EXHIBIT 10.1
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STOCK PURCHASE AGREEMENT
dated as of February 12, 2004
between
▇▇▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC.,
an Indiana corporation,
and
FFS HOLDINGS, INC.
a Delaware corporation
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.............................................................. 2
ARTICLE II
PURCHASE OF THE SHARES
SECTION 2.1. Purchase and Sale........................................................ 12
SECTION 2.2. Post-Closing Purchase Price Adjustment................................... 13
SECTION 2.3. Closing.................................................................. 15
SECTION 2.4. First Closing Deliveries................................................. 15
SECTION 2.5. FFSB Closing Deliveries.................................................. 17
SECTION 2.6. Payment of DSCA Funds.................................................... 17
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of Seller................................. 18
SECTION 3.2. Representations and Warranties of Buyer.................................. 38
ARTICLE IV
COVENANTS
SECTION 4.1. Conduct of Business of the Company....................................... 42
SECTION 4.2. Access to Information; Confidentiality................................... 43
SECTION 4.3. Consents, Approvals and Filings.......................................... 45
SECTION 4.4. Public Announcements..................................................... 46
SECTION 4.5. Intercompany Agreements and Accounts..................................... 46
SECTION 4.6. Transaction Documents.................................................... 47
SECTION 4.7. Use of Names............................................................. 47
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SECTION 4.8. Access to Books and Records; Cooperation................................. 47
SECTION 4.9. Noncompetition........................................................... 48
SECTION 4.10. Company Investment Assets................................................ 50
SECTION 4.11. Excluded Assets; Dividend of FFSB Shares; Loan Repayment................. 50
SECTION 4.12. Financing................................................................ 51
SECTION 4.13. Pre-payment of Loans..................................................... 51
SECTION 4.14. Qualification to purchase FFSB Shares.................................... 51
SECTION 4.15. Commercially Reasonable Efforts.......................................... 51
SECTION 4.16. Further Assurances....................................................... 51
SECTION 4.17. Buyer Pre-Closing Transactions........................................... 52
SECTION 4.18. Seller Pre-Closing Transactions.......................................... 52
SECTION 4.19. Sections 72 and 7702 Qualification....................................... 52
SECTION 4.20. Obligations under Retention Agreements................................... 52
SECTION 4.21. Buyer Capital Structure.................................................. 52
ARTICLE V
EMPLOYEE MATTERS
SECTION 5.1. Certain Obligations...................................................... 52
SECTION 5.2. Credit for Service....................................................... 53
SECTION 5.3. Preexisting Conditions, Exclusions and Waiting Periods; Deductibles...... 53
SECTION 5.4. COBRA.................................................................... 53
SECTION 5.5. Filings and Records...................................................... 53
ARTICLE VI
CONDITIONS PRECEDENT OF FIRST CLOSING
SECTION 6.1. Conditions to Each Party's Obligations................................... 54
SECTION 6.2. Conditions to Obligations of Buyer....................................... 54
SECTION 6.3. Conditions to Obligations of Seller...................................... 55
ARTICLE VII
CONDITIONS PRECEDENT OF FFSB CLOSING
SECTION 7.1. Conditions to Each Party's Obligations................................... 56
SECTION 7.2. Conditions to Obligations of Buyer....................................... 57
SECTION 7.3. Conditions to Obligations of Seller...................................... 57
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 8.1. Survival of Representations and Warranties............................... 58
ARTICLE IX
INDEMNIFICATION
SECTION 9.1. Obligation to Indemnify.................................................. 58
SECTION 9.2. Indemnification Procedures............................................... 60
SECTION 9.3. Termination.............................................................. 61
SECTION 9.4. Tax Indemnification...................................................... 62
SECTION 9.5. Set-off.................................................................. 62
ARTICLE X
TAX MATTERS
SECTION 10.1. Indemnification.......................................................... 62
SECTION 10.2. Returns and Payments..................................................... 64
SECTION 10.3. Refunds.................................................................. 65
SECTION 10.4. Contests................................................................. 66
SECTION 10.5. Cooperation and Exchange of Information.................................. 67
SECTION 10.6. Conveyance Taxes......................................................... 68
SECTION 10.7. Section 338(h)(10) Election.............................................. 68
SECTION 10.8. Miscellaneous............................................................ 69
ARTICLE XI
TERMINATION
SECTION 11.1. Termination of Agreement Prior to the First Closing...................... 70
SECTION 11.2. Survival................................................................. 71
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ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. Fees and Expenses........................................................ 71
SECTION 12.2. Notices.................................................................. 71
SECTION 12.3. Interpretation........................................................... 72
SECTION 12.4. Entire Agreement; No Other Representations; Third-Party Beneficiaries.... 74
SECTION 12.5. Governing Law............................................................ 74
SECTION 12.6. Assignment............................................................... 74
SECTION 12.7. Enforcement.............................................................. 74
SECTION 12.8. Severability; Amendments; Waiver......................................... 75
SECTION 12.9. Counterparts............................................................. 75
SECTION 12.10. Non-recourse............................................................. 75
ANNEXES
Annex A Agreed Procedures
Annex B Seller Pre-Closing Transactions
Annex C Buyer Pre-Closing Transactions
Annex D Covenants Concerning Section 338(h)(10) Election
Annex E Collateral Assignment
EXHIBITS
Exhibit A Certificate of Designation, Preferences and Relative, Optional and
other Special Rights of Buyer Preferred Stock and Qualifications,
Limitations and Restrictions thereof
Exhibit B Warrant
Exhibit C Term Sheet: Proposed Stockholders' and Warrant Holder's Agreement
Exhibit D Note
Exhibit E Seller Guaranty
Exhibit F-1 Information Technology Transition Services Agreement
Exhibit F-2 Non-Information Technology Transition Services Agreement
Exhibit G TCP Agreement
Exhibit H Buyer Financing Commitment
Exhibit I Term Sheet: FFSB Agreement
Exhibit J Escrow Agreement
Exhibit K Stock Pledge Agreement
Exhibit L IT Data Center Lease
Exhibit M Mutual Easement Agreement
Exhibit N-1 Insurance Policy Officer's Certificate of FLIC
Exhibit N-2 Insurance Policy Officer's Certificate of ANLIC
DISCLOSURE SCHEDULE
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of February 12, 2004 (this
"Agreement") between ▇▇▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC., an Indiana corporation
("Seller"), and FFS HOLDINGS, INC., a Delaware corporation ("Buyer").
WHEREAS, Seller is the owner of all the issued and outstanding
shares (the "Company Shares") of common stock, no par value per share (the
"Company Common Stock"), of Forethought Financial Services, Inc., an Indiana
corporation (the "Company");
WHEREAS, the Company is the direct owner of all the issued and
outstanding shares (the "FLIC Shares") of capital stock of Forethought Life
Insurance Company ("FLIC") and the indirect owner of all the issued and
outstanding shares (the "FLAC Shares") of capital stock of Forethought Life
Assurance Company ("FLAC");
WHEREAS, FLIC is the direct owner of all the issued and outstanding
shares of capital stock of Arkansas National Life Insurance Company ("ANLIC");
WHEREAS, the Company is the direct owner of all the issued and
outstanding shares (the "FFSB Shares") of capital stock of Forethought Federal
Savings Bank, a federally chartered savings association supervised by the Office
of Thrift Supervision ("FFSB");
WHEREAS, upon the terms and subject to the conditions of this
Agreement and the Transaction Documents: (i) Seller desires to cause the Company
to transfer the FLIC Shares to Buyer or its designee, and Buyer desires that it
or its designee will acquire the FLIC Shares from the Company; (ii) Seller
desires to cause the Company to transfer the FLAC Shares to Buyer or its
designee, and Buyer desires that it or its designee will acquire the FLAC Shares
from the Company; (iii) Seller desires to transfer the Company Shares to Buyer,
and Buyer desires to acquire the Company Shares from Seller; (iv) Buyer desires
to acquire LifeCo and to cause LifeCo to form FLAC Holdings, LLC; (v) Buyer
desires that, concurrently with the First Closing, FLAC shall enter into an
indemnity reinsurance agreement with each of FLIC and ANLIC (collectively, the
"Reinsurance Agreements"); (vi) Buyer desires Seller to furnish the Seller
Guaranty; (vii) Buyer desires to contribute the FLAC Shares to LifeCo and to
cause LifeCo to contribute the FLAC Shares to FLAC Holdings, LLC, (viii) Buyer
desires to contribute the FLIC Shares to LifeCo; (ix) Buyer and Seller desire
that prior to the First Closing, Seller shall cause FLIC to transfer the
Excluded Assets to Seller or a designated Subsidiary of Seller for a purchase
price equal to the book value of the Excluded Assets (or such other value
required by the applicable Insurance Regulator) as of the date of the transfer;
(x) Buyer and Seller desire that Seller and certain of its Affiliates provide
certain administrative, financial and data processing services to Buyer and
certain of its Affiliates for a transition period following the First Closing;
and (xi) Buyer and Seller desire to enter into an administrative agreement
relating to the TCP Program.
WHEREAS, it is contemplated that the closing of the sale and
purchase of the FFSB Shares may occur after the closing of the sale and purchase
of the Company Shares and related transactions; and
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WHEREAS, in the event that the FFSB Shares will not be transferred
to Buyer at the First Closing, Buyer and Seller desire that, (x) Seller shall
cause the Company to instead declare and pay a dividend-in-kind of FFSB Shares
to Seller on or prior to the First Closing and (y) on or prior to the First
Closing, Seller and Buyer and/or their Affiliates shall enter into an agreement
regarding certain operating, administrative and information technology services
provided to FFSB by both the Company and Seller.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. For purposes of this Agreement, the
following terms shall have the respective meanings set forth below (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Acquisition Transaction" has the meaning set forth in Section
4.9(f).
"Adjusted Allocation" has the meaning set forth in Section 10.7(b).
"Adjusted Book Value" has the meaning set forth in Annex A attached
hereto.
"Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
"Agent Contract" has the meaning set forth in Section 3.1(r)(iii).
"Agreed Procedures" has the meaning set forth in Section 2.2(a)(i).
"Agreement" has the meaning set forth in the introductory paragraph
of this Agreement.
"Allocation" has the meaning set forth in Section 10.7(b).
"ANLIC" has the meaning set forth in the recitals to this Agreement.
"Assigned Rights" has the meaning ascribed to such term in the
Collateral Assignment attached hereto as Annex E.
"Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement, dated as of October 1, 2003, between BCC and The
Forethought Group, Inc., pursuant to which BCC has agreed to assume all
outstanding obligations with respect to the price protection guarantee set
forth in Section 4 of the Mutual Product Promotion Agreement, dated as of
September 1, 1993, as amended October 1, 2003, between BCC and The
Forethought Group, Inc.
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"Audited GAAP Statements" has the meaning set forth in Section
3.1(f)(i).
"Balance Amount" has the meaning set forth in Section 2.6.
"Banking Regulators" has the meaning set forth in Section 3.1(z).
"BCC" means Batesville Casket Company, Inc., a Subsidiary of Seller.
"Business Day" means any day other than a Saturday, a Sunday or any
other day on which commercial banks in New York, New York are required to
be closed for regular banking business.
"Buyer" has the meaning set forth in the introductory paragraph of
this Agreement.
"Buyer Common Shares" has the meaning set forth in Section 3.2(c).
"Buyer Financing Commitment" means the commitment by XL Capital
Assurance Inc., the form of which is attached as Exhibit H hereto.
"Buyer Indemnified Parties" has the meaning set forth in Section
9.1(a).
"Buyer Material Adverse Effect" means a material adverse effect on
the business, assets, properties, financial condition or results of
operations of Buyer and its Subsidiaries, taken as a whole.
"Buyer Pre-Closing Transactions" mean the various transactions
described on Annex C.
"Buyer Preferred Shares" has the meaning set forth in Section 2.1.
"Buyer Preferred Stock" means the Series A Cumulative Redeemable
Preferred Stock of Buyer with such powers, preferences, rights,
qualifications, limitations and restrictions as set forth on the
Certificate of Designation of Buyer Preferred Stock.
"Buyer Restricted Business" has the meaning set forth in Section
4.9(c).
"Cash Consideration" has the meaning set forth in Section 2.1.
"Certificate of Designation of Buyer Preferred Stock" means the
Certificate of Designation, Preferences and Relative, Optional and other
Special Rights of Buyer Preferred Stock and Qualifications, Limitations
and Restrictions thereof, substantially in the form of Exhibit A hereto.
"Closing Financial Statements" has the meaning set forth in Section
2.2(a)(i).
"COBRA" means Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the recitals to this
Agreement.
"Company Common Stock" has the meaning set forth in the recitals to
this Agreement.
"Company Employee Benefit Plans" has the meaning set forth in
Section 3.1(j)(i)(A).
"Company Investment Assets" means any investment assets, excluding
the Excluded Assets, beneficially owned (within the meaning of Rule 13d-3
under the Exchange Act) by the Company or any Company Subsidiary,
including, without limitation, bonds, notes, debentures, mortgage loans,
real estate, collateral loans and all other instruments of indebtedness,
stocks, limited liability company membership interests, partnership or
joint venture interests and all other equity interests, certificates
issued by or interests in trusts, derivatives, cash on hand and on deposit
and all other assets acquired for investment purposes.
"Company Material Adverse Effect" means a material adverse effect on
the business, assets, properties, financial condition or results of
operations of the Company and the Company Subsidiaries, taken as a whole.
"Company Properties" has the meaning set forth in Section
3.1(ee)(i).
"Company Shares" has the meaning set forth in the recitals to this
Agreement.
"Company Subsidiary" or "Company Subsidiaries" has the meaning set
forth in Section 3.1(a)(i).
"Confidentiality Agreement" means the confidentiality agreement
dated July 3, 2003 between ▇▇▇▇▇▇ Associates LLC and Seller and as amended
by Amendment No. 1, dated August 19, 2003 and Amendment No. 2, dated
August 29, 2003.
"Consolidated Tax Returns" has the meaning set forth in Section
10.2(a).
"Contract" has the meaning set forth in Section 3.1(e)(i).
"Cut Off Date" has the meaning set forth in Section 11.1(b).
"Deferred DSCA Funds" means the contingent deferred purchase price
payable by Buyer to Seller pursuant to Section 2.6.
"Definitive Proposal" has the meaning set forth in Section
4.9(g)(C).
"DSCA" means the debt service coverage account of FLAC Holdings, LLC
to be established in connection with the Securitization Financing.
"Designated Period" has the meaning set forth in Section 4.9(a).
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"Disclosure Schedule" means the Disclosure Schedule (including any
attachments thereto) delivered in connection with, and constituting a part
of, this Agreement.
"Employee" means each individual who (x) immediately prior to the
First Closing is employed by the Company or any Company Subsidiary (other
than FFSB) or (y) immediately prior to the FFSB Closing is employed by
FFSB.
"Employee Arrangements" has the meaning set forth in Section
3.1(j)(i)(B).
"Employee Benefit Plan" means each material written "employee
benefit plan" (as defined in Section 3(3) of ERISA).
"Environmental Law" means applicable laws (including common law),
rules, regulations and other legal requirements relating to Hazardous
Materials and/or otherwise relating to the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Account" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" means the Escrow Agreement among Buyer, Seller
and U.S. Bank or such other party as mutually agreed to by Buyer and
Seller, substantially in the form of Exhibit J hereto.
"Escrow Funds" shall have the meaning set forth in Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Excluded Assets" has the meaning set forth in Section 4.11(a).
"FDIC" means the Federal Deposit Insurance Corporation.
"FFSB" has the meaning set forth in the recitals to this Agreement.
"FFSB Agreement" means the FFSB Transition Services Agreement to be
entered into among Buyer, Seller and FFSB, a term sheet of which is
attached as Exhibit I hereto.
"FFSB Closing" has the meaning set forth in Section 2.3.
"FFSB Closing Date" has the meaning set forth in Section 2.3.
"FFSB Purchase Price" has the meaning set forth in Section 2.1.
"FFSB Shares" has the meaning set forth in the recitals to this
Agreement.
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"FFSB Termination Date" has the meaning set forth in Section 2.3.
"Filing Party" has the meaning set forth in Section 10.2(a).
"Final Adjusted Book Value" has the meaning set forth in Section
2.2(d).
"Final Purchase Price" has the meaning set forth in Section 2.1.
"First Closing" has the meaning set forth in Section 2.3.
"First Closing Date" has the meaning set forth in Section 2.3.
"First Closing Price Calculation" has the meaning set forth in
Section 2.2(a)(ii).
"First Closing Purchase Price" has the meaning set forth in Section
2.1.
"FLAC" has the meaning set forth in the recitals to this Agreement.
"FLAC Shares" has the meaning set forth in the recitals to this
Agreement.
"FLIC" has the meaning set forth in the recitals to this Agreement.
"FLIC Shares" has the meaning set forth in the recitals to this
Agreement.
"GAAP" has the meaning set forth in Section 3.1(f)(ii).
"GAAP Financial Statements" has the meaning set forth in Section
3.1(f)(i).
"GLB" means the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of 1999.
"Governmental Consents" has the meaning set forth in Section 4.3(a).
"Governmental Entity" means each foreign, federal, state, local,
municipal, county or other governmental, administrative or regulatory
authority, body, agency, court, tribunal, commission or other similar
entity (including any branch, or department thereof).
"Hazardous Materials" means any materials, substances, fluids,
chemicals, gases, or other compounds the presence, use, storage, emission,
drainage, leakage, effusion, modification, or disposition of which is
prohibited by law or is subject by law to specific procedures, controls,
or restrictions, and which are otherwise deemed hazardous or toxic;
provided, however, "Hazardous Materials" shall not include minor
quantities of substances that are used in compliance with applicable laws
in the ordinary course of a business use.
"HOLA" means the Home Owners' Loan Act of 1933, as amended, and the
rules and regulations thereunder.
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"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Indemnification Basket" has the meaning set forth in Section
9.1(a).
"Indemnification Cap" has the meaning set forth in Section 9.1(a).
"Indemnified Party" has the meaning set forth in Section 9.2(a).
"Indemnifying Party" has the meaning set forth in Section 9.2(a).
"Independent Accounting Firm" has the meaning set forth in Section
10.7(b).
"Indiana Court" has the meaning set forth in Section 12.7.
"Initial Buyer Common Shares" has the meaning set forth in Section
3.2(c).
"Insurance Regulator" means any Governmental Entity charged with
supervision of insurance companies.
"Insurance Subsidiaries" means FLIC, an Indiana corporation, ANLIC,
an Arkansas corporation, and FLAC, an Indiana corporation.
"Intellectual Property Right" has the meaning set forth in Section
3.1(cc)(i).
"Investment Adviser Subsidiary" means Forethought Investment
Management, Inc., an Indiana corporation.
"Investment Advisers Act" means the Investment Advisers Act of 1940,
as amended, and the rules and regulations thereunder.
"IT Data Center Lease" means the IT Data Center Lease between Seller
and the Company substantially in the form of Exhibit L.
"Knowledge" means the actual knowledge of, after reasonable inquiry
by, (a) with respect to Seller, those Persons listed in Section 1.1(a) of
the Disclosure Schedule, and (b) with respect to Buyer, those Persons
listed in Section 1.1(b) of the Disclosure Schedule.
"Laws" has the meaning set forth in Section 3.1(e)(i).
"Legal Proceedings" means any judicial, administrative or arbitral
actions, suits, claims or proceedings (public or private) by or before any
Governmental Entity.
"Liability" means any debt, loss, damage, adverse claim, liability
or obligation (whether direct or indirect, known or unknown, asserted or
unasserted, determinable or undeterminable, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, or due or to become due,
and whether in contract, tort, strict liability or otherwise), and
including all costs and expenses relating thereto.
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"Liens" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, rights of first refusal, easement,
servitude, proxy, voting trust or agreement, transfer restriction under
any shareholder or similar agreement, encumbrance or other adverse claim,
including any other similar restriction or limitation that affects value,
transferability or use (other than any of the above arising hereunder).
"LifeCo" means an insurance company domiciled in Texas and licensed
to transact the business of life insurance in one or more states to be
acquired by Buyer prior to the Closing.
"Losses" has the meaning set forth in Section 9.1(a).
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, assets, properties, financial
condition or results of operations of such Person and its Subsidiaries,
taken as a whole, but shall exclude any such effect resulting from: (i)
general economic or securities or financial market conditions (including
changes in interest rates and acts of terrorism, war and catastrophic
events); (ii) any occurrence or condition generally affecting the
"pre-need" industry (including any change or proposed change in law or
regulations in any jurisdiction) and not having a materially
disproportionate effect on such Person and its Subsidiaries relative to
such Person's competitors in such industry; and (iii) any occurrence or
condition arising out of or related to the announcement or existence or
terms of this Agreement or the consummation of the transactions
contemplated by this Agreement (including any occurrence or condition
arising out of the identity of or facts relating to Buyer).
