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EXHIBIT 10.42
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ASSET PURCHASE AGREEMENT
by and between
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
and
ERC LIFE REINSURANCE CORPORATION
Dated as of May 19, 1999
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS..............................................................2
1.01. Definitions..............................................................2
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ARTICLE II TRANSFER AND ACQUISITION OF ASSETS......................................11
2.01. Transfer and Acquisition................................................11
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2.02. Net Payment; Adjustments................................................12
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2.03. Place and Date of Closing...............................................15
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2.04. Transactions to be Effected at the Closing..............................15
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER................................16
3.01. Organization, Standing and Authority....................................16
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3.02. Authorization...........................................................16
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3.03. No Conflict or Violation, etc. .........................................17
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3.04. Financial Information...................................................18
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3.05. Reserves ...............................................................18
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3.06. Absence of Certain Changes..............................................19
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3.07. Contracts...............................................................19
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3.08. Title to Assets.........................................................20
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3.09. Litigation; Orders......................................................20
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3.10. Compliance with Laws ...................................................20
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3.11. Employee Matters........................................................20
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3.12. Brokers ................................................................21
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3.13. Tax Matters.............................................................21
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3.14. Licenses and Franchises.................................................21
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3.15. Security ...............................................................22
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3.16. PLARNY..................................................................22
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3.17. Affiliate Retrocession..................................................22
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3.18. Treaty Compliance.......................................................22
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3.19. System Recognition of Change of Date ...................................22
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3.20. Threats of Cancellation or Downgrading .................................22
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.............................22
4.01. Organization, Standing and Authority....................................23
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4.02. Authorization ..........................................................23
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4.03. No Conflict or Violation, etc...........................................23
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4.04. Purchaser Financial Statements .........................................24
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4.05. Absence of Certain Changes .............................................24
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4.06. Litigation; Orders......................................................25
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4.07. Compliance with Laws ...................................................25
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4.08. Brokers.................................................................25
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4.09. Ratings. ...............................................................25
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4.10. Licenses and Franchises.................................................25
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4.11. Risk Based Capital......................................................26
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4.12. System Recognition of Change of Date ...................................26
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ARTICLE V COVENANTS...............................................................26
5.01. Conduct of Business ....................................................26
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5.02. Access to Information; Confidentiality..................................27
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5.03. Reasonable Best Efforts ................................................28
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5.04. Consents, Approvals and Filings ........................................28
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5.05. Notification............................................................29
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5.06. Further Assurances......................................................29
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5.07. Expenses ...............................................................29
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5.08. Employees and Employee Benefits of PHL .................................29
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TABLE OF CONTENTS (cont'd)
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5.09. Updating Schedules......................................................31
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5.10. Resources...............................................................32
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5.11. Exclusivity.............................................................32
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ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER ...................32
6.01. Representations and Covenants...........................................32
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6.02. Other Agreements........................................................33
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6.03. Governmental and Regulatory Consents and Approvals......................33
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6.04. Third Party Consents ...................................................33
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6.05. No Litigation, Injunctions or Restraints............................... 33
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6.06. Opinion of Counsel to PHL ..............................................34
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ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER ......................34
7.01. Representations and Covenants...........................................34
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7.02. Other Agreements .......................................................34
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7.03. Governmental and Regulatory Consents and Approvals.......................34
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7.04. Third Party Consents ...................................................35
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7.05. No Litigation, Injunctions or Restraints................................35
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7.06. Opinion of Counsel to Purchaser.........................................35
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ARTICLE VIII FURTHER AGREEMENTS......................................................35
8.01. Access to Books and Records ...........................................35
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8.02. Cooperation.............................................................36
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8.03. Memorandum; Disclaimer of Projections...................................36
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8.04. Use of Names............................................................36
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8.05. Tax Treatment...........................................................38
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8.06. Allocation of Consideration.............................................38
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8.07. Seller's Non-Compete ...................................................38
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8.08. Non-Solicitation Covenant...............................................39
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8.09. Verification of Cash Equivalents........................................39
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8.10. Portfolio Transfer......................................................39
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ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES .............................40
9.01. Survival of Representations and Warranties .............................40
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ARTICLE X INDEMNIFICATION ........................................................40
10.01. Obligation to Indemnify.................................................40
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10.02. Indemnification Procedures..............................................41
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ARTICLE XI TERMINATION PRIOR TO CLOSING ...........................................43
11.01. Termination of Agreement................................................43
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11.02. Survival................................................................43
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ARTICLE XII CERTAIN CONTRACTUAL LIMITATIONS.........................................43
12.01. Reinsurance and Retrocessions...........................................43
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ARTICLE XIII GENERAL PROVISIONS......................................................44
13.01. Publicity...............................................................44
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13.02. Dollar References.......................................................44
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13.03. Notices.................................................................44
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TABLE OF CONTENTS (cont'd)
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13.04. Entire Agreement........................................................45
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13.05. Waivers and Amendments; Non-Contractual Remedies;
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Preservation of Remedies................................................45
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13.06. Governing Law ..........................................................45
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13.07. Binding Effect; Assignment..............................................46
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13.08. Interpretation..........................................................46
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13.09. No Third Party Beneficiaries ...........................................46
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13.10. Counterparts............................................................46
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13.11. Exhibits and Schedules..................................................47
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13.12. Headings................................................................47
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EXHIBITS
Exhibit A-1 - Form of Assumption and Indemnity Retrocession
Agreement between PHL and Purchaser
Exhibit A-2 - Form of Assumption and Indemnity Retrocession
Agreement between APLAR and Purchaser
Exhibit B - Form of ▇▇▇▇ of Sale and General Assignment
Exhibit C - Form of Assumption Agreement
Exhibit D-1 - Form of Opinion of Seller's Inside Counsel
Exhibit D-2 - Form of Opinion of Seller's Outside Counsel
Exhibit E-1 - Form of Opinion of Purchaser's Inside Counsel
Exhibit E-2 - Form of Opinion of Purchaser's Outside Counsel
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SCHEDULES
Schedule 1.01(a) - Assigned and Assumed Contracts
Schedule 1.01(b) - Intangible Assets
Schedule 1.01(c) - Tangible Assets
Schedule 1.01(d)(i) - Seller's Knowledge
Schedule 1.01(d)(ii) - Purchaser's Knowledge
Schedule 1.01(e) - Excluded Reinsurance Contracts
Schedule 1.01(f) - Certain Excluded Insurance and Reinsurance Liabilities
Schedule 1.01(g) - Description of INA Claim Settlement
Schedule 2.02 - Estimated Business Statement of Assets and Liabilities
Schedule 3.03(a) - Necessary Consents
Schedule 3.03(b) - Necessary Third Party Consents
Schedule 3.04 - Financial Information
Schedule 3.06 - Absence of Certain Changes
Schedule 3.07(a) - Contracts
Schedule 3.07(b) - Material Contracts
Schedule 3.07(c) - Experience Refund/Extraordinary Allowances
Schedule 3.08(a) - Liens - Tangible Assets
Schedule 3.09 - Litigation; Orders
Schedule 3.10 - Compliance with Laws
Schedule 3.11 - PHL Employee Matters
Schedule 3.14 - Licenses and Franchises
Schedule 3.20 - Terminations
Schedule 4.03 - Necessary Consents, etc.
Schedule 4.05 - Absence of Certain Changes
Schedule 4.06 - Litigation; Orders
Schedule 4.07 - Compliance with Laws
Schedule 4.10 - Licenses and Franchises
Schedule 5.08(a) - Other Employees
Schedule 5.08(c) - Employee Severance Policy
Schedule 8.04 - Use of Names
Schedule 8.10 - LTD Pools
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of May
19, 1999, is entered into by and between Phoenix Home Life Mutual Insurance
Company, a New York domiciled mutual insurance company ("PHL or "Seller") and
ERC Life Reinsurance Corporation, a Missouri domiciled stock life company ("ERC
Life" or "Purchaser").
W I T N E S S E T H:
WHEREAS, PHL and its subsidiaries, American Phoenix Life and
Reassurance Company, a Connecticut domiciled stock insurance company ("APLAR"),
and APLAR Services Limited, a corporation organized under the laws of the United
Kingdom ("APLAR Services," and together with APLAR, the "Subsidiaries"), conduct
an individual life and group life and health reinsurance business (which
includes some direct group health contracts);
WHEREAS, upon the terms and subject to the conditions of this
Agreement, (i) PHL desires to sell, and Purchaser desires to acquire, certain of
the assets associated with such reinsurance business, and in connection
therewith Purchaser is willing to assume certain liabilities and (ii) PHL,
APLAR, Purchaser, and its affiliate, Employers Reassurance Corporation, a Kansas
domiciled stock insurance company ("ERAC"), desire to enter into certain
reinsurance arrangements, pursuant to which Purchaser and ERAC will reinsure
certain liabilities related to such reinsurance business; and
WHEREAS, in order to effectuate the foregoing, it is contemplated
that, upon the terms and subject to the conditions of this Agreement: (i) PHL,
APLAR, ERC Life and ERAC will enter into the Assumption and Indemnity
Retrocession Agreements and the Indemnity Reinsurance Agreements providing,
among other things, for the indemnity reinsurance as of the Closing Date of the
Insurance Liabilities and Reinsurance Liabilities, pending assumption of certain
of the Reinsurance Contracts by Purchaser on a novation basis (all capitalized
terms used in these recitals and not otherwise defined having the respective
meanings assigned to them in Section 1.01 below); (ii) PHL, APLAR, ERC Life and
ERAC will enter into the Reinsurance Administration Agreements, providing for
Purchaser's provision of certain administrative services on behalf of PHL and
APLAR with respect to the Insurance Contracts and Reinsurance Contracts
following the Closing Date; (iii) PHL and Purchaser will enter into the
Transition Services Agreement, providing, among other things, for PHL's
provision to Purchaser of certain administrative and computer services for a
transition period following the Closing Date; (iv) PHL will execute and deliver
to Purchaser the ▇▇▇▇ of Sale and General Assignment, providing for the transfer
to Purchaser of certain assets relating
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to the Business; (v) Purchaser will execute and deliver to PHL the Assumption
Agreement, providing for the assumption by Purchaser of certain liabilities and
obligations relating to the Business; and (vi) PHL and Purchaser will execute
and deliver such other agreements, instruments and documents as are described
herein.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms shall have the
respective meanings set forth below throughout this Agreement:
"Accounting Principles" means the statutory accounting practices
prescribed or permitted by the insurance regulatory authority in the applicable
state, modified as described in SCHEDULE 3.04.
"Affiliate" means, with respect to any person, at the time in
question, any other person controlling, controlled by or under common control
with such person.
"Affiliated Group" shall have the meaning specified in Section
1504(a) of the Code (without regard to Section 1504(b) of the Code).
"Ancillary Agreements" means the Assumption and Indemnity
Retrocession Agreements, the Indemnity Reinsurance Agreements, the Reinsurance
Administration Agreements, the Transition Services Agreement, the Trust
Agreements, the Assumption Agreement and the Transfer Documents.
"Antitrust Division" shall have the meaning set forth in Section
5.04(b) hereof.
"Assigned and Assumed Contracts" means those contracts and other
agreements to which PHL or any of its Affiliates is a party and which are listed
on SCHEDULE 1.01(a).
"Assumption Agreement" means an Assumption Agreement
substantially in the form of EXHIBIT C.
"Assumption and Indemnity Retrocession Agreements" means,
collectively, (i) one or more Assumption and Indemnity Retrocession Agreements
between PHL and ERC Life or ERAC each substantially in the form of EXHIBIT A-1
hereto, and (ii) one or more Assumption and
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Indemnity Retrocession Agreements between APLAR and ERC Life or ERAC, each
substantially in the form of EXHIBIT A-2 hereto.
"▇▇▇▇ of Sale and General Assignment" means a ▇▇▇▇ of Sale and
General Assignment substantially in the form of EXHIBIT B hereto.
"Books and Records" means the originals or copies of all customer
lists, policy information, reinsurance contract forms, claim records, sales
records, underwriting records, financial records, personnel records related to
Transferred Employees and compliance records in the possession or control of PHL
or any of its Affiliates and relating primarily to the operation of the
Business, including, without limitation, internal audit reports and work papers
and any database or other form of recorded, computer generated or stored
information or process, but excluding any such records that relate to any
Excluded Liabilities; provided that, Purchaser shall cooperate with PHL to the
extent reasonably necessary to protect the privileged status of any such records
that are subject to the attorney-client or other privilege.
"Business" means the individual life and group life and health
reinsurance and retrocession business operations conducted by PHL and APLAR
including certain direct group health business issued by PHL's reinsurance
division and by APLAR; provided, that the "Business" shall not include any of
the Excluded Reinsurance Contracts or Excluded Insurance Contracts.
"Business Day" means any day other than a Saturday, Sunday, a day
on which banking institutions in the State of New York are permitted or
obligated by law to be closed or a day on which the New York Stock Exchange is
closed for trading.
"Business Employees" shall have the meaning set forth in Section
5.08(a) hereof.
"Cash Equivalents" means, as of any particular date, money market
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit, bankers' acceptances and other similar
liquid investments, in each case with a maturity date of not more than 90 days
from the date on which any such instrument is transferred pursuant to the terms
of this Agreement, the market value of which as of such date will be counted as
equivalent to cash for purposes of satisfying the aggregate amount of cash and
Cash Equivalents required to be transferred hereunder on such date.
"Cause" shall have the meaning set forth in Section 5.08(c)
hereof.
"Ceding Commission" shall mean $130,250,000.00.
"Closing" means the closing of the transactions contemplated by
this Agreement.
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"Closing Date" means the first Business Day of the month
following the satisfaction or waiver of the conditions set forth in Sections
6.03, 6.04, 6.05, 7.03, 7.04 and 7.05 of this Agreement.
