (iii) violate any
order, judgment, injunction, award or decree of any Governmental Authority
against, or binding upon, or any Contract with, or condition imposed by, any
Governmental Authority binding upon, Seller, the Company or ILIC, or upon the
business, Properties or assets of Seller, the Company or ILIC, except for such
violations that individually or in the aggregate do not have and could not
reasonably be expected to have a Material Adverse Effect; (iv) subject to making
the filings and obtaining the consents contemplated by Section 4.7, violate any
statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to Seller, the Company or ILIC, or to the business,
Properties or assets of Seller, the Company or ILIC, except for such violations
that individually or in the aggregate do not have and could not reasonably be
expected to have a Material Adverse Effect; or (v) except for this Agreement,
result in the creation or imposition of any Lien on any of the Properties or
assets of Seller, the Company or ILIC.
4.6. Certificate of Incorporation and By-laws. Seller has
delivered to Buyer true, complete and correct copies of the certificate of
incorporation or charter, as applicable, and the by-laws of each of the Company
and ILIC and all amendments thereof. The minute books of each of the Company and
ILIC accurately reflect in all material respects all resolutions adopted at all
meetings (and consents in lieu of meetings) of its shareholders and all
resolutions adopted at all meetings (and
16
consents in lieu of meetings) of its Board of Directors and all committees of
its Board of Directors.
4.7. Consents. No consent, license, approval, order or
authorization of, or registration, declaration or filing with, any third party,
including any Governmental Authority, is required to be obtained, made or given
by or with respect to Seller, the Company or ILIC in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby other than (i) those required under the
insurance laws of the States of New York and Missouri and under the HSR Act,
(ii) placement of appropriate disclosure stickers on product prospectuses
relating to this Agreement and the transactions contemplated hereby, (iii)
compliance with the relicensing requirements of various jurisdictions in which
the Company and ILIC are licensed to transact business, and (iv) those required
or appropriate in connection with the election contemplated under Section 7.6.
4.8. Compliance with Law. (a) Each of the Company and ILIC has
complied in all material respects with, and is now complying in all material
respects with, all foreign, federal, state and local statutes, laws,
regulations, ordinances, judgments, injunctions, orders, licenses, approvals,
permits and other requirements (collectively, "Laws") applicable to the Company
or ILIC, as the case may be, or its business, Properties or assets, except for
such failures to so comply that individually or in the aggregate do not have and
could not reasonably be expected to have a Material Adverse Effect.
(b) The Separate Accounts have been duly established by all
necessary corporate action of the Company and ILIC, as applicable, under the
laws of the respective state of domicile of the Company and ILIC.
(c) Each of the Separate Accounts is registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), or is exempt from the registration requirements of the 1940 Act.
The operations of the registered Separate Accounts are in material compliance
with the 1940 Act and all applicable regulations, rules, releases and orders of
the SEC. All registration forms, amendments, reports and filings required to be
made by the Separate Accounts have been timely filed and are accurate in all
material respects.
4.9. Products. (a) Except for those contracts listed on
Schedule 4.9(a), all life insurance contracts issued or assumed by the Company
or ILIC which are subject to Sections 101 or 7702 of the Code qualify (and have
qualified since issuance) as "life insurance contracts" within the meaning of
Section 101 or 7702 of the Code and have been administered in accordance with
Sections 101 and 7702 of the Code, as applicable, except for any failures to so
qualify or administer that individually or in the aggregate do not have and
could not reasonably be expected to have a Material Adverse Effect. Except for
those contracts
17
listed on Schedule 4.9(a), no life insurance contract issued or assumed by any
of the Company or ILIC is a "modified endowment contract" within the meaning of
Section 7702A of the Code, except for those life insurance contracts that
qualify and are administered as modified endowment contracts and with respect to
which the policyholder acknowledged and agreed, before the date of issuance of
such contract (or if any such contract became a modified endowment contract upon
conversion subsequent to the date of issuance, before the date of such
conversion), to such qualification and administration, and except for any such
characterizations as a "modified endowment contract" that individually or in the
aggregate do not have and could not reasonably be expected to have a Material
Adverse Effect.
(b) All annuity contracts issued or assumed by the Company or
ILIC that are subject to Section 72 of the Code contain all of the necessary
provisions of Section 72 of the Code, and all annuity contracts that are
represented as qualifying under Sections 130, 401, 403, 408 or 457 of the Code
contain (and have contained since issuance) all provisions required for
qualification under such sections of the Code, except, in either such case, for
any failures to contain all such provisions that individually or in the
aggregate do not have and could not reasonably be expected to have a Material
Adverse Effect.
(c) All contracts issued or assumed by the Company or ILIC
that are subject to Section 817 of the Code have met the diversification
requirements applicable thereto since issuance. The issuer of each such contract
is treated, for federal Tax purposes, as the owner of the assets underlying such
contract.
(d) The Company and ILIC have each complied with all of the
reporting and withholding requirements provided in Sections 3405 and 6047 of the
Code.
4.10. Litigation. Except as disclosed on Schedule 4.10, there
are no actions, suits, proceedings, claims or legal, administrative or
arbitration proceedings or investigations pending or, to the Knowledge of
Seller, threatened (i) against or involving the Company or ILIC or its business,
Properties or assets (other than insurance claims arising in the ordinary course
of business with respect to policies and annuity contracts issued by the Company
or ILIC) or (ii) which question the validity of this Agreement or any action
taken by Seller, the Company or ILIC pursuant to this Agreement or the
transactions contemplated hereby.
4.11. Insurance Licenses. Seller has made available to Buyer
true, complete and correct copies of all insurance licenses issued to the
Company or ILIC from each jurisdiction set forth on Schedule 4.1 in which each
of the Company and ILIC is licensed (collectively, the "Insurance Licenses").
Except as set forth on Schedule 4.11(a), to the
18
Knowledge of Seller, no event has occurred that, with or without notice or lapse
of time or both, could reasonably be expected to result in the revocation,
suspension, lapse or limitation of any of such Insurance Licenses. Neither the
Company nor ILIC has transacted any insurance business in any jurisdiction
requiring an insurance license therefor in which it did not possess such an
insurance license, other than those that the failure to own or hold individually
or in the aggregate with other such failures do not have and cannot reasonably
be expected to have a Material Adverse Effect. Schedule 4.11(b) sets forth a
true, correct and complete list of the lines of insurance which each of the
Company and ILIC is authorized to write in each of the respective jurisdictions
set forth on Schedule 4.1.
4.12. Regulatory Filings. Each of the Company and ILIC has
filed all reports, data, registrations, filings, other information and
applications required to be filed with or otherwise provided to Governmental
Authorities with jurisdiction over the Company or ILIC, as the case may be, or
its business, Properties or assets, in each case except such failures to file
that individually or in the aggregate do not have and could not reasonably be
expected to have a Material Adverse Effect, and all required regulatory
approvals in respect thereof are in full force and effect in all material
respects. All such regulatory filings were in compliance in all material
respects with applicable Laws, and no material deficiencies have been asserted
by any such Governmental Authority with respect to such regulatory filings that
have not been satisfied.
4.13. Contracts. (a) Schedule 4.13(a) sets forth a true,
complete and correct list of each Contract (collectively, the "Scheduled
Contracts") to which the Company or ILIC is a party or by which either is bound
that is currently in effect or is not otherwise terminable without penalty or
payment on not more than 30 days notice (other than direct insurance policies
written by the Company or ILIC in the ordinary course of business), including
all Contracts relating to: reinsurance or loss portfolio transfers; transactions
between Affiliates; managing general agents; agents and brokers; borrowing of
money; purchase of materials; supplies, equipment, products or services; the use
of trademarks, trade names or copyrights; distribution of insurance products; or
leases (capital or otherwise). The Scheduled Contracts which consist of
transactions under which the Company or ILIC previously sold Subsidiaries or
blocks of its business and under which the Company or ILIC retains
responsibilities, obligations and/or potential liability are set forth on
Schedule 4.13(b) (the "Prior Transactions"). The Scheduled Contracts which
Seller and Buyer have agreed will be terminated as to the Company and/or ILIC,
as applicable, as of the Closing Date are set forth on Schedule 4.13(c).
(b) With respect to either the Company's or ILIC's performance
of its obligations under the Scheduled Contracts, no event of default or
non-compliance, or event which with the passage of time, giving of notice or
both, would
19
constitute such an event of default or non-compliance, has occurred or is
continuing under any such Scheduled Contract. With respect to the performance by
any other party of its obligations under the Scheduled Contracts, to the
Knowledge of Seller, no event of default or non-compliance, or event which with
the passage of time, giving of notice or both, would constitute such an event of
default or non-compliance, has occurred or is continuing under any such
Scheduled Contract.