"Material Contracts" has the meaning set forth in Section 3.1(n)(i).
"Material Permits" has the meaning set forth in Section 3.1(l)(ii).
"Milliman Report" has the meaning set forth in Section 3.1(t).
"Mutual Easement Agreement" means the Mutual Easement Agreement
between Seller and the Company substantially in the form of Exhibit M
hereto.
"Names" has the meaning set forth in Section 4.7(b).
"Note" means a promissory note substantially in the form of Exhibit
D hereto.
"Notice of Disagreement" has the meaning set forth in Section
2.2(c).
"Offer Expiration Date" has the meaning set forth in Section
4.9(g)(C).
"Offeree" has the meaning set forth in Section 4.9(g)(A).
"Offeror" has the meaning set forth in Section 4.9(g)(A).
"Ordinary Course of Business" means the ordinary and usual course of
business consistent with past practice.
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"OTS" means the Office of Thrift Supervision of the Department of
Treasury.
"OTS Approval" means the approval by OTS of the sale by Seller of
FFSB Shares to Buyer or one of its Affiliates as contemplated by this
Agreement.
"Owned Properties" has the meaning set forth in Section 3.1(ee)(i).
"Permits" means any approvals, authorizations, consents, licenses,
permits, certificates or qualifications of a Governmental Entity.
"Permitted Liens" means, as to any asset or property: (i) Liens for
Taxes and other governmental charges not yet due and payable or being
contested in good faith by appropriate proceedings; (ii) Liens arising by
operation of law, including Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen and statutory Liens arising in the
Ordinary Course of Business for sums not yet due and payable; (iii) Liens
arising from the actions or conduct of Buyer; and (iv) other Liens that in
the aggregate are not substantial in amount and do not materially detract
from the value or materially interfere with the present use of such asset
or property.
"Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
"Post-Closing Adjustment Documents" has the meaning set forth in
Section 2.2(a)(ii).
"Post-Closing Cash Payment" has the meaning set forth in Section
2.2(e)(ii).
"Post-Closing Settlement Date" has the meaning set forth in Section
2.2(e)(i).
"Pre-Closing Dividend" means a cash dividend by FLIC to the Company
and the Company to Seller in an amount equal to $28,600,000, which was
paid on or prior to December 31, 2003.
"Premises" means those certain plots, pieces or parcels of land
located in the City of Batesville, State of Indiana, more particularly
described in Section 3.1(ee)(i) of the Disclosure Schedule, together with
all buildings and other improvements now located on the land, together
with all right, title and interest of the Company or any Company
Subsidiary therein, and all easements, licenses, rights and appurtenances
relating thereto.
"Producers" has the meaning set forth in Section 3.1(r)(ii).
"RBC" has the meaning set forth in Section 3.1(w).
"Real Property Leases" has the meaning set forth in Section
3.1(ee)(i).
"Reinsurance Agreements" has the meaning set forth in the recitals
to this Agreement.
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"Representative" means, with respect to any Person, the directors,
officers, employees, agents, advisors, potential or definitive financing
sources or other representatives (including, without limitation,
attorneys, accountants, consultants, bankers, financial advisors and
financial guarantors) of such Person, or any of their respective
Affiliates or Representatives.
"Retained Names" has the meaning set forth in Section 4.7(a).
"Retention Agreements" means (x) the Retention Agreement between
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and the Company, dated October 8, 2001, as modified by the
Executive Employment Agreement between ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and the Company,
dated October 4, 2001 and (y) the Retention Agreement between ▇▇▇▇▇▇ ▇.
▇▇▇▇▇ and the Company, dated October 8, 2001, as modified by the Executive
Employment Agreement between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and the Company, dated
October 4, 2002.
"SAP" has the meaning set forth in Section 3.1(g)(ii).
"SAP Statements" has the meaning set forth in Section 3.1(g)(i).
"Scheduled DSCA Payment Date" has the meaning set forth in Section
2.6.
"SEC" means the Securities and Exchange Commission.
"Section 338(h)(10) Companies" shall mean the Company and the
Company Subsidiaries.
"Section 338(h)(10) Elections" has the meaning set forth in Section
10.7(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Financing" means the proposed securitization
transaction in which an amount equal to $150,000,000 is proposed to be
obtained from the issuance of secured notes by FLAC Holdings, LLC as set
forth in the Buyer Financing Commitment.
"Seller" has the meaning set forth in the introductory paragraph of
this Agreement.
"Seller Guaranty" means the guaranty of Seller substantially in the
form of Exhibit E hereto.
"Seller Indemnified Parties" has the meaning set forth in Section
9.1(b).
"Seller Pre-Closing Transactions" means the various transactions
described on Annex B.
"Seller Restricted Business" has the meaning set forth in Section
4.9(a).
"Settlement Auditor" has the meaning set forth in Section 2.2(d).
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"Stockholders' and Warrant Holder's Agreement" means the
Stockholders' and Warrant Holder's Agreement to be entered into among
Buyer, Seller and other equity investors of Buyer, a term sheet of the
rights and obligations of the parties thereto is attached as Exhibit C
hereto.
"Statutory Statements" has the meaning set forth in Section
3.1(g)(i).
"Stock Pledge Agreement" means the Stock Pledge Agreement between
Seller and Buyer substantially in the form of Exhibit K hereto.
"Subsidiary" has the meaning ascribed to the term "Majority-Owned
Subsidiary" under Rule 12b-2 under the Exchange Act.
"Tax" or "Taxes" means any and all taxes, fees, levies, tariffs and
other similar charges (together with any and all interest, penalties, or
additions to tax with respect thereto) imposed (including any amounts,
including ancillary amounts, paid pursuant to a closing agreement pursuant
to Section 7121 of the Code or any similar provision of Law) by a
governmental or Tax Authority, including without limitation: taxes or
other charges on or with respect to income, franchises, windfall, gross
receipts, property, sales, use, payroll, employment, social security,
premiums or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes; and
escheat liabilities, customs duties, tariffs, and similar charges. Taxes
shall also include any liability in respect of any items described above
payable by reason of contract, assumption, transferee liability, operation
of law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or
successor thereof or any analogous or similar provision under law) or
otherwise.
"Tax Authority" means the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the
administration of any Tax.
"Tax Contest" shall have the meaning set forth in Section 10.4(b).
"Tax Indemnified Losses" shall mean any amounts (i) paid pursuant to
Section 10.1(a) or (ii) paid by Seller pursuant to Section 10.1(d).
"Tax Indemnifying Party" has the meaning set forth in Section
10.2(a).
"Tax Returns" means returns, reports, claims for refund, or
information returns (including any related or supporting schedules,
statements or information) filed or required to be filed in connection
with or relating to the determination, assessment or collection of any
Taxes of or relating to the Company or any Company Subsidiary in
connection with the administration of any tax law or administrative
requirements relating to Taxes.
"TCP Agreement" means the TCP Administrative Services Agreement in
the form of Exhibit G hereto.
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"TCP Program" means the "total casket protection program" maintained
as of the date hereof by BCC, on the one hand, and the Company and/or one
or more of the Company Subsidiaries, on the other hand.
"Terminating Party" has the meaning set forth in Section 12.1.
"Third Anniversary Date" has the meaning set forth in Section 2.6.
"Third Party Claim" has the meaning set forth in Section 9.2(a).
"Transaction Documents" means, collectively, the Certificate of
Designation of the Buyer Preferred Stock and certificate representing the
Buyer Preferred Shares, the Warrant, the Stockholders' and Warrant
Holder's Agreement, the Note, the Seller Guaranty, the Transition Services
Agreements, the TCP Agreement, the FFSB Agreement, the Escrow Agreement,
the Stock Pledge Agreement, the IT Data Center Lease and the Mutual
Easement Agreement.
"Transfer Taxes" has the meaning set forth in Section 10.6.
"Transferred Employee" means (x) any Employee who immediately
following the First Closing remains employed by the Company or any Company
Subsidiary or who becomes an employee of Buyer or any Affiliate of Buyer
and (y) any Employee who immediately following the FFSB Closing remains
employed by FFSB or who becomes an employee of Buyer or any Affiliate of
Buyer.
"Transition Services Agreements" means the Transition Services
Agreements between Seller and Buyer, substantially in the forms of
Exhibits F-1 and F-2 hereto.
"Unaudited GAAP Statements" has the meaning set forth in Section
3.1(f)(i).
"WARN" has the meaning set forth in Section 3.1(ff)(iv).
"Warrant" means the warrant to purchase Class A common stock, par
value $0.01 per share, of Buyer, the form of which is attached as Exhibit
B hereto.
"Year 3 Payment Amount" has the meaning set forth in Section 2.6.
ARTICLE II
PURCHASE OF THE SHARES
SECTION 2.1. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, at the First Closing Seller shall sell, transfer,
convey, assign and deliver to Buyer or its designated direct or indirect
Subsidiary, and Buyer or its designated direct or indirect Subsidiary shall
purchase, acquire and accept from Seller, the FLAC Shares, the FLIC Shares and
the Company Shares, all in accordance with the Seller Pre-Closing Transactions,
free and clear of all Liens, other than any Liens created by or at the request
of Buyer and restrictions on transfer imposed by applicable securities laws, for
a purchase price comprised of: (i) cash in
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an amount equal to $136,300,000 (the "Cash Consideration"); plus (ii) the Note
with an initial principal amount of $80,000,000; plus (iii) shares of Buyer
Preferred Stock with an aggregate liquidation preference of $28,700,000 (the
"Buyer Preferred Shares"); plus (iv) the Warrant; plus (v) the right to receive
the Deferred DSCA Funds in accordance with Section 2.6; plus or minus, as
applicable, the post-closing purchase price adjustments made in accordance with
Section 2.2 (as adjusted, the "First Closing Purchase Price"). Upon the terms
and subject to the conditions of this Agreement, at the FFSB Closing (which may
occur concurrently with the First Closing) Seller shall sell, transfer, convey,
assign and deliver to Buyer or its designated direct or indirect Subsidiary, and
Buyer or its designated direct or indirect Subsidiary shall purchase, acquire
and accept from Seller, the FFSB Shares, free and clear of all Liens, other than
any Liens created by or at the request of Buyer and restrictions on transfer
imposed by applicable securities laws, for a purchase price of $6,400,000,
subject to adjustment pursuant to the FFSB Agreement (the "FFSB Purchase Price"
and together with the First Closing Purchase Price, the "Final Purchase Price").