"COBRA" shall have the meaning set forth in Section 5.08(d)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
"Confidentiality Agreement" shall have the meaning set forth in
Section 5.02 hereof.
"December 31, 1998 Business Statement of Assets and Liabilities"
shall have the meaning set forth in Section 3.04 hereof.
"Estimated Business Statement of Assets and Liabilities" means
the unaudited balance sheet for the Business as of the Closing Date, prepared in
accordance with the Accounting Principles, consistently applied, containing the
information set forth in SCHEDULE 2.02 hereto.
"Excluded Insurance Contracts" means the insurance contracts
described on SCHEDULE 1.01(e).
"Excluded Insurance Liabilities" means all liabilities and
obligations arising under or in connection with the Excluded Insurance Contracts
and with respect to certain contract periods under those other contracts
described on SCHEDULE 1.01(f), including, without limitation, (i) the gross
amount of all liability for losses and loss adjustment expenses before any
deduction for reinsurance ceded, (ii) all amounts payable for returns or refunds
of premiums under the Insurance Contracts, including reserves for unearned
premiums, (iii) all liability for commission payments and other fees or
compensation payable with respect to the Insurance Contracts to or for the
benefit of MGU's, intermediaries, brokers and service providers, (iv) all
liabilities for retrospective payments or adjustments under agreements of
reinsurance, (v) all PHL Extra Contractual Obligations, (vi) premium taxes due
in respect of premiums paid and (vii) all guaranty fund assessments and similar
charges which are required to be paid under or in respect of the Excluded
Insurance Contracts.
"Excluded Liability" means any liability or obligation arising in
connection with the Business or the transactions contemplated hereby that does
not constitute a Transferred Liability, including without limitation PHL Extra
Contractual Obligations.
"Excluded Reinsurance Contracts" means the reinsurance contracts
described on SCHEDULE 1.01(e).
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"Excluded Reinsurance Liabilities" means all liabilities and
obligations arising under or in connection with the Excluded Reinsurance
Contracts and with respect to certain contract periods under those other
contracts described on SCHEDULE 1.01(f) including, without limitation (i) the
gross amount of all liability for losses and loss adjustment expenses before any
deduction for reinsurance ceded, (ii) all amounts payable for returns or refunds
of premiums under the Excluded Reinsurance Contracts, including reserves for
unearned premiums, (iii) all liability for commission payments and other fees or
compensation payable with respect to the Excluded Reinsurance Contracts to or
for the benefit of MGU's intermediaries, brokers and service providers, (iv) all
liabilities for retrospective payments or adjustments under agreements of
reinsurance or retrocession, (v) all PHL Extra Contractual Obligations, (vi)
premium taxes due in respect of premiums paid; (vii) all guaranty fund
assessments and similar charges which are required to be paid under or in
respect of the Excluded Reinsurance Contracts; and (viii) the INA Claim
Settlement.
"Final Business Statement of Assets and Liabilities" shall have
the meaning set forth in Section 2.02(b) hereof.
"Final Statement of Individual Life Losses" shall have the
meaning set forth in Section 2.02(d) hereof.
"FTC" shall have the meaning set forth in Section 5.04(b) hereof.
"Governmental Entity" shall have the meaning set forth in Section
3.03 hereof.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
"INA Claim Settlement" means the settlement relating to certain
litigation described on SCHEDULE 1.01(g).
"Indemnified Party" shall have the meaning set forth in Section
10.02(a) hereof.
"Indemnifying Party" shall have the meaning set forth in Section
10.02(a) hereof.
"Indemnity Reinsurance Agreements" means, collectively, one or
more Indemnity Reinsurance Agreements between PHL or APLAR and Purchaser,
providing for the reinsurance of certain of the Insurance Liabilities and
Reinsurance Liabilities by Purchaser on a coinsurance basis each in a form to be
mutually agreed to by the parties hereto.
"Individual Life IBNR" shall have the meaning set forth in
Section 2.02(b) hereof.
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"Individual Life Losses" shall have the meaning set forth in
Section 2.02(d) hereof.
"Insurance Contracts" means the group health contracts issued
prior to the Closing Date by the reinsurance division of PHL or by APLAR and in
effect on the Closing Date (including all supplements, endorsements, riders and
ancillary agreements in connection therewith); provided, that Insurance
Contracts shall not include any of the foregoing to the extent that it
constitutes an Excluded Insurance Contract.
"Insurance Liabilities" means all liabilities and obligations
(excluding any PHL Extra Contractual Obligations) arising under or in connection
with the Insurance Contracts including, without limitation, (i) the gross amount
of all liability for losses and loss adjustment expenses before any deduction
for reinsurance ceded, (ii) all amounts payable for returns or refunds of
premiums under the Insurance Contracts, including reserves for unearned
premiums, (iii) all liability for commission payments and other fees or
compensation payable with respect to the Insurance Contracts to or for the
benefit of MGU's, intermediaries, brokers and service providers, (iv) all
liabilities for retrospective payments or adjustments under agreements of
reinsurance, (v) all Purchaser Extra Contractual Obligations, (vi) premium taxes
due in respect of premiums paid after the Closing Date and (vii) all guaranty
fund assessments and similar charges which are required to be paid under or in
respect of the Insurance Contracts; provided, however, that in no event shall
such term be deemed to include (i) any Excluded Insurance Liabilities or (ii)
any Tax liability of PHL, the Subsidiaries or any Affiliated Group that includes
any of PHL, the Subsidiaries, or any Affiliate thereof.
"Intangible Assets" means those intangible assets used by PHL or
any of its Affiliates in connection with the Business and, listed on SCHEDULE
1.01(b).
"knowledge" means, as to Seller, the actual knowledge of any of
the persons listed on SCHEDULE 1.01(d)(i), and as to Purchaser, the actual
knowledge of any of the persons listed on SCHEDULE 1.01(d)(ii).
"Lien" means any pledge, claim, lien, charge, mortgage,
encumbrance or security interest of any nature.
"Life Reserve Adjustment" shall mean (i) for purposes of the
Estimated Business Statement of Assets and Liabilities, zero Dollars ($0.00),
and (ii) for purposes of the Proposed Business Statement of Assets and
Liabilities and the Final Business Statement of Assets and Liabilities, an
amount equal to 0.50 times the difference between (i) the Life Reserves as
calculated in the Proposed Business Statement of Assets and Liabilities and the
Final Business Statement of Assets and Liabilities, as appropriate, and
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(ii) the Life Reserves as calculated in SCHEDULE 3.04, in each case as
determined by the Final Business Statement of Assets and Liabilities.
"Life Reserves" shall mean an amount equal to aggregate reserves
for life policies and contracts for the individual life business, excluding
Regulation 147 Reserves and annuity, universal life, variable life, and premium
deficiency reserves, in each case stated in accordance with the Accounting
Principles, consistently applied.
"Losses" shall have the meaning set forth in Section 10.01(a)
hereof.
"MGU" means managing general underwriter.
"Net Payment" shall mean the difference between Transferred
Liabilities and the sum of (i) the Transferred Assets, (ii) Ceding Commission
and (iii) Life Reserve Adjustment.
"Neutral Auditors" shall have the meaning set forth in Section
2.02(b) hereof.
"Non-Compete Period" shall have the meaning set forth in Section
8.07(a).
"Other Assumed Liabilities" means all liabilities and obligations
arising after the Closing Date under the Assigned and Assumed Contracts, except
for the Retrocession Agreements.
"Permitted Liens", as to any asset, means (i) Liens for taxes not
yet due and payable or being contested in good faith by appropriate proceedings,
(ii) Liens arising by operation of law and (iii) other Liens that do not in the
aggregate materially detract from the value or materially interfere with the
present use of such asset in the Business.
"person" means any individual, corporation, partnership, firm,
joint venture, association, limited liability company, limited liability
partnership, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"Personal Accident Business" means the personal accident line of
the group life and health insurance business written, reinsured or assumed by
PHL and APLAR as more specifically described on SCHEDULE 1.01(e).
"PHL Extra Contractual Obligations" means all liabilities for
consequential, exemplary, punitive, special or similar damages (other than any
such damages that may arise under the terms and conditions of the Insurance
Contracts or Reinsurance Contracts) which arise from any actual or alleged act,
error or omission by PHL or any of its Affiliates prior to the Closing Date,
whether or
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not intentional, in bad faith or otherwise in connection with the issuance,
delivery, cancellation or administration of any of the Insurance Contracts or
the Reinsurance Contracts, including, without limitation, any act, error or
omission relating to (i) the marketing, underwriting, production, issuance,
delivery, cancellation or administration of the Insurance Contracts and
Reinsurance Contracts, (ii) the investigation, defense, trial, settlement or
handling of claims, benefits, or payments under the Insurance Contracts and
Reinsurance Contracts, or (iii) the failure to pay or the delay in payment of
benefits, claims or any other amounts due or alleged to be due under or in
connection with the Insurance Contracts and Reinsurance Contracts.
"Proposed Business Statement of Assets and Liabilities" shall
have the meaning set forth in Section 2.02(b) hereof.
"Purchaser Extra Contractual Obligations" means all liabilities
for consequential, exemplary, punitive, special or similar damages (other than
any such damages that may arise under the terms and conditions of the Insurance
Contracts or Reinsurance Contracts) which arise from any actual or alleged act,
error or omission by Purchaser or any of its Affiliates after the Closing Date,
whether or not intentional, in bad faith or otherwise in connection with the
issuance, delivery, cancellation or administration of any of the Insurance
Contracts or the Reinsurance Contracts, including, without limitation, any act,
error or omission relating to (i) the marketing, underwriting, production,
issuance, delivery, cancellation or administration of the Insurance Contracts
and Reinsurance Contracts, (ii) the investigation, defense, trial, settlement or
handling of claims, benefits, or payments under the Insurance Contracts and
Reinsurance Contracts, or (iii) the failure to pay or the delay in payment of
benefits, claims or any other amounts due or alleged to be due under or in
connection with the Insurance Contracts and Reinsurance Contracts.
"Purchaser Material Adverse Change" means any material adverse
change in the business, financial condition or results of operations of ERC Life
and ERAC, considered as a whole, other than changes resulting from (i) a change
in general economic or market conditions, including changes in prevailing
interest rates, (ii) changes in insurance laws or regulations or (iii) matters
affecting the insurance or reinsurance industry generally.
"Purchaser Material Adverse Effect" means a material adverse
effect on the business, financial condition or results of operations of ERC Life
and ERAC, considered as a whole, or on the ability of ERC Life or ERAC to timely
perform its respective obligations under this Agreement or any Ancillary
Agreement.
"Purchaser SAP Statements" shall have the meaning set forth in
Section 4.04(b) hereof.
"Purchaser's Y2K Plan" shall have the meaning set forth in
Section 4.12 hereof.
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"RBC" shall have the meaning set forth in Section 4.11 hereof.
"Regulation 147 Reserves" means all reserves of PHL held pursuant
to New York Regulation 147 without giving effect to any contract transfers or
novations to APLAR since September 30, 1998.
"Reinsurance Administration Agreements" means, collectively, (i)
the Reinsurance Administration Agreement between PHL and Purchaser and (ii) the
Reinsurance Administration Agreement between APLAR and Purchaser, pursuant to
which Purchaser will provide certain administrative services to PHL and APLAR,
each in a form to be mutually agreed to by the parties hereto.
"Reinsurance Contracts" means all policies, binders, slips and
other agreements of reinsurance or retrocession, in effect on the Closing Date
(including all supplements, endorsements, riders and ancillary agreements in
connection therewith), written by PHL or APLAR in connection with the Business;
provided, that Reinsurance Contracts shall not include any of the foregoing to
the extent that it constitutes an Excluded Reinsurance Contract.
"Reinsurance Liabilities" means all liabilities and obligations
(excluding any PHL Extra Contractual Obligations) arising under or in connection
with the Reinsurance Contracts including, without limitation (i) the gross
amount of all liability for losses and loss adjustment expenses before any
deduction for reinsurance ceded, (ii) all amounts payable for returns or refunds
of premiums under the Reinsurance Contracts, including reserves for unearned
premiums, (iii) all liability for commission payments and other fees or
compensation payable with respect to the Reinsurance Contracts to or for the
benefit of MGU's intermediaries, brokers and service providers, (iv) all
liabilities for retrospective payments or adjustments under agreements of
reinsurance or retrocession, (v) all Purchaser Extra Contractual Obligations,
(vi) premium taxes due in respect of premiums paid after the Closing Date, and
(vii) all guaranty fund assessments and similar charges which are required to be
paid under or in respect of the Reinsurance Contracts; provided, however, that
in no event shall such term be deemed to include (i) any Excluded Reinsurance
Liabilities or (ii) any Tax liability of PHL, the Subsidiaries, or any
Affiliated Group that includes any of PHL, the Subsidiaries, or any Affiliate
thereof.
"Retrocession Agreements" means all contracts or other agreements
for insurance or reinsurance ceded by PHL or APLAR relating to the Business.
"Review Period" shall have the meaning set forth in Section
2.02(b) hereof.
"Second Review Period" shall have the meaning set forth in
Section 2.02(d) hereof.
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"Seller Material Adverse Change" means any material adverse
change in the business, financial condition or results of operations of the
Business, considered as a whole, other than changes resulting from (i) a change
in general economic or market conditions, including changes in prevailing
interest rates, (ii) changes in insurance laws or regulations or (iii) matters
affecting the insurance or reinsurance industry generally.
"Seller Material Adverse Effect" means any material adverse
effect on the business, financial condition or results of operations of the
Business, considered as a whole, or on the ability of PHL or APLAR to timely
perform its respective obligations under this Agreement or any Ancillary
Agreement.
"Service Transition Date" means the termination date set forth in
the Transition Services Agreement.
"Statement of Individual Life Losses" shall have the meaning set
forth in Section 2.02(d) hereof.