4.14. Finder's Fees. No broker or finder has acted directly or
indirectly for Seller or any of its Affiliates in connection with this Agreement
or the transactions contemplated hereby, nor has Seller or any of its Affiliates
taken any action in connection with this Agreement or the transactions
contemplated hereby so as to give rise to any valid claim against Buyer, the
Company or ILIC for any broker's or finder's fee or other commission or
compensation.
4.15. Statutory Statements. (a) Seller has delivered to Buyer
true, correct and complete copies of (i) the Annual Statements of the Company as
filed with the Missouri Insurance Department for the years ended December 31,
1995, 1996 and 1997, (ii) the Quarterly Statement of the Company as filed with
the Missouri Insurance Department for the quarterly period ended September 30,
1998, (iii) the Annual Statements of ILIC as filed with the New York Insurance
Department for the years ended December 31, 1995, 1996 and 1997, and (iv) the
Quarterly Statement of ILIC as filed with the New York Insurance Department for
the quarterly period ended September 30, 1998, in each case including all
exhibits, interrogatories, schedules and any actuarial opinions, affirmations or
certifications or other supporting documents filed in connection therewith
(collectively, the "Statutory Statements"). The Statutory Statements were
prepared in conformity with SAP prescribed or permitted by the Missouri
Insurance Department with respect to the Statutory Statements of the Company and
the New York Insurance Department with respect to the Statutory Statements of
ILIC, and present fairly the respective statutory financial positions of the
Company and ILIC as at the respective dates thereof and the respective results
of operations of the Company and ILIC for the respective periods then ended. The
Statutory Statements complied in all material respects with all applicable laws,
rules and regulations when filed, and no material deficiency has been asserted
with respect to any Statutory Statements by any Governmental Authority.
(b) The amounts shown in the Statutory Statements as reserves
and liabilities for past and future insurance policy and annuity benefits,
losses, claims and expenses under insurance policies and annuities as of the end
of each such year were determined in accordance with generally accepted
actuarial standards consistently applied, were fairly stated in accordance with
sound actuarial principles, were based on actuarial assumptions that were
appropriate for obligations of the Company and ILIC, respectively, and met the
requirements of SAP.
20
4.16. Assets and Properties. Except for securities deposited
by the Company or ILIC with Governmental Authorities as set forth on Schedule
4.22, each of the Company and ILIC has good and marketable title to all assets
and Properties that it purports to own, free of any Liens, other than
restrictions imposed by applicable Laws with respect to the offering,
distribution, acquisition and disposition of securities generally and of
securities of insurance companies in particular.
4.17. Employee Benefits. As of the Closing Date, to the
Knowledge of Seller, neither the Company nor ILIC will have any Liabilities
under any Plan, ERISA or the minimum funding requirements of the Code which have
not been assumed by Seller.
4.18. No Material Adverse Change. Except as set forth on
Schedule 4.18, except as the result of transactions with Buyer and its
Subsidiaries and except for changes in general economic conditions, changes in
prevailing interest rates and changes in applicable law, since June 30, 1998,
there has been (a) no change, or development involving a prospective change, in
the general affairs, management, shareholders' equity, assets, Liabilities Known
to Seller, Properties, business, operations, condition (financial or otherwise)
or results of operations of either the Company or ILIC, that has resulted in or
may reasonably be expected to result in, either alone or in conjunction with all
other such changes and developments, a Material Adverse Effect, other than those
resulting from matters relating to or contemplated under this Agreement, (b) no
material change in the manner in which the business of the Company or ILIC is
conducted other than those resulting from matters relating to or contemplated
under this Agreement and (c) no event of the type prohibited by Section 6.2.
4.19. Intangible Property. Neither the Company nor ILIC has
received written notice that it is infringing (or is alleged to be infringing)
on any trademark, trade name registration, copyright or any application pending
therefor.
4.20. Insurance. Schedule 4.20 sets forth a true, correct and
complete list and brief description (specifying the insurer, describing each
pending claim thereunder affecting or involving the Company or ILIC as the
insured party, setting forth the aggregate amounts paid out with respect to such
claims under each such policy through the date hereof, and the aggregate limit,
if any, of the insurer's liability thereunder) of all policies or binders of
errors and omissions, theft, life, fidelity, fire, liability, products
liability, workers' compensation, vehicular and other insurance held by or on
behalf of, or issued to, the Company or ILIC. All of such policies and binders
are, to Seller's Knowledge, in full force and effect; there are no overdue
premiums thereon; and neither the Company nor ILIC has received any notice of
any proposed cancellation or non-renewal of any such policy or binder; provided,
however, that, effective as of the Closing Date, Seller intends to remove
21
the Companies from future coverage under all insurance policies issued to
Seller.
4.21. Employees. As of the Closing Date, to the Knowledge of
Seller, neither the Company nor ILIC will have any employees or any Liabilities
with respect to any former employees which have not been assumed by Seller.
4.22. Security Deposits. Schedule 4.22 sets forth a true,
correct and complete list of all securities deposited by each of the Company and
ILIC with Governmental Authorities as of the date hereof.
4.23. Powers of Attorney; Guarantees; Required Insurance;
Agents. Except as set forth on Schedule 4.23, neither the Company nor ILIC has
any outstanding powers of attorney or any Liability Known to Seller as
guarantor, surety, cosigner or endorser (other than for purposes of collection
in the ordinary course of business of the Company or ILIC). Neither the Company
nor ILIC is obligated to maintain insurance for the benefit of any Person,
including its customers, other than in the ordinary course of its insurance
business. Except with respect to CNL, Inc., ▇▇▇▇▇▇▇ Fund Distributors, Inc. and
▇▇▇▇▇▇▇ Variable Life Investment Fund and authorized agents of such entities, as
of the Closing Date, the Company and ILIC will have each cancelled all Contracts
with, and otherwise withdrawn the authority of, all brokers or agents previously
appointed by it.
4.24. Bank Accounts. Schedule 4.24 sets forth a true, correct
and complete list of bank accounts and investment accounts maintained by each of
the Company and ILIC, including the name of each bank or other institution,
account numbers and a list of signatories to such account.
4.25. Disclosure. Neither the representations or warranties
made by Seller in this Agreement nor any certificate or other document furnished
by or on behalf of Seller to Buyer pursuant hereto contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances in which they were made.
4.26. Environmental Protection. To the Knowledge of Seller,
the Company or ILIC, neither Seller, the Company or ILIC, nor any prior owners
or occupants, has disposed of hazardous waste (as that term is defined under the
environmental protection laws and regulations of all applicable federal, state
and local authorities) on, or failed to remove hazardous waste from, nor is
there any hazardous waste of any kind present on or under the surface of, any
real property currently or previously owned by the Company or ILIC (the "Owned
Property") in violation of any applicable environmental law. To the Knowledge of
Seller, the Company or ILIC, the Owned Property and its use complies in all
material respects and has complied in all material respects with all applicable
Environmental Protection Agency, Occupational
22
Safety and Health Administration and all other federal, state and local laws and
administrative rules and regulations governing the soil, water and air in or
around the Owned Property. To the Knowledge of Seller, the Company or ILIC,
there is no pending or threatened enforcement action, administrative order or
proceeding, nor is there any notice, violation or investigation, relating to
such laws, ordinances, rules or regulations concerning the Company, ILIC or the
Owned Property, or any portion thereof, or concerning the Owned Property and any
previous owner of any portions thereof, nor has any event occurred or is any
event occurring which could give rise to any such action, order, proceeding,
violation or investigation.
4.27. Guaranty Fund Assessments. The Company and ILIC have
each (i) timely paid all guaranty fund assessments that are due, or claimed or
asserted by any insurance regulatory authority to be due from it, or (ii)
provided for all such assessments in its financial statements to the extent
necessary to be in conformity with SAP.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as follows:
5.1. Corporate Existence. Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Illinois.
5.2. Authorization; Enforcement. Buyer has the full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Buyer has taken all necessary corporate action to duly
and validly authorize its execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Buyer. This Agreement, assuming due execution and
delivery by Seller, constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except to the extent
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar Laws affecting creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
5.3. No Conflict. Neither the execution, delivery and
performance by Buyer of this Agreement nor the consummation of the transactions
contemplated hereby will: (i) violate any provision of the charter or by-laws of
Buyer; (ii) violate, conflict with or result in the breach of any of the terms
of, result in any modification of the effect of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default under, any Contract to which Buyer is a
party or by or to which it or its assets or Properties may be bound or subject
23
except for such violations, conflicts or breaches that individually or in the
aggregate do not have and could not reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement or on the
ability of Buyer to perform its obligations under this Agreement in a timely
manner; (iii) violate any order, judgment, injunction, award or decree of any
Governmental Authority against, or binding upon, or any Contract with, or
condition imposed by, any Governmental Authority binding upon, Buyer, or upon
the business, Properties or assets of Buyer except for such violations that
individually or in the aggregate do not have and could not reasonably be
expected to have a material adverse effect on the validity or enforceability of
this Agreement or on the ability of Buyer to perform its obligations under this
Agreement in a timely manner; or (iv) subject to making the filings and
obtaining the consents contemplated by Section 4.7, violate any statute, law or
regulation of any jurisdiction as such statute, law or regulation relates to
Buyer, or to the business, Properties or assets of Buyer except for such
violations that individually or in the aggregate do not have and could not
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or on the ability of Buyer to perform its
obligations under this Agreement in a timely manner.