In the event that the FFSB Shares are not transferred to Buyer or its designated
direct or indirect Subsidiary at the First Closing, cash in an amount equal to
the FFSB Purchase Price (together with earnings thereon, if any, the "Escrow
Funds") shall be deposited into the Escrow Account pursuant to the terms and
conditions of the Escrow Agreement and at the FFSB Closing, Buyer shall instruct
the Escrow Agent to transfer the Escrow Funds to Seller from the Escrow Account
pursuant to the terms and conditions of the Escrow Agreement.
SECTION 2.2. Post-Closing Purchase Price Adjustment. (a) As soon as
practicable (and in any event within 60 days) after the First Closing Date,
Seller shall cause to be prepared and delivered to Buyer:
(i) financial statements (the "Closing Financial Statements")
evidencing the Adjusted Book Value as of the close of business on the last
Business Day prior to the First Closing Date, taking into account and giving
proper effect to the transactions that are to occur at or prior to the First
Closing pursuant to this Agreement that affected the Adjusted Book Value (the
"Proposed Final Adjusted Book Value"), prepared in accordance with the
procedures set forth on Annex A attached hereto (the "Agreed Procedures"); and
(ii) a calculation of the First Closing Purchase Price, together
with work papers in reasonable detail setting forth the determination of the
price adjustments contemplated by Section 2.2(e) (the "First Closing Price
Calculation," and together with the "Closing Financial Statements," the
"Post-Closing Adjustment Documents").
(b) Following the delivery of the Post-Closing Adjustment Documents,
Seller shall (i) provide to Buyer copies of such work papers and other documents
relating to its preparation of the Post-Closing Adjustment Documents and the
Proposed Final Adjusted Book Value as Buyer may reasonably request, and (ii)
cooperate with, and make its personnel and facilities reasonably available to,
Buyer for the purpose of providing such other information as Buyer may
reasonably request concerning the Proposed Final Adjusted Book Value.
(c) Within 75 days after the Post-Closing Adjustment Documents are
delivered to Buyer, Buyer shall deliver written notice to Seller of any
disagreement with the Proposed Final Adjusted Book Value (a "Notice of
Disagreement"), which Notice of Disagreement shall set forth each item in
disagreement and shall provide reasonable specificity
13
as to the basis for each disagreement and shall specify (to the extent
practicable) the total adjustment to the Proposed Final Adjusted Book Value as
proposed by Seller as a result of such items in disagreement.
(d) If Buyer does not deliver a Notice of Disagreement to Seller
within such 75 day period, the Proposed Final Adjusted Book Value shall be final
and binding upon the parties hereto. If Buyer delivers a Notice of Disagreement
to Seller within such 75 day period, the parties shall (and shall cause their
respective auditors to) negotiate in good faith to resolve all disagreements as
promptly as practicable. Any changes in the Proposed Final Adjusted Book Value
that are agreed to by Buyer and Seller within 30 days of the aforementioned
delivery of the Notice of Disagreement shall be final and binding upon the
parties hereto and become part of the calculation of the final Adjusted Book
Value as of the First Closing Date (the "Final Adjusted Book Value"). If the
parties and their respective auditors are unable to resolve all disagreements
within 30 days of receipt by Seller of the Notice of Disagreement, then all
unresolved disagreements will be submitted within 10 days after such 30th day
for resolution in accordance herewith to an independent certified public
accounting firm of national standing and reputation as Buyer and Seller may
jointly select and retain (the "Settlement Auditor"), or if Buyer and Seller
cannot so agree, such Settlement Auditor shall be an independent certified
public accounting firm of national standing and reputation mutually acceptable
to Buyer's independent auditor and Seller's independent auditor. The parties
shall, and shall cause their respective Affiliates and independent auditors to,
cooperate in good faith with the Settlement Auditor and shall give the
Settlement Auditor access to all books, records, work papers and other
information requested by the Settlement Auditor for purposes of such resolution.
The Settlement Auditor shall, within 60 days after its engagement, deliver to
Buyer and Seller a conclusive written resolution of all disagreements submitted
to it, including a definitive calculation of the Final Adjusted Book Value,
which shall be in accordance with this Agreement and shall be final and binding
upon the parties hereto and shall be so reflected in the calculation of the
First Closing Purchase Price; provided, however, that the dollar amount of each
item in dispute shall be determined within the range of dollar amounts proposed
by Buyer and Seller, respectively. Buyer and Seller shall each pay one-half of
the fees and expenses of the Settlement Auditor.
(e) (i) In the event the amount of the Final Adjusted Book Value
exceeds $277,600,000, Buyer and Seller shall exchange the Note reflecting the
initial principal amount of $80,000,000 with a new Note, duly executed by Buyer
and otherwise identical to the Note issued on the First Closing Date in the
principal amount equal to $80,000,000 plus the amount by which the Final
Adjusted Book Value exceeds $277,600,000. Buyer and Seller shall exchange the
Note as provided in the preceding sentence on the date that the Final Adjusted
Book Value is final and binding on the parties hereto (the "Post-Closing
Settlement Date") and accrual of interest on the new Note shall be deemed to
have commenced as of the original issuance date of the Note in accordance with
the terms thereof.
(ii) In the event the Final Adjusted Book Value is less than
$277,600,000, Seller shall pay Buyer cash in the amount of such difference,
together with interest thereon at the rate equal to 6% per annum, calculated on
the basis of the actual number of days elapsed and a 360 day year, from and
including the First Closing Date to but not including the date of such payment
(the "Post-Closing Cash Payment"). Seller shall deliver to Buyer the
Post-Closing Cash Payment on the Post-Closing Settlement Date.
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(f) Buyer agrees that it will make its books, records, systems,
personnel and other reasonable information and resources available to Seller
during normal business hours as reasonably required by Seller to satisfy its
obligations under this Section 2.2.
(g) From the date hereof until the First Closing Date, Seller agrees
that it shall not, without the prior written consent of Buyer (which consent
shall not be unreasonably withheld or delayed), permit any Insurance Subsidiary
to sell or otherwise dispose of any of its investment assets (other than
Excluded Assets) unless all of the gain recognized on such sale or other
disposition would be required by SAP to be reflected in the interest maintenance
reserve of the statutory balance sheet of such Insurance Subsidiary. Seller
further agrees to give Buyer reasonable notice of, and an opportunity to attend
and observe, all meetings of the investment committees of the Insurance
Subsidiaries from the date hereof until the first Closing Date.
SECTION 2.3. Closing. Unless this Agreement shall have been
terminated pursuant to Section 11.1 and subject to the satisfaction or waiver of
each of the conditions set forth in Article VI, the closing of the transactions
contemplated hereby, other than the sale and purchase of FFSB, (the "First
Closing"), will take place at the offices of Weil, Gotshal & ▇▇▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 10:00 A.M., New York time, on the date that
is the Business Day next succeeding the last calendar day of the month during
which the last to be fulfilled or waived of the conditions set forth in Article
VI hereof (other than those conditions the satisfaction or waiver of which can
occur only on the First Closing Date) shall be fulfilled or waived in accordance
with this Agreement, or at such other date and time as the parties may agree to
in writing. The actual date and time of the First Closing are herein referred to
as the "First Closing Date". Unless this Agreement shall have been terminated
pursuant to Section 11.1 and subject to the satisfaction or waiver of each of
the conditions set forth in Article VII, the closing of the sale and purchase of
the FFSB Shares (the "FFSB Closing"), will take place at the offices of Weil,
Gotshal & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 10:00 A.M., New
York time, on the date that is the Business Day next succeeding the last
calendar day of the month during which the last to be fulfilled or waived of the
conditions set forth in Article VII hereof (other than those conditions the
satisfaction or waiver of which can occur only on the FFSB Closing Date) shall
be fulfilled or waived in accordance with this Agreement, or at such other date
and time as the parties may agree to in writing. The actual date and time of the
FFSB Closing are herein referred to as the "FFSB Closing Date". If the FFSB
Closing Date has not occurred within one year following the First Closing Date
(the "FFSB Termination Date"), then Seller shall have no obligation hereunder to
sell the FFSB Shares to Buyer and Buyer shall have no obligation hereunder to
acquire the FFSB Shares from Seller and Buyer shall be entitled to the Escrow
Funds in accordance with the terms of the Escrow Agreement.
SECTION 2.4. First Closing Deliveries. At the First Closing, the
parties hereto shall take the following actions:
(a) Seller shall deliver to Buyer or an Affiliate of Buyer, as
applicable:
(i) a receipt evidencing receipt by Seller of payment and
delivery by Buyer of (A) the Cash Consideration, (B) the Note, (C) the Buyer
Preferred Shares and (D) the Warrant;
15
(ii) certificates representing the FLAC Shares, the FLIC
Shares and the Company Shares, duly executed in blank or accompanied by stock
powers duly executed in blank, in proper form for transfer and accompanied by
all requisite stock transfer tax stamps;
(iii) the Seller Guaranty;
(iv) an affidavit stating that neither Seller, the Company nor
any Company Subsidiary is a foreign person within the meaning of Section 1445 of
the Code;
(v) each of the Stockholders' and Warrant Holder's Agreement,
the Transition Services Agreements, the TCP Agreement, the Stock Pledge
Agreement and each other Transaction Document to which Seller or one or more of
its Affiliates is a party;
(vi) in the event that the FFSB Shares are not transferred to
Buyer at the First Closing, the Escrow Agreement and the FFSB Agreement, each
duly authorized and executed by Seller; and
(vii) an officer's certificate from each of FLIC and ANLIC,
duly executed by an officer of FLIC or ANLIC, as applicable, substantially in
the forms attached hereto as Exhibit N-1 and N-2, respectively.
(b) Buyer or one or more of its Affiliates, as the case may be,
shall deliver or cause to be delivered to Seller:
(i) the purchase price specified in the first sentence of
Section 2.1, prior to any post-closing purchase price adjustments made in
accordance with Section 2.2, payable as follows: (A) the Cash Consideration by
wire transfer of immediately available funds to previously designated accounts
of Seller (or an Affiliate of Seller), (B) the Note, (C) the Buyer Preferred
Shares and (D) the Warrant;
(ii) each of the Stockholders' and Warrant Holder's Agreement,
the Transition Services Agreements and the TCP Agreement, the Stock Pledge
Agreement and each other Transaction Document to which Buyer or one or more
Affiliates of Buyer is a party; and copies of all regulatory approvals obtained
by Buyer in connection with the transactions contemplated by this Agreement and
the Transaction Documents;
(iii) in the event that the FFSB Shares are not transferred to
Buyer at the First Closing, (x) cash in an amount equal to the FFSB Purchase
Price to be held in escrow pursuant to the terms and conditions of the Escrow
Agreement, including an acknowledgement from the Escrow Agent evidencing that
the Escrow Funds have been deposited into the Escrow Account and (y) the Escrow
Agreement and the FFSB Agreement, each duly authorized and executed by Buyer or
one or more Affiliates of Buyer;
(iv) an officer's certificate, duly executed by an officer of
Buyer (such officer may rely on an officer's certificate, duly executed by the
Chief Financial Officer of the Company, with respect to financial information of
the Company and the Company Subsidiaries), certifying that the Debt-Equity Ratio
(as defined in the Note), as of the First Closing Date, is not
16
greater than 4.0 to 1.0 and such certification shall set forth the computation
thereof in reasonable detail;
(v) signed and executed copies of all agreements and
certificates evidencing and documenting the Buyer Pre-Closing Transactions, in
forms that are reasonably satisfactory to the Seller and representation letters
from parties that will undertake the Buyer Pre-Closing Transactions containing
the representations set forth on Annex C; and
(vi) The Letter from an officer of Buyer that provides the
representations described in the Note attached hereto as Exhibit D.