"subsidiary" means, with respect to any person on a given date,
any other person of which a majority of the voting power of the equity
securities or equity interests is owned directly or indirectly by such person.
"Tangible Assets" means all of the furniture, fixtures,
equipment, supplies and other tangible personal property used by PHL or any of
its Affiliates in connection with the Business and listed on SCHEDULE 1.01(c).
"Tax" or "Taxes" means all taxes, charges, fees, levies,
including, without limitation, any Income Tax, and any Tax based upon sales,
use, ad valorem, value added, transfer, license, payroll, employment,
withholding, excise, severance, stamp, occupation, property, environmental or
windfall profit tax, custom duty or other tax, together with any interest credit
or charge, penalty, addition to tax or additional amount imposed by any Taxing
Authority.
"Third Party Claim" shall have the meaning set forth in Section
10.02(a) hereof.
"Transfer Documents" means the ▇▇▇▇ of Sale and General
Assignment and such other documents and instruments as Purchaser may reasonably
request in order to transfer all of PHL's right, title and interest in the
Transferred Assets to Purchaser.
"Transferred Assets" means PHL's right, title and interest in (i)
the Assigned and Assumed Contracts, (ii) the asset balances set forth under the
captions, "Reinsurance Recoverables," "Premium Receivables" and "Other Assets"
on the Estimated Business Statement of Assets and Liabilities and the Final
Business Statement of Assets and Liabilities, as the case may be, (iii) the
Tangible Assets, (iv) the Intangible Assets and (v) the Books and
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Records; provided, that the "Transferred Assets" shall not include any of the
foregoing which are terminated, transferred or otherwise disposed of in the
ordinary course of business consistent with past practice or as otherwise
permitted by this Agreement between the date hereof and the Closing Date.
"Transferred Liabilities" means the following liabilities as set
forth on the Estimated Business Statement of Assets and Liabilities or the Final
Business Statement of Assets and Liabilities, as the case may be, determined in
accordance with the Accounting Principles, consistently applied: (i) the
Insurance Liabilities and Reinsurance Liabilities calculated net after any
deduction for reinsurance ceded in accordance with the Accounting Principles,
consistently applied, (ii) balances set forth under "Reinsurance in Unauthorized
Companies," "Suspense Accounts" and "Funds W/H - Group Medical" as set forth in
the Estimated Business Statement of Assets and Liabilities or Final Business
Statement of Assets and Liabilities, as appropriate, (iii) an amount equal to an
additional 20% of the reserves for incurred but not reported claims and in
course of settlement claims related to the American Long Term Care Reinsurance
Group pool; and (iv) the Other Assumed Liabilities.
"Transferred Employees" shall have the meaning set forth in
Section 5.08(a) hereof.
"Transition Services Agreement" means a Transition Services
Agreement pursuant to which PHL will provide certain transition services to ERC
and ERAC, in a form to be mutually agreed to by the parties hereto.
"Trust Agreements" means collectively, (i) a Trust Agreement
among PHL, Purchaser and the Trustee and (ii) a Trust Agreement among APLAR,
Purchaser and the Trustee, pursuant to which, upon the occurrence of certain
events as provided in the Assumption and Indemnity Retrocession Agreements and
the Indemnity Reinsurance Agreements, Purchaser and ERAC shall establish trust
accounts for the benefit of PHL and APLAR, as beneficiaries, each in a form to
be mutually agreed to by the parties hereto.
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS
Section 2.01. Transfer and Acquisition. (a) Upon the terms and
subject to the conditions of this Agreement and the Transfer Documents, on the
Closing Date, PHL shall sell, assign and transfer to Purchaser, and Purchaser
shall purchase from PHL, all of PHL's right, title and interest in and to the
Transferred Assets, free and clear of any Liens (other than Permitted Liens).
All sales, assignments and transfers of the Transferred Assets shall be effected
by the Transfer Documents.
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(b) Upon the terms and subject to the conditions of this
Agreement and the Assumption Agreement, on the Closing Date, Purchaser shall
assume the Other Assumed Liabilities pursuant to the Assumption Agreement.
(c) Upon the terms and subject to the conditions of this
Agreement, the Assumption and Indemnity Retrocession Agreements and the
Indemnity Reinsurance Agreements, on the Closing Date, Purchaser and ERAC shall
reinsure the Insurance Liabilities and the Reinsurance Liabilities pursuant to
the Assumption and Indemnity Retrocession Agreements and the Indemnity
Reinsurance Agreements. The Ceding Commission shall be allocated among the
Assumption and Indemnity Retrocession Agreements and the Indemnity Reinsurance
Agreements as mutually agreed to by PHL and Purchaser, consistent with Section
8.06 hereof. SCHEDULE 3.07(a) specifies the Insurance Liabilities and
Reinsurance Liabilities to be reinsured pursuant to each of the Assumption and
Indemnity Retrocession Agreements and the Indemnity Reinsurance Agreements,
respectively.
(d) Any transfer, sales or use or similar tax imposed on the
transfer, sale or recording of the Transferred Assets shall be paid by
Purchaser.
Section 2.02. Net Payment; Adjustments. (a) At least three
Business Days prior to the Closing Date, PHL shall prepare and deliver to
Purchaser the Estimated Business Statement of Assets and Liabilities in the
format of SCHEDULE 2.02 hereto. If the Net Payment set forth in the Estimated
Business Statement of Assets and Liabilities is a negative number, then
Purchaser shall, on the Closing Date, transfer to PHL an amount of cash and/or
Cash Equivalents equal to the absolute value of the Net Payment. If the Net
Payment set forth in the Estimated Business Statement of Assets and Liabilities
is a positive number, then PHL shall, on the Closing Date, transfer to Purchaser
an amount of cash and/or Cash Equivalents equal to the absolute value of the Net
Payment. The Net Payment shall in either case be subject to adjustment in
accordance with Section 2.02(b) below.
(b) Within 60 days after the Closing Date, PHL will prepare and
deliver to Purchaser proposed unaudited financial information containing the
information specified on SCHEDULE 2.02 hereto and prepared in accordance with
the Accounting Principles, consistently applied (the "Proposed Business
Statement of Assets and Liabilities") except that the aggregate book value of
the Tangible Assets described on SCHEDULE 1.01(c) shall be $100,000. Purchaser
and its representatives shall have 30 days (the "Review Period") to review the
Proposed Business Statement of Assets and Liabilities and all supporting papers
and documentation and to suggest changes, if any, therein. During the Review
Period, Purchaser shall have the right to prepare or cause to be prepared a
reserve study for the group life and health business and a reserve audit for the
individual life business as of the Closing Date (it being acknowledged and
agreed that such study and audit
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shall be solely for the purpose of confirming that the actuarial methods and
assumptions that were applied in connection with the determination of such
reserves were consistent with those applied by PHL in determining the Insurance
Liabilities and Reinsurance Liabilities as of December 31, 1998).
Notwithstanding the foregoing, the reserve audit and study shall not be for the
purpose of determining the adequacy or sufficiency of such reserves. Purchaser
shall deliver a copy of such study and audit to PHL and make available to PHL
copies of all material workpapers and supporting documentation used as the basis
for conclusions stated in the study and audit. If at the end of the Review
Period, PHL and Purchaser are able to agree on the manner in which all items on
the Proposed Business Statement of Assets and Liabilities should be treated then
the resulting statement of assets and liabilities shall be binding on both
parties and shall be referred to as the "Final Business Statement of Assets and
Liabilities." If at the end of the Review Period, PHL and Purchaser are unable
to agree on the manner in which any item or items should be treated in the
preparation of the Final Balance Sheet in accordance with the Accounting
Principles, consistently applied, then all items remaining in dispute shall be
submitted to an independent nationally recognized accounting firm which shall
not have had a material relationship with PHL or Purchaser or any of their
respective Affiliates within the past two years (the "Neutral Auditors")
mutually agreed upon by PHL and Purchaser within 10 Business Days after the end
of the Review Period; provided, however, that Purchaser and PHL acknowledge and
agree that Purchaser shall have the right to dispute PHL's determination of the
Insurance Liabilities and the Reinsurance Liabilities as set forth on the
Proposed Business Statement of Assets and Liabilities only on the basis of and
to the extent that PHL, in determining Insurance Liabilities and Reinsurance
Liabilities as of the date of and for inclusion in the Proposed Business
Statement of Assets and Liabilities, used actuarial methods and assumptions
inconsistent with those used in the December 31, 1998 Statement of Assets and
Liabilities; provided, however, Purchaser shall not dispute PHL's determination
of incurred but not reported claims relating to the individual life reinsurance
portion of the Business as of the Closing Date, including reported but unpaid
claims (the "Individual Life IBNR"), it being acknowledged and agreed that the
Individual Life IBNR shall be subject to adjustment as provided in Section
2.02(e) and (f) below. PHL and Purchaser acknowledge and agree that the Neutral
Auditors in the case of a dispute concerning liability for Insurance Liabilities
or Reinsurance Liabilities shall only resolve any such dispute on the basis of
whether PHL, in determining Insurance Liabilities or Reinsurance Liabilities as
of the date of, and for inclusion in, the Proposed Business Statement of Assets
and Liabilities, used actuarial methods and assumptions inconsistent with those
used in the December 31, 1998 Statement of Assets and Liabilities. If PHL and
Purchaser are unable to agree on the Neutral Auditors, then PHL and Purchaser
shall each have the right to request the American Arbitration Association to
appoint the Neutral Auditors. Each party agrees to execute, if requested by the
Neutral Auditors, a reasonable engagement letter. All fees
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and expenses relating to the work, if any, to be performed by the Neutral
Auditors shall be borne equally by PHL and Purchaser. The Neutral Auditors shall
act as an arbitrator to determine only those issues still in dispute. The
Neutral Auditors' determination shall be made within 30 days of their selection,
shall be set forth in a written statement delivered to PHL and Purchaser and
shall be final, binding and conclusive.
(c) Within five Business Days after the Final Business Statement
of Assets and Liabilities has been determined: (i) if the Net Payment as
determined by reference to the Final Business Statement of Assets and
Liabilities is greater than the Net Payment as determined by reference to the
Estimated Business Statement of Assets and Liabilities, PHL shall pay to
Purchaser by wire transfer of immediately available funds to an account
designated by Purchaser an amount of cash and/or Cash Equivalents equal to such
difference and (ii) if the Net Payment as determined by reference to the Final
Business Statement of Assets and Liabilities is less than the Net Payment as
determined by reference to the Estimated Business Statement of Assets and
Liabilities, Purchaser shall pay to PHL by wire transfer of immediately
available funds to an account designated by PHL an amount of cash and/or Cash
Equivalents equal to the absolute value of such difference.
(d) Within 60 days after the first anniversary of the Closing
Date, Purchaser will prepare and deliver to PHL proposed unaudited financial
information containing the Purchaser's calculation of actual losses and loss
adjustment expenses incurred since the Closing Date with respect to the
Individual Life IBNR (the "Individual Life Losses") as of the Closing Date,
prepared in accordance with the Accounting Principles, consistently applied (the
"Statement of Individual Life Losses"). PHL and its representatives shall have
30 days (the "Second Review Period") to review the Statement of Individual Life
Losses and all supporting papers and documentation and to suggest changes, if
any, therein. If at the end of the Second Review Period, PHL and Purchaser are
able to agree on the manner in which all items on the Statement of Individual
Life Losses should be treated, then the resulting statement shall be binding on
both parties and shall be referred to as the "Final Statement of Individual Life
Losses." If at the end of the Second Review Period, PHL and Purchaser are unable
to agree on the manner in which any item or items should be treated in the
preparation of the Final Statement of Individual Life Losses in accordance with
the Accounting Principles, consistently applied, then all items remaining in
dispute shall be submitted to an independent nationally recognized accounting
firm which shall not have had a material relationship with PHL or Purchaser or
any of their respective Affiliates within the past two years (the "Neutral
Auditors") mutually agreed upon by PHL and Purchaser within 10 Business Days
after the end of the Second Review Period. If PHL and Purchaser are unable to
agree on the Neutral Auditors, then PHL and Purchaser shall each have the right
to request the American Arbitration Association to appoint the Neutral Auditors.
Each party agrees to execute, if requested by the Neutral Auditors, a
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reasonable engagement letter. All fees and expenses relating to the work, if
any, to be performed by the Neutral Auditors shall be borne equally by PHL and
Purchaser. The Neutral Auditors shall act as an arbitrator to determine only
those issues still in dispute. The Neutral Auditors' determination shall be made
within 30 days of their selection, shall be set forth in a written statement
delivered to PHL and Purchaser and shall be final, binding and conclusive.
(e) Within five Business Days after the Final Statement of
Individual Life Losses has been determined: (i) if the Individual Life Losses as
determined by reference to the Final Statement of Individual Life Losses are
greater than the Individual Life IBNR as determined by reference to the Final
Business Statement of Assets and Liabilities, PHL shall pay to Purchaser by wire
transfer of immediately available funds to an account designated by Purchaser an
amount of cash and/or Cash Equivalents equal to such difference and (ii) if the
Individual Life Losses as determined by reference to the Final Statement of
Individual Life Losses are less than the Individual Life IBNR as determined by
reference to the Final Business Statement of Assets and Liabilities, Purchaser
shall pay to PHL by wire transfer of immediately available funds to an account
designated by PHL an amount of cash and/or Cash Equivalents equal to the
absolute value of such difference; provided, however, that no payment shall be
due under this Section 2.02(e) unless the absolute value of the difference in
clause (i) or (ii) exceeds $100,000.
(f) As respects each Individual Life IBNR claim equal to or
exceeding $100,000 per person, net of retrocession, which was incurred prior to
the Closing Date and which is reported and paid on or after the first
anniversary of the Closing Date, PHL will reimburse Purchaser for the entire
amount of the claim, net of retrocession (not just the portion exceeding
$100,000), promptly after receiving a proof of claim from the Purchaser.