5.4. Consents. No consent, license, approval, order or
authorization of, or registration, declaration or filing with, any third party,
including any Governmental Authority, is required to be obtained, made or given
by or with respect to Buyer in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby other than (i) those required under the insurance laws of
the States of New York and Missouri and under the HSR Act, (ii) placement of
appropriate disclosure stickers on product prospectuses relating to this
Agreement and the transactions contemplated hereby, (iii) compliance with the
relicensing requirements of various jurisdictions in which the Company and ILIC
are licensed to transact business, and (iv) those required or appropriate in
connection with the election contemplated under Section 7.6.
5.5. Litigation. There are no actions, suits, proceedings,
claims or legal, administrative or arbitration proceedings or investigations
pending or, to the Knowledge of Buyer, threatened which question the validity of
this Agreement or any action taken by Buyer pursuant to this Agreement or the
transactions contemplated hereby.
5.6. Finder's Fees. No broker or finder has acted directly or
indirectly for Buyer or any of its Affiliates in connection with this Agreement
or the transactions contemplated hereby, nor has Buyer or any of its Affiliates
taken any action in connection with this Agreement or the transactions
contemplated hereby so as to give rise to any valid claim against Seller for any
broker's or finder's fee or other commission or compensation.
24
5.7. Investment Purpose. Buyer is buying the Shares for
investment only and not with a view to resale in connection with any
distribution of any of the Shares except in compliance with the Act and all
other applicable securities laws. Buyer understands that the Shares have not
been registered under the Act or under the securities laws of any state and that
the Shares may not be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of in the absence of an effective registration under the
Act except pursuant to a valid exemption from such registration.
6. COVENANTS AND AGREEMENTS.
6.1. Conduct of Business of the Companies. Except as otherwise
contemplated by this Agreement or specifically consented to in writing by Buyer,
from the date of this Agreement through the Closing Date, Seller shall cause the
Companies to (i) conduct their business only in the ordinary course consistent
with past practices, (ii) maintain insurance coverages, (iii) comply in all
material respects with all applicable Laws, (iv) preserve and maintain in full
force and effect the Insurance Licenses and (v) perform in all material respects
their obligations under all Contracts to which either is a party or by which
either is bound.
6.2. Restrictions. (a) Except as otherwise contemplated by
this Agreement, set forth on Schedule 6.2 or specifically consented to in
writing by Buyer, from the date of this Agreement through the Closing Date,
Seller shall not permit either the Company or ILIC to:
(i) amend its certificate of incorporation or
charter, as applicable, or by-laws;
(ii) declare or pay any dividend, make any other distributions
to its shareholder(s) whether or not upon or in respect of any shares of
its capital stock or make any expenditure, unless such declaration,
payment or making would be permitted under applicable insurance Laws to be
declared, paid or made without the approval of the Insurance Department of
the State of Missouri (with respect to the Company) or New York (with
respect to ILIC) (in either case, a "State Regulator") as the case may be,
or, if such approval of such State Regulator is required by applicable
insurance Laws, unless such approval is obtained, provided, however, that
no such declaration, payment or making that would individually or in the
aggregate reduce the statutory capital and surplus of the Company below
$10,000,000 or of ILIC below $10,000,000 is permitted irrespective of any
approval of such State Regulator.
(iii) redeem or otherwise acquire any shares of its capital
stock or issue any capital stock or any option, warrant or right relating
thereto or any securities
25
convertible into or exchangeable for any shares of capital
stock;
(iv) incur or assume any Liability for borrowed money or
guarantee any such Liability;
(v) subject to any Lien any of its Properties or
assets;
(vi) except for dividends and distributions permitted by
Sections 6.2(a)(ii) and 6.11 and normal intercompany payments relating to
Taxes and other operating expenses paid by Seller on either the Company's
or ILIC's behalf (including pursuant to the General Services Agreement,
the Investment Advisory Agreement and the Tax Allocation Agreements), pay,
lend or advance any amount to, or sell, transfer or lease any of its
Properties or assets to, or enter into any agreement or arrangement with,
Seller or any of its Affiliates;
(vii) make any change in any method of accounting or accounting
practice or policy other than those required by SAP;
(viii) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any Person or division thereof or otherwise acquire or agree
to acquire any assets that are material individually or in the aggregate
to the Company or ILIC;
(ix) except for dividends and distributions permitted by
Sections 6.2(a)(ii) and 6.11, sell, lease or otherwise dispose of, or
agree to sell, lease or otherwise dispose of, any of its Properties or
assets that are material, individually or in the aggregate, to the Company
or ILIC, except in the ordinary course of business consistent with past
practice;
(x) enter into any lease of Property;
(xi) issue any new insurance policies or appoint any insurance
agents or managing general agents; or
(xii) agree, whether in writing or otherwise, to do any of the
foregoing.
(b) Except as specifically consented to in writing by Buyer,
Seller shall not, and shall not permit the Company or ILIC to, take any action
or omit to take any action that would result in a breach of any representation
or warranty of Seller contained in this Agreement.
6.3. Access to Information; Due Diligence; Confidentiality.
Prior to the Closing Date, Buyer shall be
26
entitled, through its employees, agents and representatives, to make such
reasonable investigation of the assets, liabilities, financial condition,
Properties, business and operations of the Company and ILIC as Buyer may
reasonably deem necessary or appropriate, and for such purposes to have access
to the Books and Records and Contracts and facilities of the Company and ILIC,
and access to the personnel of the Company, ILIC and Seller with respect to the
Company and ILIC, including an examination of the corporate records and minute
books, financial statements and projections, insurance department filings,
reports and examinations, summaries of pending litigation, tax returns,
accounting and actuarial methods, business plans and prospects, in each case
wherever located, of the Company and ILIC. Any such investigation, access and
examination shall be conducted during regular business hours upon reasonable
prior notice and under other reasonable circumstances, and Seller, the Company
and ILIC and their respective employees, agents and representatives, including
their respective counsel and independent public accountants, shall cooperate
fully with such employees and representatives in connection with such
investigation, access and examination. Buyer shall hold such documents and other
material, including information concerning Seller, in confidence in accordance
with the terms and conditions of the Confidentiality Agreement by and between
the Company and Buyer dated November 12, 1997, as amended as of November 12,
1998 (the "Confidentiality Agreement"). Buyer shall hold all documents and other
material and information described in this Section 6.3 relating to Seller's tax
positions, information, analyses, returns, filings, and similar matters in
confidence in accordance with the terms and conditions of the Confidentiality
Agreement without regard to the term of such agreement.
6.4. Acquisition Proposals. From the date hereof through the
Closing Date, Seller shall not and shall not permit any of its Affiliates or any
of the officers, directors, employees, representatives or agents of Seller or
such Affiliates, directly or indirectly, to solicit, initiate or participate in
any way in discussions or negotiations with, or provide any information or
assistance to, or enter into any agreement with, any Person or group of Persons
(other than Buyer) concerning any acquisition of a substantial equity interest
in, or in a merger, consolidation, liquidation, dissolution, disposition of
assets (other than in the ordinary course of business) of the Company or ILIC,
or any disposition of any of the securities of the Company or ILIC (other than
sales of investment securities in its investment portfolio and other than the
dividend by the Company of stock of LUK-CPG, Inc. and its Subsidiaries to Seller
to be consummated on or prior to the Closing Date) (each, an "Acquisition
Proposal"), or assist or participate in, facilitate or encourage any effort or
attempt by any other Person to do or seek to do any of the foregoing.
Notwithstanding the foregoing, an "Acquisition Proposal" shall not include the
direct or indirect solicitation, initiation or participation by Seller, its
Affiliates, or any of the officers, directors, employees, representatives or
agents of Seller or such
27
Affiliates, in any way in discussions or negotiations with, or providing any
information or assistance to, or entering into any agreement with, any Person or
group of Persons concerning any acquisition of a substantial equity interest in,
or in a merger, consolidation, liquidation, dissolution, disposition of assets
of Seller or any of Seller's Affiliates (other than the Company or ILIC), or any
disposition of any of the securities of Seller or any of Seller's Affiliates
(other than the Company or ILIC). Seller shall promptly communicate to Buyer the
terms of any Acquisition Proposal which it or any such other Person may receive.
6.5. Approvals of Governmental Authorities. (a) Buyer shall
take, and shall cause its Affiliates to take, all reasonable steps necessary or
appropriate, and shall use, and shall cause its Affiliates to use, all
commercially reasonable efforts, to obtain as promptly as practicable all
consents, approvals, authorizations, licenses and orders of Governmental
Authorities (including termination of the waiting period under the HSR Act and
any extension thereof) required to be obtained by Buyer or any of its Affiliates
in connection with the consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, Buyer shall use all
commercially reasonable efforts to promptly (but in no event later than January
31, 1999) make all insurance regulatory filings necessary to obtain approval of
the transactions contemplated by this Agreement.