SECTION 2.5. FFSB Closing Deliveries. At the FFSB Closing, the
parties hereto shall take the following actions:
(a) Seller shall deliver to Buyer or an Affiliate of Buyer, as
applicable:
(i) a receipt evidencing receipt by Seller of payment and
delivery by Buyer of the FFSB Purchase Price;
(ii) an affidavit stating that Seller is not a foreign person
within the meaning of Section 1445 of the Code; and
(iii) certificates representing the FFSB Shares, duly executed
in blank or accompanied by stock powers duly executed in blank, in proper form
for transfer and accompanied by all requisite stock transfer tax stamps.
(b) Buyer or one or more of its Affiliates (or the Escrow Agent if
the FFSB Closing does not occur concurrently with the First Closing), as the
case may be, shall deliver or cause to be delivered to Seller:
(i) cash in an amount equal to the FFSB Purchase Price; and
(ii) a copy of the OTS Approval.
SECTION 2.6. Payment of DSCA Funds. Within 20 Business Days
following the third anniversary of the First Closing Date (the "Third
Anniversary Date"), Buyer shall pay to Seller, as contingent deferred purchase
price, an amount (the "Year 3 Payment Amount") equal to the least of (x)
$7,500,000, (y) the amount (if any) by which the balance of the DSCA on the
First Closing Date exceeds the balance of the DSCA on the Third Anniversary Date
and (z) the cumulative amount of cash distributions made by FLAC Holdings, LLC
to LifeCo from the First Closing Date to the Third Anniversary Date. Notional
interest shall accrue at a rate equal to 5% per annum (calculated on the basis
of the actual number of days elapsed and a 360 day year) on the amount by which
$15,000,000 exceeds the Year 3 Payment Amount (such amount, together with any
notional interest accrued thereon pursuant to this sentence and as reduced by
any payments made pursuant to the following sentence, the "Balance Amount") from
the Third Anniversary Date until the time such Balance Amount is reduced to zero
as provided below. Until such Balance Amount is reduced to zero, on (or within
20 Business Days following) each quarterly scheduled payment date under the
terms of the Securitization Financing which occurs
17
subsequent to the Third Anniversary Date (each such date, a "Scheduled DSCA
Payment Date"), Buyer shall pay to Seller, as contingent deferred purchase
price, an amount equal to that by which (x) the balance of the DSCA as at such
Scheduled DSCA Payment Date is less than (y) the balance of the DSCA as of the
previous Scheduled DSCA Payment Date, provided that such payment shall not
exceed the Balance Amount as at such Scheduled DSCA Payment Date. Without in any
way affecting the accrual of interest on the Balance Amount as set forth above,
interest shall accrue on any amount that is not paid by Buyer when due under
this Section 2.6 from the date on which such payment becomes due to but not
including the date on which payment of such amount is made at the rate equal to
1% per annum, calculated on the basis of the actual number of days elapsed and a
360 day year. Buyer shall have no right to set off or apply any amounts due to
Seller under this Section 2.6 against any payment obligation of Seller to Buyer
arising under or based upon this Agreement or the Transaction Documents. In
addition, if Buyer shall fail to pay the amounts due under this Section 2.6 for
two consecutive Scheduled DSCA Payment Dates, then no dividends or distributions
shall be made by Buyer with respect to Buyer's equity securities (except for
dividends and distributions to Seller) until such time such arrearage is paid to
Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of Seller. Seller
represents and warrants to Buyer as follows:
(a) Organization, Standing and Corporate Power. (i) Section 3.1(a)
of the Disclosure Schedule sets forth a true, complete and correct list of all
Subsidiaries of the Company (each hereinafter referred to individually as a
"Company Subsidiary" and collectively as the "Company Subsidiaries").
(ii) The Company and each of the Company Subsidiaries, other
than FFSB, is a corporation duly incorporated and validly existing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
The Company and each of the Company Subsidiaries is duly qualified to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary (other
than in such jurisdictions where the failure to be so qualified would not have a
Company Material Adverse Effect), and no other jurisdiction has claimed in
writing that the Company or any of the Company Subsidiaries is required to hold
a Permit issued by any Governmental Entity therein.
(iii) FFSB is a federal savings bank chartered under Section 5
of the HOLA, regulated by the OTS and the FDIC and is in good standing and has
the requisite corporate power and authority to carry on its business as now
being conducted.
(b) Capital Structure. (i) The authorized capital stock of the
Company consists of 1,000 shares of Company Common Stock, all of which are
issued and outstanding and constitute the Company Shares. No other shares of
capital stock of the Company are authorized, issued, reserved for issuance or
outstanding. The Company Shares were duly
18
authorized and validly issued and are fully paid and nonassessable, and not
subject to preemptive rights. Seller is the record and beneficial owner of the
Company Shares, free and clear of all Liens, other than any Liens arising solely
from acts of Buyer (other than restrictions on transfer imposed by applicable
securities laws). There are not any securities, options, warrants, rights,
commitments or agreements of any kind to which Seller or the Company is a party
or by which either of them is bound obligating either of them to issue, sell or
deliver shares of capital stock or other equity securities of the Company.
Assuming Buyer has the requisite power and authority to be the lawful owner of
the Company Shares, upon delivery of and payment for the Company Shares at the
First Closing as herein provided, Buyer will acquire all rights in the Company
Shares, free and clear of all Liens, other than any Liens arising solely from
acts of Buyer and restrictions on transfer imposed by applicable securities
laws.
(ii) The authorized capital stock of FLIC consists of 2,000
shares of common stock, par value $1,250 per share, all of which are issued and
outstanding and constitute the FLIC Shares. No other shares of capital stock of
FLIC are authorized, issued, reserved for issuance or outstanding. The Company
is the record and beneficial owner of the FLIC Shares, free and clear of all
Liens, other than any Liens arising solely from acts of Buyer (other than
restrictions on transfer imposed by applicable securities laws). There are no
restrictions upon the voting or transfer of any shares of common stock of FLIC
pursuant to FLIC's Articles of Incorporation, By-laws or other organizational
documents or any agreement to which either Seller or any of its Affiliates is a
party. Assuming Buyer (or its designee, as applicable) has the requisite power
and authority to be the lawful owner of the FLIC Shares, upon delivery of and
payment for the FLIC Shares at the First Closing as herein provided, Buyer (or
its designee, as applicable) will acquire all rights in the FLIC Shares, free
and clear of all Liens, other than any Liens arising solely from acts of Buyer
(or its designee, as applicable) and restrictions on transfer imposed by
applicable securities laws.
(iii) The authorized capital stock of FLAC consists of 520,000
shares of common stock, par value $5.00 per share, all of which are issued and
outstanding and constitute the FLAC Shares. The FLAC Shares were duly authorized
and validly issued and are fully paid and nonassessable, and not subject to
preemptive rights. No other shares of capital stock of FLAC are authorized,
issued, reserved for issuance or outstanding. FLIC is the record and beneficial
owner of the FLAC Shares, free and clear of all Liens, other than any Liens
arising solely from acts of Buyer (other than restrictions on transfer imposed
by applicable securities laws). There are no any securities, options, warrants,
rights, commitments or agreements of any kind to which Seller, the Company or
FLAC is a party or by which any of them is bound obligating either of them to
issue, sell or deliver shares of capital stock or other equity securities of
FLAC. There are no restrictions upon the voting or transfer of any shares of
common stock of FLAC pursuant to FLAC's Articles of Incorporation, By-laws or
other organizational documents or any agreement to which either Seller or any of
its Affiliates is a party. Assuming Buyer (or its designee, as applicable) has
the requisite power and authority to be the lawful owner of the FLAC Shares,
upon delivery of and payment for the FLAC Shares at the First Closing as herein
provided, Buyer (or its designee, as applicable) will acquire all rights in the
FLAC Shares, free and clear of all Liens, other than any Liens arising solely
from acts of Buyer (or its designee, as applicable) and restrictions on transfer
imposed by applicable securities laws.
19
(iv) The authorized capital stock of FFSB consists of 1,000
shares of common stock, par value $1,600 per share, all of which are issued and
outstanding and constitute the FFSB Shares. No other shares of capital stock of
FFSB are authorized, issued, reserved for issuance or outstanding. The FFSB
Shares were duly authorized and validly issued and are fully paid and
nonassessable, and not subject to preemptive rights. Seller is the record and
beneficial owner of the FFSB Shares, free and clear of all Liens, other than any
Liens arising solely from acts of Buyer (other than restrictions on transfer
imposed by applicable securities laws). There are no restrictions upon the
voting or transfer of any shares of common stock of FFSB pursuant to FFSB's
Articles of Incorporation, By-laws or other organizational documents or any
agreement to which either Seller or any of its Affiliates is a party. Assuming
Buyer (or its designee, as applicable) has the requisite power and authority to
be the lawful owner of the FFSB Shares, upon delivery of and payment for the
FFSB Shares at the FFSB Closing as herein provided, Buyer (or its designee, as
applicable) will acquire all rights in the FFSB Shares, free and clear of all
Liens, other than any Liens arising solely from acts of Buyer (or its designee,
as applicable) and restrictions on transfer imposed by applicable securities
laws.
(c) Subsidiaries. All of the outstanding shares of capital stock of
each Company Subsidiary were duly authorized and validly issued and are fully
paid and nonassessable, and are owned of record and beneficially by the Company,
by one or more of the Company's Subsidiaries or by the Company and one or more
of the Company's Subsidiaries, free and clear of all Liens. There are not any
securities, options, warrants, rights, commitments or agreements of any kind to
which the Company or any of the Company Subsidiaries is a party or by which any
of them is bound obligating any of them to issue, sell or deliver shares of
capital stock or other equity securities of any of the Company Subsidiaries.