(g) Any payment by Purchaser or PHL pursuant to paragraphs (c),
(e) or (f) of this Section 2.02 shall include simple interest thereon from the
Closing Date through the payment date calculated at the annual rate of six
percent (6%).
Section 2.03. Place and Date of Closing. The Closing shall take
place at the offices of LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., ▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ at 10:00 a.m. eastern standard time on the Closing
Date or such other time or place as the parties may mutually agree.
Section 2.04. Transactions to be Effected at the Closing. (a) At
the Closing, PHL shall execute (where appropriate) and, where appropriate, cause
APLAR to execute, and deliver to Purchaser: (i) the Assumption and Indemnity
Retrocession Agreements; (ii) the Indemnity Reinsurance Agreements; (iii) the
Reinsurance Administration Agreements; (iv) the Transition Services Agreement;
(v) the ▇▇▇▇ of Sale and General Assignment and the
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other Transfer Documents; (vi) the Assumption Agreement; and (vii) such other
agreements, instruments and documents as are required by this Agreement to be
delivered by PHL at the Closing.
(b) At the Closing, Purchaser shall execute (where appropriate)
and where appropriate, cause ERAC to execute, and deliver to Seller: (i) the
Assumption and Indemnity Retrocession Agreements; (ii) the Indemnity Reinsurance
Agreements; (iii) the Reinsurance Administration Agreements; (iv) the Transition
Services Agreement; (v) the Assumption Agreement; (vi) the Transfer Documents;
and (vii) such other agreements, instruments and documents as are required by
this Agreement to be delivered by Purchaser at the Closing.
(c) At the Closing, the Net Payment due pursuant to Section 2.02
by Seller or Purchaser, as the case may be, shall be delivered to the party to
which such payment is due, by wire transfer to a bank account designated in
writing by such party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
PHL hereby represents and warrants to Purchaser as follows:
Section 3.01. Organization, Standing and Authority. PHL is duly
organized, validly existing and in good standing under the laws of New York and
has the requisite corporate power and authority to carry on the operations of
the Business as they are now being conducted. APLAR is duly organized, validly
existing and in good standing under the laws of Connecticut and has the
requisite corporate power and authority to carry on its business as now being
conducted.
Section 3.02. Authorization. PHL has the requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and under each of the Ancillary Agreements to be executed by it. APLAR
has the requisite corporate power and authority to execute, deliver and perform
its obligations under each of the Ancillary Agreements to be executed by it. The
execution and delivery by PHL of this Agreement and the execution and delivery
by each of PHL and APLAR of the Ancillary Agreements to be executed by it, and
the performance by each of PHL and APLAR of its respective obligations hereunder
and thereunder, have been duly authorized by all necessary corporate action on
the part of PHL and APLAR. This Agreement has been duly executed and delivered
by PHL and, subject to the due execution and delivery hereof by Purchaser, this
Agreement is a valid and binding obligation of PHL, enforceable against PHL in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, by
general
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equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law). As of the Closing Date, each Ancillary
Agreement executed and delivered by PHL or APLAR, as the case may be, will have
been duly executed and delivered by PHL or APLAR, as the case may be, and,
subject to the due execution and delivery of such agreements by the parties
thereto other than PHL and APLAR, each Ancillary Agreement executed by PHL or
APLAR, as the case may be, is a valid and binding obligation of PHL or APLAR, as
the case may be, enforceable against PHL or APLAR, as the case may be, in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 3.03. No Conflict or Violation, etc. Except as disclosed
in SCHEDULE 3.03(a) and SCHEDULE 3.03(b), the execution and delivery by PHL of
this Agreement and the execution and delivery by each of PHL and APLAR of the
Ancillary Agreements to which it is a party do not, and the consummation by PHL
and APLAR of the transactions contemplated by this Agreement and such Ancillary
Agreements and compliance with the provisions hereof and thereof will not, (i)
conflict with any of the provisions of the charter or bylaws of PHL or APLAR,
(ii) subject to the matters referred to in the next sentence, conflict with,
result in a breach of or default (with or without notice or lapse of time, or
both) under, give rise to a right of termination, cancellation or acceleration
of any obligation or loss of a material benefit under, require the consent of
any person under, or result in the creation of any Lien on any property or asset
of PHL or APLAR under, any indenture or other agreement, permit, franchise,
license or other instrument or undertaking to which any of them is a party or by
which any of them or any of their assets is bound or affected, provided,
however, that as of the date of execution of this Agreement, this representation
is limited to the Insurance Contracts and Reinsurance Contracts listed on
SCHEDULE 3.07(b), and provided, further, that the foregoing representation shall
apply to all Insurance Contracts and Reinsurance Contracts as of the Closing
Date, or (iii) subject to the matters referred to in the next sentence,
contravene any statute, law, ordinance, rule, regulation, order, judgment,
injunction, decree, determination or award applicable to PHL or APLAR or any of
their respective properties or assets, which, in the case of clauses (ii) and
(iii) above, individually or in the aggregate, could reasonably be expected to
have a Seller Material Adverse Effect. No consent, approval or authorization of,
or declaration or filing with, or notice to, any court or governmental or
regulatory authority or agency, domestic or foreign (a "Governmental Entity"),
is required to be obtained or made by or with respect to PHL or APLAR in
connection with the execution and delivery of this Agreement by PHL or APLAR or
the consummation by PHL or APLAR of the transactions contemplated hereby, except
for (i) the filing of premerger notification and report forms under the HSR Act,
(ii) the approvals, filings or
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notices required under the insurance laws of the jurisdictions set forth in
SCHEDULE 3.03(a), (iii) such other consents, approvals, authorizations,
declarations, filings or notices as are set forth in SCHEDULE 3.03(b) and (iv)
such other consents, approvals, authorizations, declarations, filings or notices
the failure to obtain or make which, in the aggregate, could not reasonably be
expected to have a Seller Material Adverse Effect.
Section 3.04. Financial Information. (a) Attached hereto as
SCHEDULE 3.04 is an unaudited statement of assets and liabilities of the
Business as of December 31, 1998 (the "December 31, 1998 Statement of Assets and
Liabilities"). Subject to the qualifications, assumptions and other limitations
specified in SCHEDULE 3.04, the December 31, 1998 Statement of Assets and
Liabilities has been prepared in accordance with the Accounting Principles,
consistently applied.
(b) PHL has previously delivered to Purchaser true, complete and
correct copies of the annual statements of PHL and APLAR as filed with the
Insurance Departments of the States of New York and Connecticut, respectively,
for the years ended December 31, 1998 and 1997, together with all exhibits and
schedules thereto (the "Seller SAP Statements"). The Seller SAP Statements
present fairly, in all material respects, the statutory financial condition of
each of PHL and APLAR at the respective dates thereof, and the statutory results
of operations for the periods then ended in accordance with statutory accounting
principles prescribed or permitted by the insurance regulatory authorities in
New York and Connecticut, respectively, applied on a consistent basis throughout
the periods indicated and consistent with each other, except as otherwise
specifically noted therein.
Section 3.05. Reserves. (a) The amounts shown in the Estimated
Business Statement of Assets and Liabilities and the Final Business Statement of
Assets and Liabilities as reserves for Insurance Liabilities and Reinsurance
Liabilities (i) will be determined in accordance with commonly accepted
actuarial standards consistent with the standards (including the methods and
assumptions) used in connection with the determination of the reserves for
Insurance Liabilities and Reinsurance Liabilities shown in the December 31, 1998
Business Statement of Assets and Liabilities, (ii) will be based on actuarial
assumptions that were appropriate for PHL's and APLAR's obligations under the
Insurance Contracts and the Reinsurance Contracts, (iii) will be fairly stated
in accordance with sound actuarial principles, and (iv) will meet the
requirements of New York statutory accounting principles or Connecticut
statutory accounting principles, as applicable.
(b) Notwithstanding the foregoing and any other provision of this
Agreement (including Sections 3.04, 3.06 and 3.07), PHL makes no representation
or warranty that its reserves for losses or loss adjustment expenses or
uncollectible reinsurance with respect to the Reinsurance Contracts or the
reserves of APLAR
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for losses or loss adjustment expenses or uncollectible reinsurance are adequate
or sufficient and the sole provisions of this Agreement with reference to the
adequacy or sufficiency of such reserves are set forth in this Section 3.05(b).
Section 3.06. Absence of Certain Changes. Except as disclosed in
SCHEDULE 3.06, since December 31, 1998, each of PHL and APLAR has conducted the
Business in all material respects only in the ordinary course of business
consistent with past practice, and since such date, there has not been any
Seller Material Adverse Change or any change, event, occurrence, circumstance,
fact or other matter that has had or could reasonably be expected to have a
Seller Material Adverse Effect. Purchaser acknowledges that there may after the
date hereof be a disruption in the Business as a result of the disclosure to the
public of the transactions contemplated hereby or the consummation thereof, and
that any such disruption shall not constitute a Seller Material Adverse Change
for any purpose under this Agreement.
Section 3.07. Contracts. SCHEDULE 3.07(a) contains a complete and
correct list of (i) all Insurance Contracts and Reinsurance Contracts in force
on the date hereof, (ii) all Retrocession Agreements in force on the date hereof
and (iii) all other material contracts, agreements and commitments to which PHL
or APLAR is a party as of the date hereof which principally relate to the
Business, other than (A) contracts, agreements and commitments listed on
SCHEDULE 1.01(a) or (B) contracts, agreements and commitments that relate to any
asset used in or relating to the Business which is not a Transferred Asset. True
and complete copies of each contract, agreement or commitment listed on any
Schedule hereto have been made available to Purchaser for its review. To the
knowledge of PHL, each of the contracts, agreements and commitments listed on
SCHEDULES 1.01(a) AND 3.07(a) is in full force and effect and is the valid and
binding obligation of each party thereto, except where the failure to be in full
force and effect or valid and binding would not in the aggregate have a Seller
Material Adverse Effect, and except as the enforceability of any thereof may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing. To the knowledge of PHL, except
as set forth in the Schedules hereto, none of PHL, APLAR or any other person is
(or, with the giving of notice or the lapse of time or both, will be) in
violation or breach of or default under any of the contracts, agreements and
commitments listed on SCHEDULES 1.01(a) AND 3.07(a), except for such violations,
breaches or defaults which would not in the aggregate have a Seller Material
Adverse Effect. SCHEDULE 3.07(b) hereto identifies each Insurance Contract,
Reinsurance Contract, and each other contract, agreement and commitment that, in
the reasonable opinion of Seller, constitutes 1% or more of the in force
individual life Business or
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is otherwise material to the Business. To the knowledge of Seller, except as set
forth on SCHEDULE 3.07(c) hereto, none of the Insurance Contracts, Reinsurance
Contracts, Retrocession Agreements or other contracts, agreements or commitments
listed on SCHEDULE 3.07(b) hereto provide for any experience refunds,
extraordinary allowances (including, but not limited to, persistency bonuses and
COI refunds) or similar items.
Section 3.8. Title to Assets. (a) PHL has good title to all of
the Tangible Assets, free and clear of all Liens, except for (i) Liens disclosed
in SCHEDULE 3.08(a) and (ii) Permitted Liens. At the Closing, Purchaser will
acquire the Tangible Assets to be transferred at the Closing, free and clear of
all Liens, except for Liens disclosed in SCHEDULE 3.08(a) and Permitted Liens
and except for any Liens created by, or permitted to be created by, Purchaser.
(b) PHL owns or has a valid right to use each of the Intangible
Assets. PHL has not received written notice of any conflict with the asserted
rights of any other person with respect to any Intangible Asset. At the Closing,
Purchaser will become the owner of, or acquire a valid right to use, each of the
Intangible Assets.
Section 3.9. Litigation; Orders. Except as disclosed in SCHEDULE
3.09, there is no action, suit, proceeding, arbitration or similar proceeding
pending or, to the knowledge of PHL, threatened against or affecting PHL or
APLAR or any of their respective Affiliates, at law or in equity, and, to the
knowledge of PHL, there is no pending or threatened investigation, in each case
that, individually or in the aggregate, could reasonably be expected to have a
Seller Material Adverse Effect, nor is there any judgment, decree, writ,
injunction or order of any Governmental Entity or arbitrator outstanding against
any of such persons having, or which, individually or in the aggregate, could
reasonably be expected to have, any such effect.
Section 3.10. Compliance with Laws. Except as disclosed in
SCHEDULE 3.10, each of PHL and APLAR is in compliance with all applicable
statutes, laws, ordinances, rules, regulations, judgments, decrees, injunctions
and orders of any Governmental Entity, except for such noncompliance which,
individually or in the aggregate, could not reasonably be expected to have a
Seller Material Adverse Effect.
Section 3.11. Employee Matters. SCHEDULE 3.11 hereto contains a
list of each material written employee benefit plan and compensation policy or
arrangement (including severance) maintained or contributed to for the Business
Employees. PHL has made available to Purchaser a copy of each such employee
benefit plan and compensation policy or arrangement. Each of the above
referenced plans has been maintained in all material respects in substantial
compliance with the applicable requirements of law.
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There are no material actions, suits or proceedings brought or to the knowledge
of PHL threatened against PHL or any Affiliate by or on behalf of any Business
Employee. PHL is not a party to any labor or collective bargaining agreements
and there are no labor or collective bargaining agreements which pertain to
employees of PHL. No labor organization represents any employees of PHL. No
labor organization or group of employees of PHL has made a pending demand for
recognition and there are no organizing campaigns or representation proceedings
or petitions seeking representation presently pending or to the knowledge of
PHL, threatened to be brought or filed with the National Labor Relations Board
or other labor relations tribunal.