(b) Seller shall cooperate with Buyer and its Affiliates in
seeking to obtain all such consents, approvals, authorizations, licenses and
orders (including termination of the waiting period under the HSR Act and any
extension thereof), and shall provide and shall cause their respective
Affiliates to provide, such information and communications to Governmental
Authorities as such Governmental Authorities may reasonably request in
connection therewith. Without limiting the generality of the foregoing, Seller
shall cooperate with Buyer in promptly (but in no event later than January 31,
1999) making all insurance regulatory filings necessary to obtain approval of
the transactions contemplated by this Agreement.
6.6. Further Assurances. On and after the Closing Date, each
of the parties shall execute, and shall cause their respective Affiliates to
execute, such reasonable documents, instruments and conveyances and take, and
cause their respective Affiliates to take, such further reasonable actions as
may be reasonably required or desirable to carry out the transactions
contemplated by this Agreement. From and after the Closing Date, any notice or
inquiries received by Seller on behalf of the Company or ILIC will be promptly
forwarded or referred to Buyer.
6.7. Notification of Changes. (a) Seller shall promptly notify
Buyer in writing of any event or the existence of any state of facts that Seller
becomes aware of prior to the
28
Closing Date that would (i) make any of the representations and warranties of
Buyer or Seller contained in this Agreement untrue or inaccurate in any material
respect or (ii) otherwise constitute a Material Adverse Effect. Seller shall
also promptly notify Buyer in writing of any breach by Buyer of any
representation, warranty or covenant of Buyer contained in this Agreement that
Seller becomes aware of prior to the Closing Date.
(b) Buyer shall promptly notify Seller in writing of any event
or the existence of any state of facts that Buyer becomes aware of prior to the
Closing Date that would (i) make any of the representations and warranties of
Buyer or Seller contained in this Agreement untrue or inaccurate in any material
respect or (ii) otherwise constitute a material adverse effect on the validity
or enforceability of this Agreement or on the ability of Buyer to perform its
obligations under this Agreement in a timely manner. Buyer shall also promptly
notify Seller in writing of any breach by Seller of any representation, warranty
or covenant of Seller contained in this Agreement that Buyer becomes aware of
prior to the Closing Date.
6.8. Performance of Conditions. Seller shall, and shall cause
the Company and ILIC to, take all reasonable steps necessary or appropriate, and
shall use all commercially reasonable efforts, to effect as promptly as
practicable the satisfaction of the conditions required to be satisfied in order
for Buyer and Seller to consummate the transactions contemplated by this
Agreement, including all conditions set forth in Section 3.1. Buyer shall take
all reasonable steps necessary or appropriate, and shall use all commercially
reasonable efforts, to effect as promptly as practicable the satisfaction of the
conditions required to be satisfied in order for Buyer and Seller to consummate
the transactions contemplated by this Agreement, including all conditions set
forth in Section 3.2.
6.9. Publicity. Seller and Buyer agree that, from the date
hereof through the Closing Date, no public release or announcement concerning
the transactions contemplated hereby shall be issued by either party without the
prior written consent of the other party (which consent shall not be
unreasonably withheld), except such release or announcement as may be required
by law, in which case the party required to make the release or announcement
shall allow the other party three Business Days or such shorter amount of time
as is practicable under the circumstances to comment on such release or
announcement in advance of such issuance.
6.10. Authority, Bank Accounts, Etc. Resignations,
appropriately executed signature cards, and all other documentation needed in
preparation for closing bank and other investment accounts of the Companies and
deposits maintained by the Companies with any Governmental Authority, or
transferring signature authority therefor, will be provided to Buyer by Seller
upon Closing. Seller will cooperate with and assist Buyer in obtaining,
subsequent to Closing, any statutory
29
or regulatory approvals required to enable the Companies to make the appropriate
closings or transfers, including transfers of signature authorization, and in
providing all notices thereof as may be required by appropriate Governmental
Authorities. From and after the Closing, no agent or officer of Seller shall
take any action with respect to any such accounts or deposits other than as may
be expressly authorized in writing by Buyer.
6.11. Pre-Closing Dividends; Subsidiaries. On or prior to the
Closing Date, (i) Seller shall cause the Company to distribute to Seller,
directly or indirectly, whether through liquidating or dividend distributions
(the "Subsidiary Dividend"), all of the issued and outstanding shares of the
capital stock of LUK-CPG, Inc. and its Subsidiaries (including all of the
294,000 shares of ILIC currently indirectly owned by LUK-CPG, Inc.), (ii) Seller
shall cause the Company to distribute to Seller, whether through liquidating or
dividend distributions (the "Asset Dividend"), the assets of the Company listed
on Schedule 6.11 and (iii) Seller shall cause the Companies to repay any and all
amounts then owed to Affiliates of Seller and the Company (including under the
Tax Allocation Agreements).
6.12. Employee Benefits. Prior to the Closing Date, Seller
shall take any and all necessary actions to assume any and all Liabilities of
the Company and ILIC which otherwise would have existed as of the Closing Date,
regardless of when such Liabilities arise or are asserted: (i) with respect to
any former employees, (ii) under ERISA and/or the minimum funding requirements
of the Code and (iii) under all Plans sponsored by the Company or ILIC at any
time prior to the Closing Date.
6.13. Administrative Services. From and after April 1, 1999,
Buyer shall provide to the Company and ILIC all administrative and accounting
services ("Services") necessary to enable the Company and ILIC to continue to
operate in the manner that such entities operate as of the date hereof. The
Services shall include, without limitation, the services described on Exhibit C
hereto. If this Agreement is terminated in accordance with its terms, (i) Buyer
shall continue to provide the Services until the earlier of April 1, 2000 or 30
days after receipt of notice from the Company and ILIC requesting that Buyer
discontinue providing the Services and (ii) Seller shall pay Buyer an amount of
cash equal to 110% of the sum of all expenses (including, without limitation,
the following expense categories: employee benefits, payroll, taxes, rent,
supplies and other overhead expenses) incurred by Buyer for costs relating to
Buyer's provision of the Services from April 1, 1999 through the date on which
such Services are discontinued pursuant to clause (i) above.
7. TAXES.
7.1. Tax Returns Filed and Taxes Paid by Seller. Seller
represents and warrants to Buyer that: (i) all Tax Returns required to be filed
by Seller, the Company or ILIC on or
30
before the Closing Date with respect to the Company or ILIC have been or will be
filed in a timely manner (taking into account all extensions of due dates) and
all such Tax Returns are true, complete and correct in all material respects;
(ii) all Taxes payable by Seller, the Company or ILIC attributable to the
Company or ILIC that are or were due and payable on or before the Closing Date
(without regard to whether such Taxes have been assessed) have been or will be
timely paid, or properly accrued or adequately reserved on the books of the
Company and ILIC in accordance with applicable accounting practices consistently
applied; (iii) except as set forth on Schedule 7.1, no deficiencies for any
material Taxes for which the Company or ILIC may be liable have been asserted by
a taxing authority in a writing received by Seller, the Company or ILIC or
assessed by a taxing authority against the Company, ILIC or any member of
Seller's Group which remain unpaid; (iv) except as set forth on Schedule 7.1,
neither the Company, ILIC nor any member of Seller's Group has been notified in
writing by any taxing authority of any audit or investigation with respect to
any liability for Taxes imposed on the income, operations or assets of the
Company or ILIC and with respect to which the applicable statute of limitations
has not expired; (v) except as set forth on Schedule 7.1, there are no
agreements in effect to extend the period of limitations for the assessment or
collection of any Tax imposed on the income, operations or assets of the Company
or ILIC; and (vi) Seller is currently the common parent of an affiliated group
of which the Company and ILIC are members and will file a federal consolidated
income tax return on behalf of that affiliated group which will include the
operations of the Company and ILIC through the Closing Date.
7.2. Seller's Non-Foreign Status. Seller is not a foreign
person within the meaning of Section 1445(f)(3) of the Code.