Except as set forth on Section 3.1(c) of the Disclosure Schedule, the Company
does not own, directly or indirectly, more than 5% of the outstanding common
stock of, or other voting equity interests in, any Person.
(d) Authority. (i) Seller has the requisite corporate power and
authority to enter into this Agreement and each of the Transaction Documents to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Seller of this Agreement and each of the
Transaction Documents to which it is a party and the consummation by Seller of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Seller. This Agreement has been,
and each Transaction Document to be delivered by Seller pursuant to this
Agreement will have been as of the date each such Transaction Document is
delivered, duly executed and delivered by Seller. Assuming (x) this Agreement
constitutes the valid and binding agreement of Buyer, (y) assuming each
Transaction Document to be delivered by Seller pursuant to this Agreement is the
valid and binding obligation of the other parties thereto, each Transaction
Document to be delivered by Seller will constitute as of the date that each such
document is delivered, a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (i) such enforcement
may be subject to applicable bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
20
(ii) Each Subsidiary of Seller that is party to a Transaction
Document has the requisite corporate power and authority to consummate the
transactions contemplated thereby. The execution and delivery of the Transaction
Documents to be delivered by such Subsidiary pursuant to this Agreement and the
consummation by such Subsidiary of the transactions contemplated thereby have
been, or prior to the First Closing Date will have been, duly authorized by all
necessary corporate action on the part of such Subsidiary. Each Transaction
Document to be delivered by such Subsidiary pursuant to this Agreement will have
been as of the date each such Transaction Document is delivered, duly executed
and delivered by such Subsidiary. Assuming each Transaction Document to be
delivered by such Subsidiary pursuant to this Agreement constitutes the valid
and binding obligation of the other parties thereto, each such Transaction
Document will constitute as of the date that each such document is delivered, a
valid and binding obligation of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(e) Noncontravention; Consents. (i) Except as disclosed in Section
3.1(e)(i) of the Disclosure Schedule, the execution and delivery of this
Agreement and the Transaction Documents by Seller, and each Company Subsidiary,
as applicable, to which Seller or a Company Subsidiary is a party do not, and
the consummation of the transactions contemplated by this Agreement and such
Transaction Documents will not (A) conflict with any of the provisions of the
Articles of Incorporation or By-laws of Seller, the Company or any Company
Subsidiary, (B) conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of any
benefit under, or give rise to any obligation of the Company or any of the
Company Subsidiaries to make any payment under, or to the increased, additional,
accelerated or guaranteed rights or entitlements of any Person under, or result
in the creation of any Liens upon any of the properties or assets of the Company
or any Company Subsidiary under any agreement, arrangement, lease,
understanding, contract, instrument, loan, note, bond, mortgage, indenture,
promise, undertaking or other commitment or obligation (a "Contract") or Permit
under which the Company or any Company Subsidiary is a party or by which any of
their respective assets or properties owned or used are bound, that would,
individually or in the aggregate, have a Company Material Adverse Effect or a
material adverse effect on the ability of Seller to consummate any of the
transactions contemplated by this Agreement or the Transaction Documents or (C)
violate or give rise to the loss of a right or benefit, or create any obligation
or liability under any statute, law, rule, regulation, order, judgment,
injunction or award (collectively, "Laws") applicable to the Company or any
Company Subsidiary, that would, individually or in the aggregate, have a Company
Material Adverse Effect or a material adverse effect on the ability of Seller to
consummate any of the transactions contemplated by this Agreement or the
Transaction Documents.
(ii) No consent, approval or authorization of, or declaration
or filing with, or notice to, any Governmental Entity, is required by or with
respect to Seller, the Company or any of the Company Subsidiaries in connection
with the execution and delivery by Seller of this Agreement or the Transaction
Documents to which it is a party or the
21
consummation by Seller of the transactions contemplated hereby or thereby,
except for (A) the filing of premerger notification and report forms under the
HSR Act, (B) the approvals, filings and notices required under the insurance
laws of all jurisdictions in which the Company and the Company Subsidiaries
transact the business of insurance, (C) consents and approvals or
non-disapprovals of, and filings or applications with, or notices to the Banking
Regulators, (D) consents, filings or notices under the Investment Advisers Act,
(E) such other consents, approvals, authorizations, declarations, filings or
notices as are set forth in Section 3.1(e)(ii)(E) of the Disclosure Schedule,
and (F) such other consents, approvals, authorizations, declarations, filings or
notices the failure to obtain or make any or all of which would not have a
Company Material Adverse Effect or a material adverse effect on the ability of
Seller to consummate any of the transactions contemplated by this Agreement or
the Transaction Documents.
(f) GAAP Financial Statements; Accounting Procedures. (i) Seller has
made available to Buyer copies of the following financial statements, together
with the exhibits, schedules and notes thereto, if any (collectively, the "GAAP
Financial Statements"): (A) the audited consolidated balance sheet of the
Company as of September 30, 2002 and the related consolidated statements of
income, shareholder's equity and cash flows for the year then ended (the
"Audited GAAP Statements") and (B) the unaudited consolidated balance sheets of
the Company as of June 30, 2003 and September 30, 2003 and the related
consolidated statements of income for the periods then ended (the "Unaudited
GAAP Statements").
(ii) The Audited GAAP Statements are complete and correct in
all material respects, were prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") applied on a consistent basis without
modification of the accounting principles used in the preparation thereof during
the periods presented (except as set forth in the notes, exhibits or schedules
thereto), and present fairly the consolidated financial position of the Company
as of the date thereof, and the consolidated results of its operations,
shareholder's equity and cash flows for the periods then ended.
(iii) Except as set forth in Section 3.1(f)(iii) of the
Disclosure Schedule, the Unaudited GAAP Statements are complete and correct in
all material respects, were prepared in accordance with GAAP applied on a
consistent basis and present fairly the consolidated financial position of the
Company as of the date thereof, and the consolidated results of its operations
for the periods then ended.
(g) SAP Financial Statements. (i) Seller has made available to Buyer
copies of the following statutory statements, in each case together with
exhibits, schedules and notes thereto and any affirmations and certifications
filed therewith (collectively, the "Statutory Statements"): (A) balance sheet of
each Insurance Subsidiary as of December 31, 2002 and the related statement of
operations and statement of cash flows for the year then ended, and (B) balance
sheet of each Insurance Subsidiary as of March 31, June 30 and September 30,
2003 and the related statement of operations and statement of cash flows for the
periods then ended (the "SAP Statements"), in each case as filed with the
Insurance Regulator of such Insurance Subsidiary's jurisdiction of domicile.
(ii) Except as set forth in Section 3.1(g)(ii) of the
Disclosure Schedule or disclosed in the notes, exhibits or schedules to the
Statutory Statements, (A) each Statutory
22
Statement was complete and correct in all material respects when filed and there
were no material omissions therefrom and (B) each Statutory Statement was
prepared in material conformity with applicable statutory accounting practices
prescribed or permitted by the applicable Insurance Regulator for purposes of
financial reporting ("SAP"), applied on a consistent basis during the period
presented, and presents fairly the statutory financial condition of the
applicable Insurance Subsidiary as of the date thereof and the results of
operations and cash flows of such Insurance Subsidiary for the period then ended
(subject, in the case of the SAP Statements, to the absence of footnotes and to
normal recurring year-end adjustments).
(h) No Undisclosed Liabilities. Except as specifically set forth in
Section 3.1(h) of the Disclosure Schedule, there are no Liabilities of the
Company or any Company Subsidiary, other than (i) Liabilities provided for on
the balance sheets included in the GAAP Financial Statements or disclosed in the
notes thereto, (ii) Liabilities provided for on the balance sheets included in
the Statutory Statements or disclosed in the notes thereto, (iii) Liabilities
incurred in the Ordinary Course of Business since September 30, 2003, (iv)
Liabilities for unearned premiums and insurance policy and annuity benefits,
withdrawals and surrenders, in each case arising under policies or contracts of
insurance or reinsurance written or assumed by an Insurance Subsidiary, each in
accordance with their terms, and (v) immaterial liabilities.