Section 3.12. Brokers. No broker, investment banker, financial
advisor or other person, other than Bear, ▇▇▇▇▇▇▇ & Co., Inc., the fees and
expenses of which will be paid by PHL, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of PHL or any Affiliate thereof.
Section 3.13. Tax Matters. PHL and Subsidiaries have no liability
or obligation for or in respect of Taxes that would be imposed on or affect
Purchaser or any of its Affiliates, or that would adversely affect the Business
or the consummation of the transactions contemplated hereby, and no Tax imposed
on PHL or any Subsidiary for any period would be imposed on or affect the
Purchaser or any of its Affiliates or would adversely affect the Business or the
consummation of the transactions contemplated hereby.
Section 3.14. Licenses and Franchises. Except (i) as listed on
SCHEDULE 3.14 hereto, (ii) for the consents, approvals, declarations, filings
and notices contemplated in the last sentence of Section 3.03 and (iii) for such
licenses and authorizations the failure to have, individually or in the
aggregate, could not reasonably be expected to have a Seller Material Adverse
Effect, each of PHL and APLAR has all licenses and authorizations necessary to
(a) conduct the Business in the manner and in the areas in which the Business is
presently being conducted; and (b) perform its respective obligations under this
Agreement and each Ancillary Agreement to which it is a party. All such licenses
and authorizations are valid and in full force and effect (or, with respect to
the consents, approvals, authorizations, declarations, filings and notices to be
made pursuant to the last sentence of Section 3.03, will be in effect or have
been made as of the Closing Date), and neither PHL nor APLAR is operating under
any formal or informal agreement or understanding with any Governmental Entity
which restricts its authority to do business or requires PHL or APLAR to take,
or refrain from taking, any action in either case that, individually or in the
aggregate, could reasonably be expected to have a Seller Material Adverse
Effect. Except as listed on SCHEDULE 3.14 hereto, no material violations exist
in respect of any such license or authorization and no investigation
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or proceeding is pending or, to the knowledge of PHL, threatened, that could be
reasonably likely to result in the suspension, revocation or material limitation
or restriction of any such license or authorization and, to the knowledge of
PHL, there is no reasonable basis for the assertion of any such violation or the
institution of any such proceeding or investigation, in either case that,
individually or in the aggregate, could reasonably be expected to have a Seller
Material Adverse Effect.
Section 3.15. Security. Seller is not currently providing any
trust, escrow, letter of credit or other type of security with respect to any
Reinsurance Contract described on SCHEDULE 3.07(b).
Section 3.16. PLARNY. Phoenix Life and Reassurance Company of New
York will not be assuming any of the Business as of the Closing Date. Purchaser
is not required to assume any of the Business from Phoenix Life and Reassurance
Company of New York.
Section 3.17. Affiliate Retrocession. All reinsurance and
retrocession agreements between the PHL companies which pertain to the Business
will be recaptured before the Closing Date, subject to receipt of required
regulatory approvals, if any. Purchaser is not required to cede any of the
Business to any PHL company.
Section 3.18. Treaty Compliance. The Insurance Contracts and
Reinsurance Contracts comply with state insurance laws and regulations, except
for such noncompliance which individually or in the aggregate could not
reasonably be expected to have a Seller Material Adverse Effect.
Section 3.19. System Recognition of Change of Date. PHL has
developed a strategy and has already implemented or is now implementing a plan
(PHL's Y2K Plan), whereby all computer systems, programs, software, hardware and
similar devices (which are or will be utilized with respect to the Business)
will properly process any data involving one or more dates or times, including
the Year 2000.
Section 3.20. Threats of Cancellation or Downgrading. Except as
listed in SCHEDULE 3.20 hereto, since December 31, 1998 to the date of execution
of this Agreement, no reinsured, group of reinsureds, or reinsurance
intermediaries that individually or in the aggregate accounted for 5% or more of
the gross face amount of the Business for the year ended December 31, 1998, has
terminated or (to the best knowledge of Seller) threatened in writing to
terminate its relationship with Seller or APLAR. Seller has no reason to believe
as of the date hereof that its Standard & Poor's rating will be adversely
affected by the consummation of the transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
Section 4.01. Organization, Standing and Authority. Each of ERC
Life and ERAC is duly organized, validly existing and in good standing under the
laws of the state of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on the operations of its business as they are now being conducted.
Section 4.02. Authorization. Purchaser has the requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and under each of the Ancillary Agreements to be executed
by it. ERAC has the requisite corporate power and authority to execute, deliver
and perform its obligations under each of the Ancillary Agreements to be
executed by it. The execution and delivery by each of ERC Life and ERAC of this
Agreement and the Ancillary Agreements to be executed by it, and the performance
by each of ERC Life and ERAC of its obligations hereunder and thereunder, have
been duly authorized by all necessary corporate action on the part of ERC Life
and ERAC. This Agreement has been duly executed and delivered by Purchaser and,
subject to the due execution and delivery hereof by PHL, this Agreement is a
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). As of the Closing Date, each
Ancillary Agreement executed and delivered by ERC Life or ERAC, as the case may
be, will have been duly executed and delivered by ERC Life or ERAC, as the case
may be, and, subject to the due execution and delivery of such agreements by the
parties thereto other than ERC Life or ERAC, as the case may be, each Ancillary
Agreement executed by ERC Life or ERAC is a valid and binding obligation of ERC
Life or ERAC, as the case may be, enforceable against ERC Life or ERAC, as the
case may be, in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 4.03. No Conflict or Violation, etc. Except as disclosed
in SCHEDULE 4.03, the execution and delivery by Purchaser of this Agreement and
the execution and delivery by each of ERC Life and ERAC of the Ancillary
Agreements to which it is a party do not, and the consummation by ERC Life and
ERAC of the transactions
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contemplated by this Agreement and such Ancillary Agreements and compliance with
the provisions hereof and thereof will not, (i) conflict with any of the
provisions of the charter or bylaws of ERC Life or ERAC, (ii) subject to the
matters referred to in the next sentence, conflict with, result in a breach of
or default (with or without notice or lapse of time, or both) under, give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under, require the consent of any person under, or
result in the creation of any Lien on any property or asset of ERC Life or ERAC
under, any indenture or other agreement, permit, franchise, license or other
instrument or undertaking to which any of them is a party or by which any of
them or any of their assets is bound or affected, or (iii) subject to the
matters referred to in the next sentence, contravene any statute, law,
ordinance, rule, regulation, order, judgment, injunction, decree, determination
or award applicable to ERC Life or ERAC or any of their respective properties or
assets, which, in the case of clauses (ii) and (iii) above, individually or in
the aggregate, could reasonably be expected to have a Purchaser Material Adverse
Effect. No consent, approval or authorization of, or declaration or filing with,
or notice to, any Governmental Entity, is required to be obtained or made by or
with respect to ERC Life or ERAC in connection with the execution and delivery
of this Agreement by Purchaser or the consummation by ERC Life or ERAC of the
transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the HSR Act, (ii) the approvals, filings or
notices required under the insurance laws of the jurisdictions set forth in
SCHEDULE 4.03, (iii) such other consents, approvals, authorizations,
declarations, filings or notices as are set forth in SCHEDULE 4.03 and (iv) such
other consents, approvals, authorizations, declarations, filings or notices the
failure to obtain or make which, in the aggregate, could not reasonably be
expected to have a Purchaser Material Adverse Effect.
Section 4.04. Purchaser Financial Statements. Purchaser has
previously delivered to Seller true, complete and correct copies of the annual
statements of ERC Life and ERAC as filed with the Insurance Departments of the
States of Missouri and Kansas, respectively, for the years ended December 31,
1998 and 1997, together with all exhibits and schedules thereto (the "Purchaser
SAP Statements"). The Purchaser SAP Statements present fairly, in all material
respects, the statutory financial condition of each of ERC Life and ERAC at the
respective dates thereof, and the statutory results of operations for the
periods then ended in accordance with statutory accounting principles prescribed
or permitted by the insurance regulatory authorities in Missouri and Kansas,
respectively, applied on a consistent basis throughout the periods indicated and
consistent with each other, except as otherwise specifically noted therein.
Section 4.05. Absence of Certain Changes. Except as disclosed in
SCHEDULE 4.05, since December 31, 1998, each of ERC Life and ERAC has conducted
its business in all material respects
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only in the ordinary course of business consistent with past practice, and since
such date there has not been any Purchaser Material Adverse Change or any
change, event, occurrence, circumstance, fact or other matter that has had or
could reasonably be expected to have a Purchaser Material Adverse Effect.
Section 4.06. Litigation; Orders. Except as disclosed in SCHEDULE
4.06, there is no action, suit, proceeding, arbitration or similar proceeding
pending or, to the knowledge of Purchaser, threatened against or affecting ERC
Life or ERAC or any of their respective Affiliates, at law or in equity, and to
the knowledge of Purchaser, there is no pending or threatened investigation, in
each case that, individually or in the aggregate, could reasonably be expected
to have a Purchaser Material Adverse Effect, nor is there any judgment, decree,
writ, injunction or order of any Governmental Entity or arbitrator outstanding
against any of such persons having, or which, individually or in the aggregate,
could reasonably be expected to have, any such effect.
Section 4.07. Compliance with Laws. Except as disclosed in
SCHEDULE 4.07, each of ERC Life and ERAC is in compliance with all applicable
statutes, laws, ordinances, rules, regulations, judgments, decrees, injunctions
and orders of any Governmental Entity, except for such noncompliance which,
individually or in the aggregate, could not reasonably be expected to have a
Purchaser Material Adverse Effect.
Section 4.08. Brokers. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Purchaser or an Affiliate thereof.
Section 4.09. Ratings. Purchaser has no reason to believe as of
the date hereof that its or ERAC's Standard & Poor's rating of AAA will be
adversely affected by the consummation of the transactions contemplated hereby.
Section 4.10. Licenses and Franchises. Except as (i) listed on
SCHEDULE 4.10 hereto, (ii) for the consents, approvals, declarations, filings
and notices contemplated by the last sentence of Section 4.03 and (iii) such
licenses and authorizations the failure to have, individually or in the
aggregate, could not reasonably be expected to have a Purchaser Material Adverse
Effect, each of Purchaser and ERAC has all licenses and authorizations necessary
to (a) conduct the Business in the manner and in the areas in which the Business
is presently being conducted; and (b) perform its respective obligations under
this Agreement and each Ancillary Agreement to which it is a party. All such
licenses and authorizations are valid and in full force and effect (or, with
respect to the consents, approvals, authorizations, declarations, filings and
notices to be made pursuant to the last sentence of Section 4.03, will be in
effect or
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have been made as of the Closing Date), and neither Purchaser nor ERAC is
operating under any formal or informal agreement or understanding with any
Governmental Entity which restricts its authority to do business or requires
Purchaser or ERAC to take, or refrain from taking, any action in either case
that, individually or in the aggregate, could reasonably be expected to have a
Purchaser Material Adverse Effect. Except as listed on SCHEDULE 4.10 hereto, no
material violations exist in respect of any such license or authorization and no
investigation or proceedings is pending or, to the knowledge of Purchaser,
threatened, that could be reasonably likely to result in the suspension,
revocation or material limitation or restriction of any such license or
authorization and, to the knowledge of Purchaser, there is no reasonable basis
for the assertion of any such violation or the institution of any such
proceeding or investigation in either case that, individually or in the
aggregate, could reasonably be expected to have a Purchaser Material Adverse
Effect.
Section 4.11. Risk Based Capital. The Total Adjusted Capital of
each of Purchaser and ERAC exceeds 200% of its Company Action Level Risk Based
Capital ("RBC") (as those terms are defined by applicable law, as of the Closing
Date in Purchaser's or ERAC's respective domiciliary state).
Section 4.12. System Recognition of Change of Date. Purchaser has
developed a strategy and has already implemented or is now implementing a plan
(Purchaser's Y2K Plan), whereby its computer systems, programs, software,
hardware and similar devices to be used to provide the services required under
this Agreement and the Ancillary Agreements will properly process any data
involving one or more dates or times, including the Year 2000.
ARTICLE V
COVENANTS
Section 5.01. Conduct of Business. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, PHL shall, and shall cause the Subsidiaries to, carry on the Business only
in the ordinary course of business consistent with past practice and, to the
extent consistent therewith, use its reasonable best efforts to preserve intact
the current business organization of the Business, keep available the services
of the employees directly involved principally in the Business and preserve its
relationships with MGUs, brokers, intermediaries, reinsureds and others having
business dealings with the Business. Without limiting the generality of the
foregoing, except as contemplated by this Agreement, during the period from the
date of this Agreement to the Closing Date, PHL, shall not, and shall not permit
the Subsidiaries to, without the prior consent of Purchaser:
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(i) (A) terminate, transfer or otherwise dispose of any
assets which would otherwise be Transferred Assets, other than in the
ordinary course of business consistent with past practice or (B) modify
or change in any material respect any material Assigned and Assumed
Contract, other than in the ordinary course of business consistent with
past practice;
(ii) (A) permit or allow any of the Transferred Assets
to become subject to any Liens except Liens described in SCHEDULE
3.08(a) hereto or Permitted Liens, (B) waive any material claims or
rights relating to the Business, except in the ordinary course of
business consistent with past practice and except for waivers of
intercompany obligations or of claims or rights which will not be
assigned to Purchaser hereunder or (C) grant any increase in the
compensation of Transferred Employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or
commitment), except for increases in the ordinary course of business
consistent with past practice or as a result of contractual arrangements
existing or the subject of existing negotiations on the date hereof, and
reasonable bonuses;
(iii) make any material change in accounting methods,
principles or practices used by PHL or APLAR in connection with the
Business, including but not limited to any material change with respect
to establishment of reserves for losses and loss adjustment expenses,
except insofar as may be required by a change in generally accepted
accounting principles, tax accounting principles or statutory accounting
practices or as may be required by law or any Governmental Entity;
(iv) make any material change to the pricing or
underwriting methodologies applicable to the Business, except as may be
required by generally accepted accounting principles, tax accounting
principles or statutory accounting practices or as may be required by
law or any Governmental Entity;
(v) solicit or negotiate for the sale of any part of
the Business with any third party; or
(vi) commit or agree to take any of the foregoing
actions.