7.3. Post-Closing Access to Books and Records and Cooperation.
Buyer will cause the Company and ILIC after the Closing to afford, or will
itself afford, to Seller and its representatives and agents reasonable access
during normal business hours (on terms not unreasonably disruptive to the
business, operations or employees of Buyer, the Company or ILIC) to the Books
and Records pertaining to periods ending on or prior to the Closing Date and to
the Company's and ILIC's employees and auditors for the purpose of obtaining
information relating to periods ending on or prior to the Closing Date, to the
extent such access is reasonably necessary as determined by Seller: (i) to
prepare and complete any Tax or other regulatory filings required to be made by
Seller after the Closing Date; (ii) to prosecute or defend on behalf of the
Company or ILIC any inquiry, assessment, contest, proceeding or litigation
("Contest") controlled by Seller under Section 7.4.7 of this Agreement; (iii) to
comply with requests made of Seller by any Tax or other regulatory authority in
the conduct of any Contest relating to the Company's or ILIC's activities during
periods ending on or prior to the Closing Date; and (iv) to satisfy any other
request
31
of Seller which is reasonable under the circumstances. Seller will hold all
information provided to it pursuant to this Section 7.3 (and any information
derived therefrom) in confidence (except to the extent it otherwise becomes
public other than through actions of Seller) and will not disclose any such
information other than (i) as is reasonably necessary in connection with the
Contest or (ii) as required by applicable law or regulation. Buyer will hold
Seller's requests for information, and the contents of Buyer's responses
thereto, in confidence (except to the extent such information otherwise becomes
public other than through the actions of Buyer) and will not disclose any such
information other than (i) to directors, officers, employees, and agents of
Buyer who need to know such information for the purposes for which it was
requested or provided and (ii) as required by applicable law or regulation.
7.4. Liability for Taxes and Related Matters.
7.4.1. Seller's Liability for Taxes. Except
as provided otherwise in the last sentence of this Section 7.4.1., and except as
otherwise provided in Section 7.5, Seller shall be liable for and shall
indemnify Buyer for all Taxes, (including any obligation imposed on Buyer, the
Company or ILIC to contribute to the payment of a Tax determined on a
consolidated, combined or unitary basis with respect to a group of corporations
that includes or included the Company or ILIC, and Taxes resulting from the
Company or ILIC ceasing to be members of Seller's Group) to the extent, and only
to the extent, any such Tax is (A) imposed on Seller's Group for any taxable
year and (B) imposed on the Company or ILIC or for which the Company or ILIC may
otherwise be liable (1) for any taxable year or period that ends on or before
the Closing Date, (2) with respect to any taxable year or period beginning
before and ending after the Closing Date, for the portion of such taxable year
or period ending on the Closing Date as determined in accordance with the
principles set forth in Section 7.4.3, (3) arising out of a breach or inaccuracy
of any representation or warranty contained in Section 7.1 (assuming that each
representation and warranty qualified by the terms "material" or "Material
Adverse Effect" were not so qualified), or (4) arising out of a breach of any
covenant contained in this Article 7, in each case, only to the extent in excess
of the aggregate amounts reserved for Taxes on the Final Balance Sheets. Buyer
may not, without Seller's consent, amend any Tax Return of the Company or ILIC
for any taxable period including any portion of time on or prior to the Closing
Date. Seller shall be entitled to a refund of Taxes of the Company or ILIC
received for any taxable year or period ending on or before the Closing Date;
provided, however, that any refund for such periods that results from a
carryback of any loss, deduction or other tax benefit attributable to the
Company or ILIC with respect to a period subsequent to the Closing Date shall be
paid to or retained by the Company, ILIC or Buyer, as the case may be; provided,
further, that if, and only if, any such refund that results from such carryback
affects Seller's ability to obtain a refund for any pre-Closing taxable year or
32
period, the Company, ILIC or Buyer, as the case may be, shall be entitled to
only fifty percent (50%) of such refund and Seller shall be entitled to the
balance of such refund. Notwithstanding anything contained in this Section
7.4.1. or anywhere else in this Agreement to the contrary, nothing in this
Agreement shall in any way alter or affect Buyer's (and its Affiliate's,
excluding the Company or ILIC) obligation and ultimate responsibility to pay or
reimburse the Company (and, thereby, indirectly Seller) any and all amounts of
DAC Taxes and premium Taxes as provided in (A) the Charter Coinsurance
Agreement, (B) the Charter Reinsurance Agreement and (C) the ILIC Coinsurance
Agreement, and all provisions of this Agreement shall be construed so as not to
subvert or alter such obligations or responsibilities of Buyer and its
Affiliates; provided, however, that no payment to Seller or Seller's Affiliates
shall be required for any Tax attributable to a period after the Closing unless
Seller or its Affiliates is required to make a payment of any such Tax;
provided, further, that no payment to Seller or Seller's Affiliates shall be
required for any amounts of such DAC Taxes or premium Taxes reflected as an
asset or a reduction of a liability (net of any offset) on the Final Balance
Sheets, and only to the extent such amounts, as so reflected on the Final
Balance Sheets, are taken into account in determining Statutory Capital.
7.4.2. Buyer's Liability for Taxes. Buyer
shall be liable for and shall indemnify Seller for the Taxes of the Company and
ILIC (i) for any taxable year or period that begins after the Closing Date, (ii)
with respect to any taxable year or period beginning before and ending after the
Closing Date, for the portion of such taxable year beginning after the Closing
Date as determined in accordance with the principles set forth in Section 7.4.3,
(iii) for any amount for which the Company, ILIC, Buyer or any successor of any
of them remains responsible under Section 7.5, (iv) for amounts that are the
responsibility of Buyer or its Affiliates (or successors) under the Charter
Coinsurance Agreement, the Charter Reinsurance Agreement and the ILIC
Coinsurance Agreement, to the extent such amounts are not reflected as an asset
or a reduction of a liability on the Final Balance Sheets, and only to the
extent such amounts, as so reflected on the Final Balance Sheets, are taken into
account in determining Statutory Capital, and (v) arising out of a breach of any
covenant contained in this Article 7. Buyer shall be entitled to any refund of
Taxes of the Company or ILIC for the periods referred to in clauses (i) and (ii)
of the preceding sentence.
7.4.3. Taxes for Short Taxable Year. Seller
and Buyer shall close the taxable period of the Company and ILIC as of the close
of business on the Closing Date, unless such action is prohibited by Law. In any
case where applicable law prohibits the Company or ILIC from closing its taxable
year on the Closing Date then, for purposes of Sections 7.4.1, 7.4.2 and 7.4.6,
the determination of the Taxes of the Company and ILIC for the portion of the
year or period ending on, and the portion of
33
the year or period beginning after, the Closing Date shall be determined on the
basis of an interim closing of the books as of the close of business on the
Closing Date, except that exemptions, allowances or deductions that are
calculated on an annual basis, such as the deduction for depreciation, shall be
ratably apportioned on a time basis. The parties hereto expressly recognize that
the allocation of Taxes in the preceding sentence will be determined by
allocating any provision of reserves on the basis of an interim closing of the
books. Seller shall be responsible for Taxes allocable according to this
paragraph to the portion of such year ending on the Closing Date only to the
extent such Taxes exceed the aggregate amount reserved for Taxes on the Final
Balance Sheets.
7.4.4. Adjustment to Purchase Price. Any
payment by Buyer or Seller under Section 7.4 will be an adjustment to the
Purchase Price unless a determination (as defined in Section 1313 of the Code,
except that no appeal to the U.S. Supreme Court shall be required) with respect
to such payment causes any such payment not to constitute an adjustment to the
Purchase Price for income tax purposes.
7.4.5. Pre-Closing Taxes. Seller shall
(i) timely prepare and file all Tax Returns of the Company and ILIC required to
be filed for any taxable period ending on or prior to the Closing Date and (ii)
timely pay or cause to be paid any Tax due thereon. Seller shall prepare such
Tax Returns on a basis consistent with past practices. In the case of any such
Tax Return required to be signed by the Company or ILIC, Seller shall provide
such Tax Returns to Buyer at least 5 Business Days prior to the due date,
including any extensions for the filing thereof, together with such tax
information reasonably relevant to such Tax Returns (including any supporting
schedules, workpapers and information as to the method of computing separate
taxable income or other relevant measure of income of the Company and ILIC), and
Buyer shall cause the Company or ILIC, as the case may be, duly to execute such
Return and return it to Seller at least three Business Days prior to the due
date thereof. Notwithstanding this Section 7.4.5, liability for the Taxes due on
such Tax Returns shall be determined in accordance with the other provisions of
this Article 7.
7.4.6. Post-Closing Taxes. (a) Buyer shall
(i) timely prepare and file all Tax Returns of the Company and ILIC required to
be filed for any taxable period beginning after the Closing Date and (ii) timely
pay or cause to be paid any Tax due thereon.
(b) Buyer shall timely prepare and file all Tax Returns of the
Company and ILIC required to be filed for any taxable period beginning prior to
the Closing Date and ending after the Closing Date. Liability for the Taxes due
on such Tax Returns shall be determined in accordance with the principles set
forth in Section 7.4.3.