(i) Absence of Certain Changes or Events. Other than as required by
this Agreement (including, without limitation, the Pre-Closing Dividends) and
the Transaction Documents and except as disclosed in Section 3.1(i) of the
Disclosure Schedule, since September 30, 2003, the Company and the Company
Subsidiaries have conducted their respective businesses in the Ordinary Course
of Business and:
(i) there has not been any damage, destruction or loss,
whether or not covered by insurance, with respect to the physical property and
assets of the Company or any Company Subsidiary having a replacement cost of
more than $250,000 for any single loss or $1,000,000 for all such losses;
(ii) there has not been any declaration, setting aside or
payment of any dividend or other distribution in respect of any shares of
capital stock of the Company or any Company Subsidiary, or any repurchase,
redemption or other acquisition by the Company or any Company Subsidiary of any
outstanding shares of capital stock or other securities of, or other ownership
interest in, the Company or any Company Subsidiary;
(iii) neither the Company nor any Company Subsidiary, has
awarded or paid any bonuses to employees of the Company or any Company
Subsidiary, except to the extent accrued on the Unaudited GAAP Statements or the
SAP Statements or entered into any employment, deferred compensation, retention,
severance or similar agreement (nor amended any such agreement) or agreed to
increase the compensation payable or to become payable by it to any of the
Company's or any Company Subsidiary's directors, officers, employees, agents or
representatives (other than increases to annual compensation levels made in the
Ordinary Course of Business) or agreed to increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation for disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other
23
employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives;
(iv) there has not been any material change by the Company or
any Company Subsidiary in accounting principles, methods or practices except
insofar as may be required by Law or required by a change in GAAP or SAP, as
applicable;
(v) except to the extent required by Law, as is consistent
with past practices, or as would not have a material impact on the Company's or
any Company Subsidiary's Taxes, neither the Company nor any Company Subsidiary
has made or rescinded any election relating to Taxes; settled or compromised any
claim, action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to Taxes; or made any change to any of its Tax reporting
principles, methods or practices from those employed in the preparation of its
most recently filed federal income Tax Return;
(vi) except for (A) an inter-company loan or loans by FLIC to
Seller in the principal amount not to exceed $75,000,000 in the aggregate (which
may or may not be made) and (B) loans and advances to agents and customers and
inter-company charges made in the Ordinary Course of Business (a listing of such
loans and advances as of the date hereof is set forth in Section 3.1(i)(vi) of
the Disclosure Schedule), neither the Company nor any Company Subsidiary has
made any loans, advances or capital contributions to, or investments in (other
than transactions in the Ordinary Course of Business with respect to Company
Investment Assets in accordance with the investment guidelines of the Company
and the Company Subsidiaries which have been made available for inspection by
Buyer), any Person or paid any fees or expenses to any Affiliate or any
director, officer, partner, or stockholder thereof (other than reimbursements
for customary fees and expenses incurred by such Persons on behalf of the
Company or any Company Subsidiary in the Ordinary Course of Business);
(vii) neither the Company nor any Company Subsidiary has
mortgaged, pledged or subjected to any Lien (other than Permitted Liens) any of
its assets, or acquired any asset or sold, assigned, transferred, conveyed,
leased or otherwise disposed of any asset of the Company or any Company
Subsidiary having a value in excess of $250,000, except for assets acquired or
sold, assigned, transferred, conveyed, leased or otherwise disposed of in the
Ordinary Course of Business;
(viii) neither the Company nor any Company Subsidiary has
discharged or satisfied any Lien (other than a Permitted Lien), or paid any
obligation or liability (fixed or contingent in excess of $250,000 individually
or $1,000,000 in the aggregate), except in the Ordinary Course of Business;
(ix) neither the Company nor any Company Subsidiary has
canceled or compromised any debt or claim or amended, canceled, terminated,
relinquished, waived or released any material Contract or right except in the
Ordinary Course of Business;
(x) neither the Company nor any Company Subsidiary has made or
committed to make any capital expenditures or capital additions or betterments
in excess of $250,000 individually or $1,000,000 in the aggregate;
24
(xi) neither the Company nor any Company Subsidiary has
issued, created, incurred, assumed or guaranteed any indebtedness in an amount
in excess of $250,000 individually or $1,000,000 in the aggregate;
(xii) neither the Company nor any Company Subsidiary has
granted any license or sublicense of any rights under or with respect to any
Intellectual Property (other than to the Company or any Company Subsidiary);
(xiii) neither the Company nor any Company Subsidiary has
instituted or settled any material Legal Proceeding;
(xiv) other than with respect to commitments related to the
Excluded Assets, neither the Company nor any Company Subsidiary has entered into
any investment funds, programs or arrangements pursuant to which it has made any
contractual or other binding commitment that has not been fully funded as
reflected in the Unaudited GAAP Statements or the SAP Statements;
(xv) neither the Company nor any Company Subsidiary has
agreed, committed, arranged or entered into any understanding to do anything set
forth in these paragraphs (i) through (xiv) of Section 3.1(i); and
(xvi) there has not occurred any event or events that,
individually or in the aggregate, has had, or would reasonably be expected to
have, any Material Adverse Effect on the Company.
(j) Benefits Plans. (i) Section 3.1(j)(i) of the Disclosure Schedule
sets forth a complete and correct list of: (A) all Employee Benefit Plans under
which the Company or any of the Company Subsidiaries has any obligation or
liability, contingent or otherwise with respect to any current or former
officer, director or employee of the Company or any of the Company Subsidiaries
(the "Company Employee Benefit Plans"); (B) all written employment or consulting
agreements, bonus or other incentive compensation, deferred compensation, salary
continuation during any absence from active employment for disability or other
reasons, severance, sick days, stock award, stock option, stock purchase,
tuition assistance, club membership, employee discount, employee loan, or
vacation pay agreements, policies or arrangements which the Company or any of
the Company Subsidiaries maintains or has any obligation or liability
(contingent or otherwise) with respect to any current or former officer,
director or employee of the Company or any of the Company Subsidiaries (the
"Employee Arrangements"); and (C) any Employee Benefit Plan, which is not a
Company Employee Benefit Plan, but as to which the Company or any of the Company
Subsidiaries has any obligation or liability (contingent or otherwise).
(ii) Each Company Employee Benefit Plan and Employee
Arrangement is in compliance with all applicable Laws and has been administered
in all material respects in accordance with its terms, except where the failure
to do so would not have a Company Material Adverse Effect.
(iii) Each Company Employee Benefit Plan that is intended to
be "qualified" within the meaning of Section 401(a) of the Code so qualifies and
no event has
25
occurred and no condition exists that would result in the loss of such
qualification that would have a Company Material Adverse Effect.
(iv) All contributions or other payments required to have
been made by the Company and the Company Subsidiaries to or under any Company
Employee Benefit Plan by applicable law or the terms of such Company Employee
Benefit Plan (or any agreement relating thereto) have in all material respects
been timely and properly made.
(v) Neither the Company nor, to the Knowledge of Seller, any
Company Subsidiary or any other "disqualified person" or "party in interest" (as
defined in Section 4975(e)(2) of the Code and Section 3(14) of ERISA,
respectively), has engaged in any transaction in connection with any Company
Employee Benefit Plan that would result in the imposition of a material penalty
pursuant to Section 502(i) of ERISA, material damages pursuant to Section 409 of
ERISA or a material tax pursuant to Section 4975(a) of the Code.
(vi) Except as disclosed in Section 3.1(j)(vi) of the
Disclosure Schedule, the Company does not have an obligation under any Company
Employee Benefit Plan to provide retiree medical benefits with respect to
Employees or former employees of the Company or any Company Subsidiary (other
than COBRA).
(vii) No Company Employee Benefit Plan that is subject to
Title IV of ERISA has been terminated or, to the Knowledge of Seller, is or has
been the subject of termination proceedings pursuant to Title IV of ERISA that
would result in an obligation by the Company to make future contributions to
such Company Employee Benefit Plan.
(viii) No Company Employee Benefit Plan is a "multiemployer
plan" (as defined in Section 3(37) of ERISA) and neither the Company nor any
Company Subsidiary has been obligated to contribute to any multiemployer plan.
(ix) Except as disclosed in Section 3.1(j)(ix) of the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employees or former employees of the Company or any
of the Company Subsidiaries, (ii) increase any benefits under any Company
Employee Benefit Plan or Employee Arrangement, or (iii) result in the
acceleration of time of payment of, vesting of, or other rights with respect to
any such benefits.
(k) Taxes. Except as disclosed in Section 3.1(k) of the Disclosure
Schedule:
(i) all material Tax Returns required to have been filed on or
prior to the date hereof by or on behalf of the Company or any Company
Subsidiary (including the consolidated Federal income Tax Return and any state
or foreign Tax Returns that include the Company and/or any Company Subsidiary on
a consolidated or combined basis) have been timely filed, and such Tax Returns
are true, correct, and complete in all material respects;
(ii) all material amounts of Taxes required to be shown on the
Tax Returns described in Section 3.1(k)(i) have been fully and timely paid;
26
(iii) with respect to any period for which any Tax Return has
not yet been filed or for which any material amount of Tax is not yet due or
owing, the Company and the Company's Affiliates have established adequate
reserves for the payment of such Taxes in the Company's financial statements for
the year ended December 31, 2002, and the nine-month period ended September 30,
2003;
(iv) the Company and each of the Company Subsidiaries have
complied in all material respects with all applicable Laws relating to the
payment and withholding of all material amounts of Taxes and have duly and
timely withheld and paid over to the appropriate Tax Authority all material
amounts required to be so withheld and paid under all applicable laws;
(v) the Company and each of the Company Subsidiaries have made
available to Buyer complete copies of all material (i) federal, state, local and
foreign income or franchise Tax Returns of the Company and each of the Company
Subsidiaries relating to all taxable periods ended after December 31, 1999, and
(ii) audit reports issued within the last three years relating to any Taxes due
from or with respect to the Company and each of the Company Subsidiaries. All
such income and franchise Tax Returns filed by or on behalf of the Company and
each of the Company Subsidiaries have been examined by the relevant Tax
Authority or the statute of limitations with respect to such Tax Returns has
expired;
(vi) there is no action, suit, proceeding, investigation,
audit, extension of the statute of limitations or claim now pending that relates
to any material amount of Tax attributable to items of income, gain, deduction,
loss, or credits of the Company and/or any Company Subsidiary. All deficiencies
asserted or assessments made as a result of any examinations by any Tax
Authority of the Tax Returns of, or including, the Company or any of the Company
Subsidiaries for which any material amount of Tax is due have been fully paid or
is being (or will be) contested by the Company or the Company Subsidiary as the
case may be and have been adequately reserved for on the Company's or on a
Company Subsidiary's financial statements or has otherwise been disclosed to
Buyer. No issue has been raised in writing by a Tax Authority in any prior
examination of the Company or any of the Company Subsidiaries which, by
application of the same or similar principles, could reasonably be expected to
result in a proposed deficiency of any material amount of Taxes for any
subsequent taxable period;
(vii) no written or, to the Knowledge of the Seller, any other
type of claim has been made by a Tax Authority in a jurisdiction where the
Company or any of the Company Subsidiaries does not file Tax Returns such that
it is or may be subject to taxation by that jurisdiction;
(viii) neither the Company nor any of the Company Subsidiaries
nor any other Person on their behalf has (i) requested any extension of time
within which to file any Tax Return, which Tax Return has since not been filed,
or (ii) granted to any Person any power of attorney that is currently in force
with respect to any Tax matter;
(ix) neither the Company nor any of the Company Subsidiaries
is a party to any tax sharing, allocation, indemnity or similar agreement or
arrangement (whether or
27
not written) pursuant to which it will have any obligation to make any Tax
payments after the First Closing or the FFSB Closing, as applicable;
(x) neither the Company nor any Company Subsidiary is a party
to any contract, agreement, plan, or arrangement covering any Person that,
individually or collectively, could give rise to payment of any amount that
would not be deductible by reason of Section 162(m) or Section 280G of the Code;
(xi) neither the Company nor any of the Company Subsidiaries
is subject to any private letter ruling of the IRS or comparable rulings of any
Tax Authority;
(xii) neither the Company nor any of the Company Subsidiaries
has constituted either a "distributing corporation" or a "controlled
corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a
distribution of stock qualifying for tax-free treatment under Section 355 of the
Code (A) in the two (2) years prior to the date of this Agreement or (B) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the transactions contemplated by this Agreement;
(xiii) to the Knowledge of Seller, there is no material amount
of taxable income of the Company or any of the Company Subsidiaries that will be
required under applicable Tax law to be reported by Buyer or any of its
Affiliates for a taxable period (or portion thereof) beginning after the First
Closing Date (or the FFSB Closing with respect to FFSB) which taxable income was
realized (and reflects economic income) arising prior to the First Closing Date
(or the FFSB Closing with respect to FFSB);
(xiv) to the Knowledge of the Seller, neither the Company nor
any of the Company Subsidiaries has, or has ever had, a permanent establishment
(other than in the United States), or has engaged in a trade or business in any
country (other than the United States) that subjected it to Tax in such country;
and
(xv) except as would not otherwise be material, (i) all life
insurance policies issued by the Insurance Subsidiaries qualify as life
insurance contracts under Section 7702 of the Code (and any analogous provision
of state or local Law) and (ii) all annuity contracts issued by the Company
Subsidiaries qualify under Section 72 of the Code (and any analogous provision
of state or local Law).