Section 5.02. Access to Information; Confidentiality. (a) PHL
shall afford to Purchaser and to the officers, employees, counsel, financial
advisors, accountants, actuaries and other representatives of Purchaser
reasonable access during normal business hours during the period prior to the
Closing Date to all of the (i) Insurance Contracts, Reinsurance Contracts, Books
and Records and Transferred Assets, (ii) contracts, books and records and other
assets of the Subsidiaries and (iii) personnel involved
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in the Business and, during such period, shall furnish as promptly as
practicable to Purchaser such information concerning the Business as Purchaser
may from time to time reasonably request. Purchaser agrees that it will hold,
and will cause its Affiliates and each of their respective directors, officers,
employees, partners, counsel, financial advisors, accountants, actuaries and
other representatives and affiliates to hold, any information so obtained in
confidence to the extent required by, and in accordance with, the provisions of
the Confidentiality Agreement, dated March 3, 1999 (the "Confidentiality
Agreement"), between PHL and Purchaser.
(b) Purchaser shall furnish as promptly as practicable to PHL and
any Affiliate of PHL such information concerning its business, properties,
financial condition, operations and personnel as PHL may from time to time
reasonably request in connection with the transactions and services contemplated
by this Agreement and the Ancillary Agreements. PHL agrees to hold any
information so obtained in confidence to the extent required by, and in
accordance with, the provisions of the Confidentiality Agreement.
Section 5.03. Reasonable Best Efforts. Upon the terms and subject
to the conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement.
Section 5.04. Consents, Approvals and Filings. (a) PHL and
Purchaser will make and cause their respective subsidiaries to make all
necessary filings, as soon as practicable, including, without limitation, any
filing required under state insurance laws, in order to facilitate prompt
consummation of the transactions contemplated by this Agreement. In addition,
PHL and Purchaser will each use their reasonable best efforts (without the
payment of money or the commencement of litigation), and will cooperate fully
with each other (i) to comply as promptly as practicable with all governmental
requirements applicable to the transactions contemplated by this Agreement and
(ii) to obtain as promptly as practicable all necessary consents, approvals,
permits or authorizations of Governmental Entities and consents or waivers of
all third parties necessary or advisable for the consummation of the
transactions contemplated by this Agreement. Each of PHL and Purchaser shall use
its reasonable best efforts to provide such information and communications to
Governmental Entities as such Governmental Entities may reasonably request. PHL
shall use its reasonable best efforts to provide to Purchaser any unaudited
historical financial information relating to the Business prepared in accordance
with United States generally accepted accounting principles that is required to
be included in filings by Purchaser or its Affiliates with the Securities and
Exchange Commission ("SEC") under applicable SEC rules.
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(b) If required, PHL and Purchaser will, as promptly as
practicable, file, or cause to be filed, Notification and Report Forms under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Department of Justice (the "Antitrust Division") in
connection with the transactions contemplated by this Agreement, and will use
their respective reasonable best efforts to respond as promptly as practicable
to all inquiries received from the FTC or the Antitrust Division for additional
information or documentation and to cause the waiting periods under the HSR Act
to terminate or expire at the earliest possible date. PHL and Purchaser will
each furnish to the other such necessary information and reasonable assistance
as the other may request in connection with its preparation of necessary filings
or submissions to any governmental or regulatory agency, including, without
limitation, any filings necessary under the provisions of the HSR Act.
(c) Each of the parties shall provide to the other party copies
of all applications or other correspondence or materials in advance of filing or
submission thereof to Governmental Entities in connection with the transactions
contemplated by this Agreement.
Section 5.05. Notification. PHL and Purchaser shall each notify
the other and keep it advised as to (i) any litigation or administrative
proceeding pending and known to it or, to its knowledge, threatened which
challenges or seeks to restrain or enjoin the consummation of any of the
transactions contemplated hereby and (ii) the occurrence of any Seller Material
Adverse Change or Purchaser Material Adverse Change.
Section 5.06. Further Assurances. On and after the Closing Date,
PHL and Purchaser shall take all reasonably appropriate action and execute any
additional documents, instruments or conveyances of any kind which may be
reasonably necessary to carry out any of the provisions of this Agreement or
consummate any of the transactions contemplated by this Agreement.
Section 5.07. Expenses. Except as otherwise specifically provided
in this Agreement, the parties to this Agreement shall bear their respective
expenses incurred in connection with the preparation, execution and performance
of this Agreement and consummation of the transactions contemplated hereby,
including, without limitation, all fees and expenses of agents, representatives,
counsel, financial advisors, actuaries and accountants; provided, however, that
Purchaser shall bear the cost of obtaining required insurance regulatory
approvals, consents and orders for the implementation of the Assumption and
Indemnity Retrocession Agreements which Purchaser is required to obtain and
Seller shall bear the costs of such items as the Seller is required to obtain.
Purchaser will bear the actual out-of-pocket costs of providing notices to
policyholders, ceding insurers and reinsurers and of otherwise implementing the
Assumption and Indemnity Retrocession Agreements in accordance with their terms.
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Section 5.08. Employees and Employee Benefits of PHL.
(a) SCHEDULE 5.08(a) hereto lists the names of those employees
who are assigned to the Business (the "Business Employees"). At the later of the
Closing Date or thirty (30) days from the effective date of definitive
documentation, Purchaser will select and identify to Seller those Business
Employees to whom Purchaser will offer employment at substantially the same
salaries and wages as such employees received immediately prior to the Closing,
and with substantially similar employee benefits, including medical, disability,
life insurance and retirement benefits, as are provided to similarly situated
employees of Purchaser who are hired by Purchaser on or after May 1, 1999. Those
Business Employees who accept such offers of employment shall be referred to
herein as "Transferred Employees." PHL shall terminate the employment of all
Transferred Employees effective as of the Closing Date or thirty (30) days from
the effective date of the definitive documentation if later. Notwithstanding
anything else in this Agreement, this Section 5.08 shall not create any
obligation on the part of Purchaser or any of its Affiliates to continue the
employment of, nor create any right in, any Transferred Employee or in his or
her beneficiaries following the Closing Date. PHL shall retain any and all
obligations resulting from the transaction of the termination of employment of
the Transferred Employees pursuant to the Worker Adjustment and Retraining
Notification Act ("WARN") or any similar state or local law. PHL makes no
representation as to whether or not any Business Employee will accept employment
with Purchaser. With respect to the Transferred Employees, PHL shall be
responsible for all accrued but not taken vacation and all accrued but unpaid
salary, wages and bonuses (including incentive, severance and retention bonuses)
as of the Closing Date. Nothing in this Agreement shall be construed as limiting
in any way the right of Purchaser after the Closing Date to terminate the
employment of any Transferred Employee, to change his or her salary or wages or
to modify benefits or other terms of employment of Transferred Employees as long
as any changes to salary or wages are done in accordance with Purchaser's normal
compensation practices and as long as any modification to benefits or other
terms and conditions of employment of any Transferred Employee made within one
year following the Closing Date apply generally to employees or former employees
of Purchaser's business.
(b) All Transferred Employees shall be given full credit by
Purchaser for their years of service with Seller or any of its Affiliates for
purposes of (i) eligibility and vesting (but not benefit accruals) in all
employee benefit plans (within the meaning of Section 3(3) of ERISA) of
Purchaser which are made available to such employees following the Closing and
(ii) calculating the benefits to which they are entitled under the applicable
severance and vacation policies of Purchaser which are made available to such
employees following the Closing. In addition, Purchaser shall cause the welfare
benefit plans (within the meaning of Section 3(1) of ERISA) which are made
available to Transferred Employees following the Closing to waive any
pre-existing condition
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limitations and give credit for any amounts paid under Seller's corresponding
welfare benefit plans in calendar year 1999 for purposes of satisfying
deductibles, co-payments and out-of-pocket maximums as though such amounts had
been paid in accordance with the terms of Purchaser's welfare benefit plans.
(c) On and after the Closing Date, until at least the first
anniversary of the Closing Date, Purchaser shall provide payments upon
termination of employment by Purchaser or any of its Affiliates to any
Transferred Employee following the Closing Date in an amount not less than such
employee would be entitled to under Purchaser's severance policy applicable to
such employees, a copy of which is set forth on SCHEDULE 5.08(c).
(d) Seller shall retain all liabilities, responsibilities and
obligations (i) with respect to any Business Employee who does not become a
Transferred Employee, (ii) with respect to any Transferred Employee for the
period on or prior to Closing, and (iii) with respect to any employee benefit
plan (as defined in Section 3(3) of ERISA), any compensation policy or
arrangement, including Section 4980B of the Code ("COBRA") and severance, of
Seller or any of its Affiliates, including any covering Business Employees and
the Transferred Employees, and Purchaser shall not assume or adopt or become
liable with respect to such employee plans, policies or arrangements. Purchaser
shall be responsible for all claims with respect to the Transferred Employees
arising after the Closing, including compensation, employee benefits, COBRA and
severance as provided herein.
(e) PHL shall be responsible for all deferred compensation due to
Transferred Employees under PHL's deferred compensation plans with respect to
services rendered prior to the Closing Date by any Transferred Employee.
(f) PHL and Purchaser agree that to the extent applicable as
determined by Purchaser that the responsibilities for payroll taxes with respect
to Transferred Employees may be allocated under the Alternate Procedure
described in Section 5 of Rev. Proc. 83-66 as modified and superseded by Rev.
Proc. 84-77, such Revenue Procedures shall be followed.
(g) Purchaser represents that it does not currently contemplate a
plant closing involving, or mass lay-off of, Transferred Employees, or any
terminations that in the aggregate would constitute a mass lay-off of
Transferred Employees, within one year following the Closing Date. Purchaser
shall indemnify and defend PHL and hold PHL harmless from and against any loss,
liability, claim or damage, including attorneys' fees, which may be incurred or
suffered by PHL under the Worker Adjustment and Retraining Notification Act or
any similar state law arising out of, or relating to, any actions taken by
Purchaser with respect to the Transferred Employees on or after the Closing
Date.
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Section 5.09. Updating Schedules. In connection with the Closing,
Seller and Purchaser will promptly supplement or amend the various Schedules to
this Agreement to reflect any matter which, if existing, occurring or known on
the date hereof should have been so disclosed, or which is necessary to correct
any information in such Schedules which was or has been rendered inaccurate
thereby. Unless Purchaser or the Seller has the right to terminate this
Agreement pursuant to Section 11.01 below by reason of the additional
information provided and exercises that right after receipt of the additional
information provided, the written information provided pursuant to this Section
5.09 will be deemed to have amended the Schedules hereto, to have qualified the
representations and warranties contained in Articles III and IV above, and to
have cured any misrepresentation or breach of warranty that otherwise might have
existed hereunder by reason of the delivery of such information.
Section 5.10. Resources. Purchaser will have and maintain,
subsequent to the Service Transition Date and thereafter during the terms of the
Assumption and Indemnity Retrocession Agreements, the Indemnity Reinsurance
Agreements and the Reinsurance Administration Agreements sufficient expertise,
trained personnel, resources, systems, controls and procedures (financial,
legal, accounting, administrative or otherwise) as may be necessary or
appropriate to discharge its obligations after Closing under the terms of this
Agreement, the Assumption and Indemnity Retrocession Agreements, the
Administrative Services Agreements or any other Ancillary Agreement.
Notwithstanding anything to the contrary contained in this Agreement, the
covenants contained in this Section 5.10 shall not terminate or expire until all
Insurance Liabilities and Reinsurance Liabilities have been discharged or
terminated in full.
Section 5.11. Exclusivity. Upon the execution of this Agreement,
PHL and its Affiliates will immediately cease and, unless and until this
Agreement is terminated in accordance with its terms, will terminate and not
resume any discussions or negotiations with third parties concerning proposals
for the acquisition or disposition of all or any portion of the Business
(collectively, "Acquisition Proposals"). From and after the date hereof, unless
and until this Agreement is terminated in accordance with its terms, PHL will
not, and will cause its Affiliates not to, seek, solicit, encourage, respond to
or initiate any Acquisition Proposal.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF PURCHASER
The obligations of Purchaser under this Agreement are subject to
the satisfaction on or prior to the Closing Date of the
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following conditions, any one or more of which may be waived by Purchaser to the
extent permitted by law:
Section 6.01. Representations and Covenants. (a) The
representations and warranties of PHL contained in this Agreement (or in any
exhibit, schedule, certificate or document delivered pursuant to this Agreement)
that are qualified as to materiality shall be true and correct and all
representations and warranties of PHL made in this Agreement (or in any exhibit,
schedule, certificate or document delivered pursuant to this Agreement) that are
not so qualified shall be true and complete in all material respects, in each
case on and as of the Closing Date with the same force and effect as though made
on and as of the Closing Date, except to the extent that any such representation
and warranty is made as of a particular date, in which case such representation
and warranty shall have been true and correct as of such date.
(b) PHL shall have performed or complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by PHL on or prior to the Closing Date.
(c) On the Closing Date, PHL shall have delivered to Purchaser a
certificate of PHL, dated as of the Closing Date and signed by an executive
officer of PHL, as to the matters set forth in this Section 6.01.
Section 6.02. Other Agreements. The Ancillary Agreements and each
of the other agreements and instruments contemplated hereby and thereby to which
PHL or APLAR is a party shall have been duly executed and delivered by PHL or
APLAR on the Closing Date.