34
(c) The provisions of this Section 7.4.6(c) shall apply to all
Taxes and Tax Returns covered by this Article 7. Buyer and Seller shall share
information and cooperate in all matters (including securing proper signatures)
related to the filing of Tax Returns. In cases where one party prepares a Tax
Return (the "Preparer") but another party is liable for part of the Tax on such
Tax Return (the "Liable Party"), the Preparer shall pay the appropriate amount
of Tax to the taxing authority and provide written notice requesting payment of
the portion of Tax due from the Liable Party. Such notice shall be provided at
least 10 Business Days prior to the due date of the Tax Return (including any
extensions for the filing thereof) and shall include the Tax Return together
with such Tax information reasonably relevant to such Tax Return, including
supporting schedules, workpapers and information as to the method of computing
separate taxable income or other relevant measure of income of the Company and
ILIC. Payment from the Liable Party to the Preparer shall be made within 7
Business Days of the receipt of such written notice, provided, however, that
payment shall not be due prior to three Business Days before the time the Tax
payment is due to the taxing authority. If the parties do not agree on the
amount of the payment, the dispute resolution mechanism set forth in Section
2.5(b) shall be utilized. Any late payment of Tax from the Liable Party to the
Preparer shall bear interest at the overpayment rate set forth in Section
6621(a)(1) of the Code.
7.4.7. Contest Provisions. Buyer shall promptly notify Seller
in writing upon receipt by Buyer, any of Buyer's Affiliates or Subsidiaries, the
Company or ILIC of notice of any pending or threatened federal, state, local or
foreign Tax audits or assessments which may affect the Tax liabilities of the
Company or ILIC for which Seller could be required to indemnify Buyer pursuant
to Section 7.4.1 (assuming, for this purpose, no exception to or limitation on
such indemnity obligation attributable to the existence of any reserve for Taxes
on the Final Balance Sheet), provided that failure to comply with this provision
shall not affect Buyer's right to indemnification hereunder except to the extent
such failure results in an increase in the amount for which Seller is liable
under Section 7.4.1 or otherwise results in a Loss to Seller or a Seller
Affiliate. Seller shall have the sole right to represent and control the
Company's and ILIC's interests in any Contest relating to taxable periods ending
on or before the Closing Date, or relating to any claim for Taxes which could be
subject to indemnification by Seller pursuant to Section 7.4.1. other than Taxes
described in the next paragraph, and to employ counsel of its choice at its
expense. Notwithstanding the foregoing, Seller shall not be entitled to settle
after the Closing Date, either administratively or after the commencement of
litigation, any claim for Taxes which would materially adversely affect the
liability for Taxes of Buyer, the Company or ILIC for any period (including, but
not limited to, the imposition of income tax deficiencies, the reduction of
asset basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the
35
denial of amortization or depreciation deductions or the reduction of loss or
credit carryforwards) without the prior written consent of Buyer, which consent
shall not be unreasonably withheld, and shall not be necessary to the extent
that Seller has indemnified Buyer against the effects of any such settlement.
Seller shall be entitled to participate at its expense in the
defense of any claim for Taxes for a year or period ending after the Closing
Date which may be subject to indemnification by Seller pursuant to Section 7.4.1
and, with the written consent of Buyer and at its sole expense, may assume the
entire defense of such Tax claim if assumption of such defense is permitted by
law. Neither Buyer, the Company, nor ILIC may agree to settle any Tax claim for
the portion of the year or period ending on the Closing Date which may be the
subject of indemnification by Seller under Section 7.4.1 without the prior
written consent of Seller, which consent shall not be unreasonably withheld.
Buyer shall have the sole right to represent the Company's or ILIC's interests
in the defense of any claim for Taxes relating to taxable periods beginning on
or after the Closing Date. Notwithstanding the foregoing, Buyer shall not be
entitled to settle after the Closing Date, either administratively or after the
commencement of litigation, any claim for Taxes which would materially adversely
affect the liability for Taxes of Seller, the Company or ILIC for any period for
which Seller must indemnify Buyer pursuant to Section 7.4.1 (including, but not
limited to, the imposition of income tax deficiencies, the reduction of asset
basis or cost adjustments, the lengthening of any amortization or depreciation
periods, the denial of amortization or depreciation deductions or the reduction
of loss or credit carryforwards) without the prior written consent of Seller,
which consent shall not be unreasonably withheld, and shall not be necessary to
the extent that Buyer has indemnified Seller against the effects of any such
settlement.
7.5. Termination of Existing Tax Sharing Agreements. All Tax
sharing agreements or similar arrangements with respect to or involving the
Company or ILIC shall be terminated as of the Closing Date. Notwithstanding the
preceding sentence or anything contained herein to the contrary, the Company,
ILIC and Buyer (and any successor thereto) shall continue to be obligated, even
after the Closing Date, to pay Seller any amounts owing under the Tax Allocation
Agreements for any amount of Taxes for which a reserve or accrual has been
established and reflected on the Final Balance Sheets.
7.6. Section 338(h)(10) Election. (a) Buyer and Seller shall
make a joint election under Section 338(h)(10) of the Code and under any
comparable or equivalent provisions of state or local law with respect to the
purchase of the Shares by Buyer (the "Election"). Seller and Buyer shall report,
in connection with the determination of Taxes, the transactions contemplated by
this Agreement in a manner consistent with the Election, including the
reasonable determination of the fair market value of the assets of the Company
and ILIC and the
36
allocation of the deemed purchase price among the assets of the Company and ILIC
within the meaning of Section 338(h)(10) of the Code.
(b) Buyer shall be responsible for the preparation and filing
of all forms and documents required in connection with the Election. In
connection with the Election, not later than 20 Business Days prior to the
required due date thereof, Buyer shall provide Seller with copies of (i) a
properly executed Form 8023 (or any successor form), (ii) all attachments
required to be filed therewith pursuant to the Code and (iii) any comparable
forms and attachments with respect to any applicable state or local elections
being made pursuant to the Election. Seller shall execute and deliver to Buyer
within 120 days of the required due date therefor, such documents or forms as
are required by any Tax laws to properly complete the Election. Seller and Buyer
shall cooperate fully with each other and make available to each other such Tax
data and other information as may be reasonably required by Seller or Buyer in
order to prepare any documents, forms, or information, or to timely file the
Election and any other required statements or schedules. Buyer shall promptly
execute and deliver to Seller any amendments made to Form 8023 (or any successor
form) (and any comparable state and local forms) subsequent to the filing of the
Election and any attachments which are required to be filed under applicable
law, including any amendments to Form 8023 (or any successor form) necessitated
by any indemnification payments made pursuant to Section 8.1 or 7.4.1.
(c) Buyer shall comply with all of the requirements of Section
338(h)(10) of the Code. Seller shall take no action which is inconsistent with
the requirements for filing the Election under the Code.
(d) To the extent permitted by state or local laws, the
principles and procedures of this Section 7.6 shall also apply with respect to a
Section 338(h)(10) election or equivalent or comparable provision under state or
local law.
(e) Buyer shall have no liability to Seller for, and shall not
be deemed to have indemnified, under any provision of this Agreement or
otherwise, Seller from and against, for or in respect of, any Taxes which may be
imposed upon or assessed against Seller as a result of the Election.
7.7. Survival of Representations, Warranties and Obligations.
The representations, warranties and obligations of the parties set forth in this
Article 7 shall survive the Closing, shall be unconditional and absolute and
shall remain in effect, in each case, until termination of the applicable period
of limitations with respect to Taxes, plus 90 days.
7.8. Transfer Taxes. Buyer shall be liable for and shall pay
all excise, sales, use, transfer (including real property transfer or gains),
stamp, documentary, filing,
37
recordation and other similar taxes which may be imposed in connection with the
transactions contemplated by this Agreement (including any transfer taxes
imposed by reason of the Section 338(h)(10) election), together with any
interest, additions or penalties with respect thereto. Each party hereto hereby
agrees to file all necessary documentation (including, but not limited to, all
Tax Returns) with respect to all such amounts in a timely manner.
7.9. Continuation of Reinsurance Agreements. Buyer expressly
covenants that the Charter Coinsurance Agreement, the Charter Reinsurance
Agreement and the ILIC Coinsurance Agreement will continue in full force and
effect until at least the day after the Closing Date.
7.10. Indemnification Payments Net of any Tax Benefit.
Notwithstanding anything contained herein to the contrary, if any payment by one
party to the other party with respect to a single item under this Article 7 or
under Article 8 hereof exceeds (or would exceed but for this Section 7.10)
$25,000, the amount of such payment shall be reduced by the amount of any tax
benefit actually realized or reasonably expected to be realized by the payee as
a result of either the payment or the circumstances underlying or giving rise to
the payment, provided, however, any such tax benefit shall be reduced by any tax
cost resulting to the payee as a result of the receipt of such indemnity
payment.
8. INDEMNIFICATION.
8.1. Indemnification by Seller. (a) Subject to the provisions
of Sections 8.3 and 8.5 and Article 10 of this Agreement, Seller hereby agrees
to indemnify, defend and hold harmless Buyer, the Company and ILIC and their
respective officers, directors, employees, Affiliates, agents, successors and
assigns (collectively, the "Buyer Indemnitees") from and against, for and in
respect of any and all Losses which any of them may sustain based upon, arising
out of or otherwise in respect of (i) any inaccuracy in or breach of any
representation or warranty of Seller contained in this Agreement (other than the
representations and warranties of Seller contained in Article 7, the
indemnification obligations of which are governed by Article 7) or in any
schedule, certificate, instrument or other document delivered pursuant hereto
(assuming that each representation and warranty qualified by the terms
"material" or "Material Adverse Effect" were not so qualified and without regard
to the Knowledge of Seller), (ii) any breach of any covenant or agreement of
Seller contained in this Agreement (other than the covenants of Seller contained
in Article 7, the indemnification obligations of which are governed by Article
7), (iii) any matter relating to or arising out of the Prior Transactions
(including any indemnification obligations (including product tax compliance
indemnification obligations and indemnification obligations for any liability
arising from the ▇▇▇▇▇ lawsuit set forth on Schedule 4.10) of the Company or
ILIC
38
with respect thereto), (iv) any matter relating to or arising out of Market
Conduct Activities arising as a result of any acts, errors or omissions prior to
the Closing Date by the Company or ILIC, any of their respective Affiliates or
any of their respective officers, employees, agents or representatives, (v) any
guaranty fund assessments for insolvencies occurring prior to the Closing Date
to the extent such assessments are not reflected on the Final Balance Sheets,
(vi) any liability of the Company or ILIC incurred on or before the Closing
Date, not paid as of such date and not reflected on the Final Balance Sheets or
(vii) the failure of any policies listed on Schedule 4.9(a) to qualify as "life
insurance contracts" under, and to be administered in accordance with, Section
101 or Section 7702 of the Code, or the characterization of any such contract as
a "modified endowment contract" within the meaning of Section 7702A of the Code,
except for any such contract that qualifies and is administrated as a modified
endowment contract, and with respect to which the policyholder acknowledged and
agreed, before the date of issuance of such contract (or if any such contract
became a modified endowment contract upon conversion subsequent to the date of
issuance, before the date of conversion), to such qualification and
administration. Notwithstanding anything in Article 7 or this Article 8 to the
contrary, in no event shall Seller be obligated to indemnify, defend or hold
harmless any Buyer Indemnitee with respect to (i) any Losses arising as a result
of any acts, errors or omissions by Buyer or Allstate NY, or any inaccuracy in
or breach of any representation or warranty of Buyer or Allstate NY and any
breach of any covenant or agreement of Buyer or Allstate NY contained in (A) the
Charter Coinsurance Agreement, (B) the Charter Reinsurance Agreement, (C) the
Administrative Service Agreement, dated as of September 2, 1998, between Buyer
and the Company, (D) the ILIC Coinsurance Agreement, (E) the Administrative
Services Agreement, dated as of September 2, 1998, between Allstate NY and ILIC,
and (F) the Purchase Agreement or (ii) any Policy Liabilities (as such term is
used in the Charter Coinsurance Agreement, the Charter Reinsurance Agreement and
the ILIC Coinsurance Agreement); provided, however, that all obligations and
responsibilities of Seller under the Purchase Agreement shall remain in full
force and effect without regard to this Agreement.
(b) For purposes hereof, "Loss" and/or "Losses" shall mean any
and all losses, liabilities, damages, deficiencies, costs or expenses, including
interest, penalties and reasonable attorneys' and accountants' fees and
disbursements, after deducting all amounts received by the indemnified party as
a recovery under any insurance policy or bond. Without limiting the generality
thereof, Losses arising out of or related to Market Conduct Activities include:
the cost to the Indemnified Party of any obligation (whether arising out of a
judgment or a settlement) to increase crediting rates, to credit cash or other
account values, to provide one or more additional coverages, to forgive future
premium payments, to make a policy loan at a discount from contractual rates, or
to provide any other benefits to current or former policyholders; the costs
39
of administering a global settlement, including costs of communicating with
policyholders; the costs of any individualized arbitration process provided for
as part of a settlement or judgment, including all costs of administering such a
process and of awards granted therein; the costs of any employees or facilities
to the extent dedicated to devising or facilitating a settlement; and the fees
and expenses of counsel for third parties agreed or required to be paid by the
Indemnified Party.
(c) Promptly after receipt by Buyer of notice of (i) any
demand, claim or circumstances which, with the lapse of time, would give rise to
a Loss with respect to which a Buyer Indemnitee would be entitled to
indemnification pursuant to this Section 8.1 or (ii) any claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss with respect
to which a Buyer Indemnitee would be entitled to indemnification pursuant to
this Section 8.1, Buyer shall give notice thereof to Seller, describing in
reasonable detail such demand, claim, circumstances or Asserted Liability, the
provision or provisions under this Agreement under which the right to
indemnification is asserted and the specific circumstances thereof, and
indicating the amount (estimated, if necessary) of the Loss that has been or may
be suffered by such Buyer Indemnitee in connection therewith. Buyer's failure to
give notice of any such demand, claim, circumstances or Asserted Liability to
Seller in a prompt manner will not be deemed a waiver of the Buyer Indemnitee's
right to indemnification hereunder for Losses in connection herewith, but the
amount of indemnification to which the Buyer Indemnitee is entitled shall be
reduced by the amount, if any, by which the Buyer Indemnitee's Losses would have
been less had such notice been given promptly.
8.2. Buyer's Obligation to Indemnify. (a) Subject to the
provisions of Section 8.3 and 8.5 and Article 10 of this Agreement, Buyer hereby
agrees to indemnify, defend and hold harmless Seller and Seller's officers,
directors, employees, Affiliates, agents, successors and assigns (collectively,
the "Seller Indemnitees") from and against, for and in respect of any and all
Losses which any of them may sustain based upon, arising out of or otherwise in
respect of (i) any inaccuracy in or breach of any representation or warranty of
Buyer contained in this Agreement or in any schedule, certificate, instrument or
other document delivered pursuant hereto (assuming that each representation and
warranty qualified by the terms "material" or "material adverse effect" were not
so qualified and without regard to the Knowledge of Buyer), or (ii) any breach
of any covenant or agreement of Buyer contained in this Agreement (other than
the covenant of Buyer contained in Article 7, the indemnification obligations of
which are governed by Article 7).
(b) Promptly after receipt by Seller of notice of (i) any
demand, claim or circumstances which, with the lapse of time, would give rise to
a Loss with respect to which a Seller Indemnitee would be entitled to
indemnification pursuant to this
40
Section 8.2 or (ii) an Asserted Liability that may result in a Loss with respect
to which a Seller Indemnitee would be entitled to indemnification pursuant to
this Section 8.2, Seller shall give notice thereof to Buyer, describing in
reasonable detail such demand, claim, circumstances or Asserted Liability, the
provision or provisions under this Agreement under which the right to
indemnification is asserted and the specific circumstances thereof, and
indicating the amount (estimated, if necessary) of the Loss that has been or may
be suffered by such Seller Indemnitee in connection therewith. Seller's failure
to give notice of any such demand, claim, circumstances or Asserted Liability to
Buyer in a prompt manner will not be deemed a waiver of the Seller Indemnitee's
right to indemnification hereunder for Losses in connection herewith, but the
amount of indemnification to which the Seller Indemnitee is entitled shall be
reduced by the amount, if any, by which the Seller Indemnitee's Losses would
have been less had such notice been given promptly.
8.3. Right to Contest Third Party Claims. (a) Defense
(including the right to settle or compromise) of any Asserted Liability,
including selection of counsel (subject to the consent of Buyer, for all Buyer
Indemnities or of Seller, for all Seller Indemnitees, as applicable, which
consent shall not be unreasonably withheld) and the sole power to direct,
investigate and control such defense, shall be by the indemnifying party, if
within 30 days after receiving the notice required under Section 8.1(c) or
Section 8.2(b), as the case may be, the indemnifying party gives written notice
to Buyer on behalf of all Buyer Indemnities, or Seller on behalf of all Seller
Indemnitees, as the case may be, stating that the indemnifying party intends to
dispute and defend against such Asserted Liability at its own cost and expense.
The indemnified party shall make no payment in respect of such Asserted
Liability to any third party as long as the indemnifying party is conducting a
good faith and diligent defense.
(b) Notwithstanding the foregoing, the indemnified party shall at
all times have the right to fully participate in such defense at its own cost
and expense directly or through counsel. If no such notice of intent to dispute
and defend is given by the indemnifying party, or if such diligent good faith
defense is not being or ceases to be conducted, the Buyer on behalf of all Buyer
Indemnitees, or Seller on behalf of all Seller Indemnitees, as applicable, (x)
shall, at the expense of the indemnifying party, undertake the defense of such
Asserted Liability with one counsel selected by Buyer on behalf of all Buyer
Indemnities, or Seller on behalf of all Seller Indemnities, as applicable, and
(y) shall have the right to compromise or settle the same exercising reasonable
business judgment with the consent of the indemnifying party, which consent
shall not be unreasonably withheld.