Section 6.03. Governmental and Regulatory Consents and Approvals.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained prior to
the Closing Date from, Governmental Entities, including, without limitation,
those set forth in SCHEDULES 3.03(a) AND 4.03, in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained (as the case may be).
(b) Any waiting period prescribed by the HSR Act and applicable
to the transactions contemplated by this Agreement shall have expired or been
terminated.
Section 6.04. Third Party Consents. All consents or waivers of
third parties listed in SCHEDULES 3.03(a) AND 4.03 shall have been obtained,
other than those that, if not obtained, would not have a Seller Material Adverse
Effect or a Purchaser Material Adverse Effect.
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Section 6.05. No Litigation, Injunctions or Restraints. There
shall not be instituted, pending, or (to Purchaser's knowledge) threatened, any
action, suit, investigation, or other proceeding in, before, or by any court,
Governmental Entity, or other Person seeking to restrain, enjoin, or otherwise
prevent consummation of any of the transactions contemplated by this Agreement
or the Ancillary Agreements, and no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of any of the transactions contemplated hereby shall be in effect.
Section 6.06. Opinion of Counsel to PHL. Purchaser shall have
received the opinions of PHL inside counsel and of LeBoeuf, Lamb, ▇▇▇▇▇▇ &
▇▇▇▇▇▇, L.L.P., special outside counsel to PHL, dated as of the Closing Date,
addressed to Purchaser and substantially in the form of EXHIBITS D-1 AND D-2
hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF SELLER
The obligations of PHL under this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by PHL to the extent permitted by law:
Section 7.01. Representations and Covenants. (a) The
representations and warranties of Purchaser contained in this Agreement (or in
any exhibit, schedule, certificate or document delivered pursuant to this
Agreement) that are qualified as to materiality shall be true and correct and
all representations and warranties of Purchaser made in this Agreement (or in
any exhibit, schedule, certificate or document delivered pursuant to this
Agreement) that are not so qualified shall be true and complete in all material
respects, in each case on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, except to the extent that
any such representation and warranty is made as of a particular date, in which
case such representation and warranty shall have been true and correct as of
such date.
(b) Purchaser shall have performed or complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date.
(c) On the Closing Date, Purchaser shall have delivered to PHL a
certificate of Purchaser, dated as of the Closing Date and signed by an
executive officer of Purchaser, as to the matters set forth in this Section
7.01.
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Section 7.02. Other Agreements. The Ancillary Agreements and each
of the other agreements and instruments contemplated hereby and thereby to which
Purchaser or ERAC is a party shall have been duly executed and delivered by
Purchaser or ERAC on the Closing Date.
Section 7.03. Governmental and Regulatory Consents and Approvals.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained prior to
the Closing Date from, Governmental Entities, including, without limitation,
those set forth in SCHEDULES 3.03(a) AND 4.03, in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained (as the case may be).
(b) Any waiting period prescribed by the HSR Act and applicable
to the transactions contemplated by this Agreement shall have expired or been
terminated.
Section 7.04. Third Party Consents. All consents or waivers of
third parties listed in SCHEDULES 3.03(a) AND 4.03 shall have been obtained,
other than those that, if not obtained, would not have a material adverse effect
on the business, financial condition or results of operations of PHL or any
Affiliate, a material adverse effect on the ability of PHL or any Affiliate to
perform its respective obligations under this Agreement or any Ancillary
Agreement or a Purchaser Material Adverse Effect.
Section 7.05. No Litigation, Injunctions or Restraints. There
shall not be instituted, pending, or (to Seller's knowledge) threatened, any
action, suit, investigation, or other proceeding in, before, or by any court,
Governmental Entity, or other Person seeking to restrain, enjoin, or otherwise
prevent consummation of any of the transactions contemplated by this Agreement
or the Ancillary Agreements, and no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of any of the transactions contemplated hereby shall be in effect.
Section 7.06. Opinion of Counsel to Purchaser. PHL shall have
received the opinion of inside counsel to Purchaser and Weil, Gotshal & ▇▇▇▇▇▇
LLP, special outside counsel for Purchaser, dated as of the Closing Date,
addressed to PHL and substantially in the form of EXHIBITS E-1 AND E-2 hereto.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01. Access to Books and Records. Following the Closing
Date, Purchaser shall afford, and will cause its
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Affiliates to afford, to PHL and any Affiliates of PHL, its counsel and its
accountants, during normal business hours, reasonable access to the Books and
Records with respect to the period prior to the Closing Date to the extent that
such access may be reasonably required by PHL or any Affiliate of PHL for any
lawful business purpose, including (i) the preparation of tax returns or in
connection with any audit, amended return, claim for refund or any proceeding
with respect thereto and (ii) the investigation, litigation and final
disposition of any claims which may have been or may be made against PHL or such
Affiliate in connection with the Business. Before the end of the statutory
document retention period, Purchaser will not, and will cause its Affiliates to
not, dispose of, alter or destroy any such Books and Records and other materials
without giving 30 days' prior notice to PHL to permit it, at its expense, to
examine, duplicate or repossess such records, files, documents and
correspondence.
Section 8.02. Cooperation. Following the Closing Date, Purchaser
shall cause employees of Purchaser who prior to employment therewith were
employed by PHL or any Affiliate of PHL in connection with the Business, to
cooperate, to the fullest extent practicable, with PHL and any Affiliate of PHL
in (i) the defense of any litigation or arbitration arising out of any event
that occurred on or prior to the Closing Date involving the Business, (ii)
connection with any tax matter relating to the Business, (iii) the servicing,
administration, arbitration, settlement or compromise of any Personal Accident
Business entered into prior to the Closing Date, (iv) the defense or
prosecution, as the case may be, of any Third Party Claim in accordance with
Section 10.02(b) hereof, and (v) such other reasonable requests as shall be made
by PHL in connection with the Business. Any time expended by any of the
employees of Purchaser pursuant to this Section 8.02 shall be at no cost to PHL
until the Service Transition Date and thereafter shall be charged to PHL at
Purchaser's cost; provided, however, that PHL shall also pay to Purchaser all
reasonable out-of-pocket expenses of Purchaser as a result of its obligations
hereunder. These items shall be paid by PHL to Purchaser within 45 days after
PHL receives Purchaser's invoice for the services provided.
Section 8.03. Memorandum; Disclaimer of Projections. Purchaser
acknowledges that neither PHL nor any Affiliate or representative or advisor of
any of them makes or has made any representation or warranty to Purchaser except
as specifically made in this Agreement. In particular, no such person makes or
has made any representation or warranty to Purchaser with respect to (a) any
information set forth in the Confidential Offering Memorandum, dated March 1999,
distributed by Bear, ▇▇▇▇▇▇▇ & Co., Inc. in connection with the proposed sale of
the Business or (b) any financial projection or forecast relating to the
Business. With respect to any such projection or forecast delivered by or on
behalf of PHL to Purchaser, Purchaser acknowledges that (i) there are
uncertainties inherent in attempting to make such projections and forecasts,
(ii) it is familiar with such uncertainties, (iii)
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it is taking full responsibility for making its own evaluation of the adequacy
and accuracy of all such projections and forecasts so furnished to it and (iv)
it shall have no claim against any person with respect thereto.
Section 8.04. Use of Names. (a) PHL hereby grants to Purchaser at
no charge hereunder a non-exclusive, non-transferable, non-assignable license,
without the right to sublicense, to use, subject to the approval described in
paragraph (c) of this Section 8.04, the term "Phoenix Reinsurance" and PHL's
logo (the "PHL Trademark") to the extent, and only to the extent, that such use
is for the purpose of effecting the transition of the Business to Purchaser,
which shall include notifying ceding insurers, retrocessionaires, and other
parties having a contractual or other relationship with the Business, making
public announcements of the consummation of the transactions contemplated
hereby, including press releases and notices to customers, potential customers,
employees, brokers and other intermediaries, and regulatory authorities, and as
necessary to provide services pursuant to the Reinsurance Administration
Agreements.
(b) Each of ERC Life and ERAC recognizes the substantial goodwill
associated with the PHL Trademark and acknowledges that such goodwill belongs
exclusively to PHL, that its use of the PHL Trademark inures to the benefit of
PHL, and that such trademark is valid. ERC Life and ERAC shall not, directly or
indirectly, do any act or thing to in any way injure or discredit any of the
rights of PHL in and to its ▇▇▇▇. In addition, ERC Life and ERAC shall not,
during the term hereof or thereafter, attempt to obtain rights to the PHL
Trademark through use, registration or otherwise in any state or country.
(c) Each of ERC Life and ERAC agrees to submit to PHL for
approval samples indicating the manner and context in which ERC Life and ERAC
intend to use the PHL Trademark. Each of ERC Life and ERAC agrees that it will
not use the PHL Trademark without the prior written approval of PHL. PHL shall
review and approve or disapprove such requests promptly. After such samples have
been approved, each of ERC Life and ERAC agrees not to depart therefrom in any
material respect without PHL's prior written consent.
(d) The license granted hereunder shall terminate upon the first
anniversary of the Closing Date or termination of this Agreement, whichever is
earlier. After expiration or termination of the license granted hereunder, ERC
Life and ERAC will refrain from further use of the PHL Trademark or any further
direct or indirect reference to it, or any substantially similar ▇▇▇▇ or symbol.
(e) Except as provided in this Section 8.04, notwithstanding any
inference or prior course of conduct to the contrary, in no event shall
Purchaser or any Affiliate of Purchaser have any right to use any corporate name
or acronym of PHL or any of its Affiliates in any jurisdiction, including
without limitation
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the names and acronyms set forth in SCHEDULE 8.04, or any registered or
unregistered trademark, trade name, or any registered or unregistered service
▇▇▇▇ or any application or registration therefor, owned by, licensed to or used
by PHL or any of its Affiliates or any other name, term or identification that
suggests, simulates or is confusing due to its similarity to any of the
foregoing.
Section 8.05. Tax Treatment. PHL and Purchaser agree that for all
Tax purposes (i) the transfer of the Transferred Assets and the Business
effected pursuant to this Agreement are a sale by PHL of all of its interest in
such assets and business, and (ii) the transactions effected by the Assumption
and Indemnity Retrocession Agreements and the Indemnity Reinsurance Agreements
are reinsurance. PHL and Purchaser agree not to take any position inconsistent
with these positions for Tax purposes.
Section 8.06. Allocation of Consideration. The parties agree that
the consideration payable by Purchaser to PHL or APLAR at the Closing pursuant
to this Agreement (after taking into account the reinsurance premiums, ceded
liabilities, ceding commissions and other related items under the Assumption and
Indemnity Retrocession Agreements and the Indemnity Reinsurance Agreements)
shall be allocated in accordance with Section 1060 of the Code and Temporary
Treasury Regulation Section 1.1060-1T. Within 120 days after the Closing Date,
but at least 60 days before the due date (including extensions) of the Federal
Income Tax Return on which PHL or APLAR report the transaction contemplated by
this Agreement, PHL and Purchaser shall mutually agree (such agreement not to be
unreasonably withheld) as to the allocation of such consideration among the
Transferred Assets and the Business in accordance with Section 1060 of the Code
and Temporary Treasury Regulation Section 1.1060-1T. Purchaser and PHL shall
cooperate in the timely preparation of all PHL's, APLAR's, Purchaser's and
ERAC's Forms 8594, Asset Acquisition Statement, under Section 1060 of the Code,
reflecting Purchaser's acquisition of the Transferred Assets and the Business.
Section 8.07. Seller's Non-Compete. (a) Seller agrees that,
except as set forth in Section 8.07(c) hereof, following the Closing Date until
the third anniversary of the Closing Date (the "Non-Compete Period") Seller
shall not, and Seller shall cause its Affiliates not to in the United States and
Canada (or, with respect to clause (ii) below, in all jurisdictions) (in each
case based on the location of the risk), without the prior written consent of
Purchaser:
(i) engage in a reinsurance business similar to the
Business;
(ii) solicit any holder of an Insurance Contract or
Reinsurance Contract for the purpose of (A) obtaining new individual
life or group life and health reinsurance contracts similar to those
that constitute the Business or (B) inducing
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or attempting to induce any such person to cancel, replace, or not renew
an Insurance Contract or Reinsurance Contract; or
(iii) establish a sales force for the purpose of
soliciting new reinsurance contracts to be issued by Seller or by any
such Affiliate of the type included in the Business as of the Closing
Date.
(b) It is the intent and desire of the parties to this Agreement
that the provisions of this Section 8.07 shall be enforced to the fullest extent
permissible under applicable law. Accordingly, if any particular portion of this
Section 8.07 shall be adjudicated to be invalid or unenforceable, this Section
8.07 shall be amended to delete therefrom the portion thus adjudicated to be
invalid and unenforceable under such law.
(c) Purchaser agrees that notwithstanding any provision of this
Section 8.07 to the contrary, this Section 8.07 shall not prevent or restrict
PHL or its Affiliates from (i) acquiring any block of insurance business through
a reinsurance or retrocession transaction; (ii) entering into reinsurance or
retrocession agreements in connection with risk management of its own business;
(iii) participating indirectly in a reinsurance business through an ownership
interest in a joint venture, strategic alliance or similar partnering
arrangement; provided that such interest represents no more than 20% of the
equity or value of such joint venture, strategic alliance or partnering
arrangement; (iv) participate in a joint venture, strategic alliance or similar
partnering arrangement which utilizes reinsurance in an incidental manner; (v)
acquiring, owning or operating an insurance business through a merger,
acquisition of assets, stock purchase or other acquisition transaction; or (vi)
engaging in a reinsurance business outside of the United States and Canada.
Section 8.08. Non-Solicitation Covenant. PHL covenants that, for
a period of three years after the Closing, it shall not solicit for employment
or hire any of the Transferred Employees; provided, however, that PHL shall not
be restricted from hiring any Transferred Employees as a result of a contact
initiated by the Transferred Employee, general solicitation through advertising
or other means or indirect solicitation through personnel recruiting firms
pursuant to a search not specifically directed to any Transferred Employees.