(c) Except as provided herein, Buyer on behalf of all Buyer
Indemnitees, and Seller on behalf of all Seller Indemnitees, as applicable,
shall have the right to consent to
41
any settlement or compromise of any Asserted Liability, which consent shall not
be withheld unreasonably. If the indemnified party refuses to consent to a bona
fide compromise or settlement that the indemnifying party desires to agree to
(the "Bona Fide Settlement"), the indemnified party may continue to pursue the
defense of such Asserted Liability, free of any participation by the
indemnifying party and at the sole expense of the indemnified party; provided
that in such event, the obligation of the indemnifying party to the indemnified
paty will equal the lesser of (i) the amount of such Bona Fide Settlement or
(ii) the actual out-of-pocket amount that the indemnified party is obligated to
pay as a result of the indemnified party's continued defense of such Asserted
Liability, plus the reasonable out-of-pocket expenses incurred by the
indemnified party after the date of notice from the indemnified party of its
refusal to consent to a Bona Fide Settlement (the "Refusal Date") in connection
with such Asserted Liability, minus the reasonable out-of-pocket expenses of the
indemnifying party incurred after the Refusal Date by the indemnifying party in
connection with such Asserted Liability. The indemnifying party shall give the
indemnified party such notice of the Bona Fide Settlement as is reasonable under
then existing circumstances and the indemnified party shall notify the
indemnifying party of its consent or lack of consent to such Bona Fide
Settlement within a reasonable period of time under then existing circumstances.
Notwithstanding anything herein to the contrary, the indemnifying party shall
have the right to settle all claims of third parties for which indemnification
is payable hereunder without the consent of the indemnified party so long as
such settlement releases the indemnified party from all liability for or in
connection with such action, is exclusively on monetary terms, does not
materially and adversely impair the ability of the indemnified party to carry on
its business and does not contain any admission of wrongdoing on the part of the
indemnified party.
(d) The indemnified party shall make available all information and
assistance that the indemnifying party may reasonably request and shall
cooperate with the indemnifying party in such defense. Any failure to make
available such information and/or to cooperate shall reduce the amount, if any,
by which the indemnified party's Losses would have been reduced had such
information been made available or such cooperation been provided.
8.4. Indemnification for Taxes. Notwithstanding anything in
this Article 8 to the contrary, any indemnifiable Loss or third party claims
based on, attributable to or resulting from any misrepresentation or the breach
or inaccuracy of any representation or warranty made by Seller in Article 7, or
the failure to comply with any covenant or agreement on the part of the parties
hereto contained in Article 7, will be governed exclusively by Article 7.
8.5. Limitations on Indemnification. (a) If any party seeking
indemnification under this Article 8 (an
42
"indemnified party") recovers from any third party (including insurers) all or
any part of any amount paid to it by an indemnifying party (herein so called)
pursuant to Section 8.1 or 8.2, such indemnified party shall promptly pay over
to the indemnifying party the amount so recovered (after deducting therefrom the
full amount of the expenses incurred by it in procuring such recovery, including
any taxes and net of any tax benefit resulting from such recovery and payment),
but not in excess of any amount previously so paid by the indemnifying party. If
an indemnified party recovers from any third party (including insurers) any
amount as to which indemnification may be claimed pursuant to Section 8.1 or
8.2, such indemnified party shall have no right to claim indemnification for
such amount from the indemnifying party.
(b) The indemnified party shall prosecute diligently and in good
faith any claim for indemnification with any applicable third party (including
insurers), but such attempt shall not be a condition precedent to the
indemnified party seeking to collect any indemnification payment pursuant to
Section 8.1 or 8.2.
9. TERMINATION.
9.1. Termination. This Agreement may be terminated at any time
prior to the Closing: (i) by mutual written consent of Seller and Buyer or (ii)
by either Buyer or Seller if the Closing shall not have occurred on or before
June 30, 1999; provided, however, that the right to terminate this Agreement
under Section 9.1(ii) will 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.
9.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except with respect to Section
11.8 and the confidentiality provisions set forth in Section 6.3 and except that
nothing herein will relieve any party from liability for any prior breach of
this Agreement.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any right of Buyer fully to investigate the affairs
of the Companies, Buyer has the right to rely fully upon the representations and
warranties of Seller contained in this Agreement or in any other certificate or
instrument delivered at Closing. Each of the representations and warranties of
Seller and Buyer under this Agreement will survive the execution and delivery of
this Agreement and the Closing and remain in effect until the expiration of the
twenty-four month period immediately following the Closing Date, except that the
representations and warranties of Seller contained in Sections 4.1, 4.2, 4.3,
4.4, 4.9, 4.13, 4.17 and 4.26 shall
43
survive the Closing and remain in effect indefinitely and the representations
and warranties of Seller contained in Article 7 shall survive the Closing and
remain in effect for the period set forth in Article 7.
11. MISCELLANEOUS.
11.1. Amendments and Waivers. This Agreement may not be
amended, and none of its provisions may be modified, except expressly by an
instrument signed by the parties hereto. No failure or delay of a party in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No waiver by a party of any provision of this Agreement or
consent to any departure therefrom shall in any event be effective unless the
same shall be in writing and signed by such party, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
11.2. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto without the prior written consent of the other party. This
Agreement shall be binding upon and shall inure to the benefit of each of the
parties hereto and its respective successors and permitted assigns.
11.3. Entire Agreement. This Agreement (including the
Schedules hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all other prior
negotiations, commitments, agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof.
11.4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts
law).
11.5. Enforcement; Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of New York or any state court sitting in
The City of New York, New York (any such federal or state court, a "New York
Court"), this being in addition to any other remedy to which they are entitled
to in law or in equity. Each of the parties hereto (i) consents to submit itself
to the personal jurisdiction of any
44
such New York Court, in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (ii) agrees that it will
not attempt to deny or defeat such personal jurisdiction or venue by motion or
other request for leave from any such New York Court and (iii) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a New York Court.
11.6. Notices. All written notices required under this
Agreement shall be given in writing and shall be deemed to have been given upon
(i) transmitter's confirmation of a receipt of a facsimile transmission, (ii)
confirmed delivery by a standard overnight carrier or when delivered by hand or
(iii) the expiration of five Business Days after the day when mailed by
certified or registered mail, postage prepaid, addressed at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Seller, to:
Leucadia National Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Buyer, to:
Allstate Life Insurance Company
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Treasurer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
11.7. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same instrument.
11.8. Certain Fees and Expenses. Whether or not the
transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and transactions contemplated hereby,
including all fees and expenses of agents, representatives, counsel, actuaries
and accountants, shall be paid by the party incurring such costs or expenses;
provided, however, that Buyer shall pay any filing fees required in connection
with the filing with the New York or Missouri Insurance Departments of an
application to acquire control of the Company and ILIC and the filing of any
notification required under the HSR Act.
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11.9. No Joint Venture or Partnership Intended.
Notwithstanding anything herein to the contrary, the parties hereby acknowledge
and agree that it is their intention and understanding that the transactions
contemplated hereby do not in any way constitute or imply the formation of a
joint venture or partnership between Buyer, on the one hand, and Seller, on the
other hand.
11.10. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, each of Seller and Buyer direct that such court
interpret and apply the remainder of this Agreement in the manner that it
determines most closely effectuates their intent in entering into this
Agreement, and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
11.11. No Third Party Beneficiaries. Except as otherwise
specifically provided in Article 8, nothing in this Agreement is intended or
shall be construed to give any Person, other than the parties hereto, their
successors and permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
LEUCADIA NATIONAL CORPORATION
By
---------------------------------------
Name:
Title:
ALLSTATE LIFE INSURANCE COMPANY
By
---------------------------------------
Name:
Title:
47
Schedule 2.2
ALLOCATION OF PURCHASE PRICE
Company Shares $2,000,000 plus Statutory Capital of the Company as of
the Business Day immediately preceding the Closing Date
ILIC Shares $1,575,000 plus Statutory Capital of ILIC as of the Business
Day immediately preceding the Closing Date
Exhibit C
SERVICES
I. GENERAL FINANCIAL SERVICES
Buyer shall perform all accounting and reporting of direct and ceded
premiums, claims and other policyholder disbursements, reserves, policy
loans, commissions and other policy related transactions. Any audits
conducted by external auditors shall be conducted at the Companies' sole
expense. Additionally, Buyer shall provide accounting services of a
general corporate nature to the Companies including, but not limited to,
the following:
1. All required GAAP financial filings; and
2. All required statutory financial filings.
II. COMPLIANCE SERVICES
Buyer shall provide the Companies with the following services:
1. State regulatory review and compliance; development, filing and
maintenance of policy and variable contract forms, riders,
endorsements, disclosure statements and similar materials; review
and approval of advertising materials and other customer
communications;
2. SEC and NASD compliance for variable contracts, prospectuses, and
registration statements including (i) the submission of any required
information and conducting annual compliance audits and (ii)
preparation and filing of Forms N-4 as necessary; and
3. Coordination of mailings for statements, reports, and prospectuses
for variable contracts.