Section 8.09. Verification of Cash Equivalents. If either party
determines that the market value of Cash Equivalents received under this
agreement from the other party is less than the amount of the cash obligation to
which related, within 30 days after receipt of the Cash Equivalent the receiving
party shall so notify the furnishing party in writing, and the furnishing party
will substitute a Cash Equivalent which is reasonably acceptable to the
receiving party.
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Section 8.10. Portfolio Transfer. Commencing on the first
anniversary of the Closing Date, PHL and Purchaser shall use their respective
reasonable best efforts to negotiate the transfer on a contract by contract
basis of the Insurance Liabilities and Reinsurance Liabilities for risks
attaching on or prior to December 31, 1998 related to the long-term disability
("LTD") pools identified under the caption "LTD Pools" on SCHEDULE 8.10. The
terms for the transfer of the three LTD Pools identified on SCHEDULE 8.10 shall
be for consideration equal to the reserves for such contracts determined using
the reserving methodology set forth on SCHEDULE 8.10. The terms for the transfer
of group pools other than the LTD Pools shall be determined by negotiation
between the parties.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 9.01. Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive the
Closing solely for purposes of Sections 10.01(a) and 10.01(b) hereof and shall
terminate and expire at the close of business on the first anniversary of the
Closing Date.
ARTICLE X
INDEMNIFICATION
Section 10.01. Obligation to Indemnify. (a) Subject to the
limitations set forth in this Article X, PHL agrees to indemnify and hold
harmless Purchaser and its Affiliates from and against all losses, liabilities,
claims, expenses (including reasonable attorneys' fees and expenses) and damages
("Losses") to the extent arising from (i) any breach of the representations and
warranties of PHL contained in this Agreement, (ii) any breach of any of the
covenants and agreements of PHL contained in this Agreement or (iii) any
Excluded Liability; provided, however, that PHL shall not have any liability
under clause (i) above unless the aggregate of all Losses relating thereto for
which PHL would, but for this proviso, be liable exceeds on a cumulative basis
an amount equal to $1,000,000, and then only to the extent of any such excess;
provided, further, however, that PHL shall not have any liability under clause
(i) above for any individual items where the Loss relating thereto is less than
$25,000 and such items shall not be aggregated for purposes of the first proviso
to this Section 10.01(a); and provided, further, however, that PHL shall not
have any liability under clause (i) above for any breach of a representation or
warranty if Purchaser had actual knowledge of such breach at the time of the
Closing. In any event, the maximum amount for which PHL shall be liable under
Section 10.01(a)(i) shall not exceed $15,000,000.
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(b) Subject to the limitations set forth in this Article X,
Purchaser agrees to indemnify and hold harmless PHL and its Affiliates from and
against all Losses to the extent arising from (i) any breach of the
representations and warranties of Purchaser contained in this Agreement, (ii)
any breach of any of the covenants and agreements of Purchaser contained in this
Agreement (iii) any Transferred Liability; provided, however, that Purchaser
shall not have any liability under clause (i) above unless the aggregate of all
losses relating thereto for which Purchaser would, but for this proviso, be
liable exceeds on a cumulative basis an amount equal to $1,000,000, and then
only to the extent of such excess; provided, further, however, that Purchaser
shall not have any liability under clause (i) above for any individual items
where the loss relating thereto is less than $25,000 and such items shall not be
aggregated for purposes of the first proviso to this Section 10.01(b); and
provided, further, however, that Purchaser shall not have any liability under
clause (i) above for any breach of representation or warranty if Seller had
actual knowledge of such breach at the time of the Closing. In any event, the
maximum amount for which Purchaser shall be liable under Section 10.01(b)(i)
shall not exceed $15,000,000. Purchaser's obligations under this Section 10.01
are in addition to its obligations under the Assumption and Indemnity
Retrocession Agreements and the Indemnity Reinsurance Agreements.
Section 10.02. Indemnification Procedures. (a) In order for a
party (the "Indemnified Party") to be entitled to any indemnification provided
for under this Agreement in respect of, arising out of or involving a claim or
demand made by, or an action, proceeding or investigation instituted by, any
person not a party to this Agreement (a "Third Party Claim"), such Indemnified
Party must notify the other party (the "Indemnifying Party") in writing, and in
reasonable detail, of the Third Party Claim within ten Business Days after such
Indemnified Party learns of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, within five Business Days after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to the Third
Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party,
the Indemnifying Party will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected by
the Indemnifying Party and reasonably satisfactory to the Indemnified Party.
Should the Indemnifying Party so elect to assume the defense of a Third Party
Claim, the Indemnifying Party will not be liable to the Indemnified Party for
legal expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof. If the Indemnifying Party assumes such defense, the
Indemnified Party shall have the
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right to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the fees and expenses of counsel employed
by the Indemnified Party for any period during which the Indemnifying Party has
not assumed the defense thereof. If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof. Such cooperation shall include the retention
and (upon the Indemnifying Party's request) the provision to the Indemnifying
Party of records and information which are reasonably relevant to such Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Whether or not the Indemnifying Party shall have assumed the defense
of a Third Party Claim, the Indemnified Party shall not admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without
the Indemnifying Party's prior written consent (which consent shall not be
unreasonably withheld).
(c) The indemnities provided in this Agreement shall survive the
Closing; provided, however, that the indemnities provided under Sections
10.01(a)(i) and 10.01(b)(i) shall terminate when the applicable representation
or warranty terminates pursuant to Article IX, except as to any item as to which
the person to be indemnified or the related party to this Agreement shall have,
before the expiration of the applicable period, previously made a claim by
delivering a notice (stating in reasonable detail the basis of such claim) to
the Indemnifying Party. The indemnity provided in Sections 10.01(a) and 10.01(b)
shall be the sole and exclusive remedy of the Indemnified Party against the
Indemnifying Party at law or equity for any matter covered by such Sections but
shall not preclude any assertion by Purchaser or PHL, as the case may be, of any
cause of action for fraud.
(d) Insurance Proceeds and Tax Limitations. The amount of any
Losses or other liability for which indemnification is provided under this
Agreement shall be net of any amounts recovered or recoverable by the
Indemnified Party under insurance policies with respect to such Losses or other
liability and shall be (i) increased to take account of any Tax cost incurred
(grossed up for such increase) by the Indemnified Party arising from the receipt
of indemnity payments hereunder and (ii) reduced to take account of any Tax
benefit realized by the Indemnified Party arising from the incurrence or payment
of any such damages or other liability. Such Tax cost or Tax benefit, as the
case may be, shall be computed for any year using the Indemnified Party's actual
tax liability with and without (i) the receipt of any indemnification payments
made pursuant to this Agreement and (ii) the incurrence or payment of any Losses
or other liability for which indemnification is provided under this Agreement in
such year. In the event that the Indemnified Party actually realizes a Tax cost
or Tax benefit for a year(s) subsequent to the year in which the indemnity
payment is
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made, the Indemnifying Party shall pay the amount of such Tax cost or the
Indemnified Party shall pay the amount of such Tax benefit, as the case may be,
in such subsequent year(s).
(e) The parties agree that any indemnification payments made
pursuant to this Agreement shall be treated for tax purposes as an adjustment to
the consideration under Section 2.02 hereof.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
Section 11.01. Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) by PHL or Purchaser in writing, if there shall be any order,
injunction or decree of any Governmental Entity which prohibits or restrains
Purchaser or Seller from consummating the transactions contemplated hereby, and
such order, injunction or decree shall have become final and nonappealable;
(b) Purchaser may terminate this Agreement by giving written
notice to PHL at any time prior to the Closing in the event that (A) PHL has
given Purchaser any notice pursuant to Section 5.09 above and (B) the
development that is the subject of the notice, individually or in the aggregate
with all matters disclosed pursuant to Section 5.09, has, or could reasonably be
expected to have, a Seller Material Adverse Effect.
(c) PHL may terminate this Agreement by giving written notice to
Purchaser at any time prior to the Closing in the event that (A) Purchaser has
given PHL any notice pursuant to Section 5.09 above and (B) the development that
is the subject of the notice, individually or in the aggregate with all matters
disclosed pursuant to Section 5.09, has, or could reasonably be expected to
have, a Purchaser Material Adverse Effect.
(d) by PHL or Purchaser in writing, if the Closing has not
occurred on or prior to October 1, 1999, unless due to the failure of the party
seeking to terminate this Agreement to materially perform each of its
obligations under this Agreement required to be performed by it on or prior to
the Closing Date; and
(e) at any time on or prior to the Closing Date, by mutual
written consent of Seller and Purchaser.
Section 11.02. Survival. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become null and void and of no further force and effect, except
for (a) the provisions of this Agreement relating to the obligations of the
parties hereto to keep confidential and not to use certain information and data
obtained
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from the other parties hereto and (b) the provisions of Sections 5.07, this
Section 11.02 and Article XIII.
ARTICLE XII
CERTAIN CONTRACTUAL LIMITATIONS
Section 12.01. Reinsurance and Retrocessions. Notwithstanding
anything in this Agreement to the contrary, Purchaser acknowledges and agrees
that (i) the assignment of the Retrocession Agreements requires the consent of
the retrocessionaires party thereto and that Seller makes no representation or
warranty otherwise, (ii) Purchaser's obligation to consummate the transactions
contemplated by this Agreement shall not be conditioned in any manner whatsoever
upon obtaining such consents and (iii) Seller shall not be liable in any manner
whatsoever for the loss of any benefit under any Retrocession Agreements due to
the inability of Purchaser to obtain any such consent.
ARTICLE XIII
GENERAL PROVISIONS
Section 13.01. Publicity. Except as may otherwise be required by
law or as may be disclosed in any filing with the Securities and Exchange
Commission, no press release or public announcement concerning this Agreement or
the transactions contemplated hereby shall be made by either Purchaser or PHL
without advance approval thereof by the other party. The parties hereto shall
cooperate with each other in making any press release or public announcement.
Section 13.02. Dollar References. All dollar references in this
Agreement are to the currency of the United States.
Section 13.03. Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery),
to the parties at the following address:
(i) If to Purchaser:
ERC Life Reinsurance Corp.
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: General Counsel
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With a concurrent copy to:
Weil, Gotshal & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇
(ii) If to PHL:
Phoenix Home Life Mutual Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
With a concurrent copy to:
LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Any party may, by notice given in accordance with this Section
13.03 to the other parties, designate another address or person for receipt of
notices hereunder provided that notice of such a change shall be effective upon
receipt.
Section 13.04. Entire Agreement. This Agreement (including the
Ancillary Agreements, the Exhibits and the Schedules hereto) contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, written or oral, with
respect thereto; provided, however, that the Confidentiality Agreement shall
remain in full force and effect in accordance with its terms both prior to and
subsequent to the Closing (except, following Closing, as to the utilization of
Books and Records as provided for in this Agreement). Without limiting the
foregoing, the parties agree that this Agreement and the Ancillary Agreements
and the Schedules and Exhibits hereto and thereto shall be kept confidential to
the extent required by and in accordance with the Confidentiality Agreement.
Section 13.05. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative
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and are not exclusive of any rights or remedies that any party may otherwise
have at law or in equity.
Section 13.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 13.07. Binding Effect; Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns and legal representatives. Neither this Agreement,
nor any of the rights, interests or obligations hereunder, may be assigned, in
whole or in part, by operation of law or otherwise by any party without the
prior written consent of the other parties hereto and any such assignment that
is not consented to shall be null and void.
Section 13.08. Interpretation. (a) Notwithstanding anything in
this Agreement to the contrary, no term or condition of this Agreement shall be
construed to supersede, restrict or otherwise limit any term or condition set
forth in the Assumption and Indemnity Retrocession Agreements, the Indemnity
Reinsurance Agreements or any other Ancillary Agreement.
(b) The parties acknowledge and agree that they may pursue
judicial remedies at law or equity in the event of a dispute with respect to the
interpretation or construction of this Agreement. In the event that an
alternative dispute resolution procedure is provided for in any of the Ancillary
Agreements or any other agreement contemplated hereby or thereby, and there is a
dispute with respect to the construction or interpretation of such Ancillary
Agreement, the dispute resolution procedure provided for in such Ancillary
Agreement shall be the procedure that shall apply with respect to the resolution
of such dispute.
(c) For purposes of this Agreement, the words "hereof", "herein",
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the words "include", "includes", or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The terms "transactions contemplated by this
Agreement" and "transactions contemplated hereby" shall include, without
limitation, the sale and purchase of the Transferred Assets, the reinsurance by
Purchaser of the Insurance Liabilities and Reinsurance Liabilities, the
assumption of the Transferred Liabilities and the execution, delivery and
performance by the parties thereto of the Ancillary Agreements and any other
agreements contemplated hereby or thereby. Whenever the singular is used herein,
the same shall include the plural, and whenever the plural is used herein, the
same shall include the singular, where appropriate.
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Section 13.09. No Third Party Beneficiaries. Nothing in this
Agreement is intended or shall be construed to give any person (including, but
not limited to, the employees of PHL or APLAR), other than the parties hereto,
their successors and permitted assigns, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
Section 13.10.Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 13.11.Exhibits and Schedules. The Exhibits and the
Schedules to this Agreement that are specifically referred to herein are a part
of this Agreement as if fully set forth herein. All references herein to
Articles, Sections, subsections, paragraphs, subparagraphs, clauses, Exhibits
and Schedules shall be deemed references to such parts of this Agreement, unless
the context shall otherwise require. Any fact or item disclosed on any Schedule
to this Agreement shall be deemed disclosed on all other Schedules to this
Agreement to which such fact or item may apply.
Section 13.12.Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chairman, President & CEO
ERC LIFE REINSURANCE CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
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