(l) Compliance with Applicable Laws; Material Permits. (i) Each of
the Company and the Company Subsidiaries is and at all times has been, in
compliance in all material respects with all material Laws that are and were
applicable to the conduct or operation of its business or to the use of its
assets. Neither the Company nor any Company Subsidiary has received any notice
of or been charged with the violation of any material Laws that have not been
remedied or cured in full.
(ii) Section 3.1(l)(ii) of the Disclosure Schedule contains a
list of all Permits that are necessary for the operation of the business of the
Company and the Company Subsidiaries as presently conducted ("Material
Permits"). The Company and the Company Subsidiaries currently have all Material
Permits and such Material Permits are in full force and
28
effect. None of the Company and the Company Subsidiaries is in default or
violation, and no event has occurred which, with notice or the lapse of time or
both, would constitute a default or violation, in any material respect of any
term, condition or provision of any Material Permit.
(m) Litigation. Except as disclosed in Section 3.1(m) of the
Disclosure Schedule, there is no material Legal Proceeding pending or, to the
Knowledge of Seller, threatened against or affecting Seller, the Company or any
Company Subsidiary. Except as set forth in Section 3.1(m) of the Disclosure
Schedule, there is no judgment, decree, injunction or order of any Governmental
Entity or arbitrator outstanding against Seller, the Company or any of the
Company Subsidiaries.
(n) Contracts. (i) Section 3.1(n)(i) of the Disclosure Schedule sets
forth a complete and accurate list, as of the date hereof, of (x) all Contracts
to which the Company or any Company Subsidiary is a party, or by which any of
their respective assets are bound, that contain obligations of the Company or
any Company Subsidiary that may be in excess of $250,000 in any one fiscal year
or $1,000,000 in the aggregate over the term of the Contract or that are
otherwise material to the business of the Company and the Company Subsidiaries
taken as a whole and (y) the following Contracts to which the Company or any of
the Company Subsidiaries is a party or by which it is bound (such Contracts
referred to in (x) and (y) collectively, the "Material Contracts"):
(A) Contracts containing covenants of the Company or any
of the Company Subsidiaries not to compete in any line of business
or with any Person in any geographical area or covenants of any
other Person not to compete with the Company or any of the Company
Subsidiaries in any line of business or in any geographical area;
(B) Contracts for the employment of any individual on a
full-time, part-time or consulting or other basis providing
compensation at an annual rate in excess of $100,000;
(C) Contracts for the provision of goods or services
(other than insurance Contracts) involving consideration in excess
of $100,000 annually or $250,000 in the aggregate payable to the
Company or any Company Subsidiary over the term of the Contract; and
(D) investment advisory and similar Contracts that are
not terminable by the Company or any Company Subsidiary without
penalty on fewer than 30 days' notice.
(ii) Except as disclosed in Section 3.1(n)(ii) of the
Disclosure Schedule none of Seller, the Company or any Company Subsidiary has
received written notice of cancellation of any Material Contract (other than an
Agent Contract which is addressed in Section 3.1(r)(iii)).
(iii) With respect to each Material Contract (other than an
Agent Contract which is addressed in Section 3.1(r)(iii)), (A) assuming due
authorization, execution and delivery thereof by the other party or parties
thereto, such Material Contract is in full force
29
and effect and is the legal, valid and binding obligation of (x) the Company and
the Company Subsidiaries that are a party thereto and (y) the other parties
thereto, (B) such Material Contract is enforceable against (x) the Company and
the Company Subsidiaries that are a party thereto and (y) the other parties
thereto, in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) and (C) neither the Company nor any Company
Subsidiary is in default or breach under any Material Contract, nor to the
Knowledge of the Company or Seller, is any other party to any Material Contract
in default or in breach thereunder, except in either case where such default or
breach would not have a Company Material Adverse Effect.
(o) Insurance Regulatory Matters. (i) Seller has made available for
inspection by Buyer (A) each annual statement filed with or submitted to any
Insurance Regulator by each Insurance Subsidiary since December 31, 1999, (B)
any reports of examination (including, without limitation, financial, market
conduct and similar examinations) of each Insurance Subsidiary issued by any
Insurance Regulator since December 31, 1999, (C) all other material holding
company filings or submissions made by each Insurance Subsidiary with any
Insurance Regulator since December 31, 1999 and (D) all material correspondence
between Seller, the Company or any Insurance Subsidiary with any Insurance
Regulator relating to the Company and the Insurance Subsidiaries (including all
correspondence relating to material complaints by policyholders or any Insurance
Regulator) since December 31, 1999. Except as set forth in Section 3.1(o)(i) of
the Disclosure Schedule, all material deficiencies or violations noted in the
examination reports described in clause (B) above have, to the Knowledge of
Seller, been resolved to the satisfaction of the Insurance Regulator that noted
such deficiencies or violations. Each of the Insurance Subsidiaries has filed
all material reports, statements, documents, registrations, filings or
submissions required to be filed with any Insurance Regulator or any other
Governmental Entity since December 31, 1999. Except as set forth in Section
3.1(o)(i) of the Disclosure Schedule, all such reports, statements, documents,
registrations, filings or submissions were in all material respects true,
complete and accurate when filed, and no material deficiencies have been
asserted by any such Insurance Regulator or other Governmental Entity with
respect to such registrations, filings or submissions that have not been
satisfied. As of the date hereof, no Insurance Subsidiary is "commercially
domiciled" under the Laws of any jurisdiction or is otherwise treated as
domiciled in a jurisdiction other than its respective jurisdiction of
organization.
(ii) Except as set forth in Section 3.1(o)(ii) of the
Disclosure Schedule, all policy forms issued by each Insurance Subsidiary, and
all amendments, applications, brochures, illustrations and certificates
pertaining thereto have, where required by applicable Law, been approved by all
applicable Governmental Entities or filed with and not objected to by such
Governmental Entities within the period provided by applicable Law for
objection, except where the failure to so file or obtain such approval would not
have a Company Material Adverse Effect. Any premium rates of any Insurance
Subsidiary which are required to be filed with or approved by any Governmental
Entity have been so filed or approved and the premiums charged conform in all
material respects thereto, except where the failure to so file or obtain such
approval, or to charge conforming premiums, as the case may be, would not have a
Company Material Adverse Effect.
30
(iii) Except as set forth in Section 3.1(o)(iii) of the
Disclosure Schedule, there are no material unpaid claims and assessments against
any Insurance Subsidiary, whether or not due, by any state insurance guaranty
association (in connection with that association's fund relating to insolvent
insurers), joint underwriting association, residual market facility or assigned
risk pool. Except as set forth in Section 3.1(o)(iii) of the Disclosure
Schedule, no such material claim or assessment is pending and no Insurance
Subsidiary has received notice of any such material claim or assessment.
(p) Operations Insurance. (i) Seller has made available to Buyer
true, complete and correct copies of all material insurance policies or binders
of fire, liability, workmen's compensation, motor vehicle, directors' and
officers' liability, property, casualty, life and other forms of insurance
owned, held by or applied for, or the premiums for which are paid by the Company
or any Company Subsidiary as of the date hereof. Except as set forth on Section
3.1(p)(i) of the Disclosure Schedule, all such policies and binders are held by
Seller.
(ii) Except as set forth in Section 3.1(p)(ii) of the
Disclosure Schedule, (A) the Company and each Company Subsidiary is, and since
January 1, 1999 has been, covered on an uninterrupted basis by valid and
effective insurance policies or binders which are in the aggregate reasonable in
scope and amount in light of the risks attendant to the business in which the
Company or any Company Subsidiary is or has been engaged (including
self-insurance), (B) all current policies or binders referenced in (i) above are
in full force and effect as of the date hereof and, no written notice of
cancellation, termination, revocation or limitation that any insurance policy is
no longer in full force or effect or that the issuer of any policy is not
willing or able to perform its obligations thereunder, has been received with
respect to any such policy as of the date hereof and all premiums due and
payable thereon have been paid in full on a timely basis and will continue in
full force and effect through the First Closing, or with respect to FFSB, the
FFSB Closing, (C) there are no material pending or, to the Knowledge of Seller,
threatened claims against such insurance by the Company or any Company
Subsidiary as to which the insurers have denied liability, and (D) to the
Knowledge of Seller, there exist no material claims under such insurance
policies or binders that have not been properly and timely submitted by the
Company or any Company Subsidiary to its insurers.
(q) Reinsurance and Coinsurance. Section 3.1(q) of the Disclosure
Schedule contains a list of all reinsurance or coinsurance treaties or
agreements as of the date hereof, including retrocessional agreements, to which
any Insurance Subsidiary is a party or under which any Insurance Subsidiary has
any existing rights, obligations or liabilities. All such treaties or agreements
as set forth in such Section 3.1(q) of the Disclosure Schedule are in full force
and effect. Except as set forth in Section 3.1(q) of the Disclosure Schedule, no
Insurance Subsidiary, or, to the Knowledge of Seller, any other party to a
reinsurance or coinsurance treaty or agreement to which any Insurance Subsidiary
is a party, is in default in any material respect as to any provision thereof,
and no such agreement contains any provision providing that the other party
thereto may terminate such agreement by reason of the transactions contemplated
by this Agreement, except where such default or termination would not have a
Company Material Adverse Effect.
31
(r) Agents and Brokers. (i) Set forth in Section 3.1(r)(i) of the
Disclosure Schedule is the current form General Agent Agreement used by FLIC and
the current form Agent Agreement developed by FLIC for use between the general
agent and each agent of FLIC.
(ii) Set forth in Schedule 3.1(r)(ii) of the Disclosure
Schedule is a list of the names of the top 25 agents, brokers or distributors of
the Company in terms of sales volume in the twelve months ended December 31,
2003 (collectively, the "Producers"). To the Knowledge of Seller, each of the
Producers listed in Section 3.1(r)(ii) of the Disclosure Schedule is duly
licensed to act as a sales agent, broker or distributor, as applicable, in each
jurisdiction in which it so acts as of the date hereof. Seller has made
available for inspection by Buyer a true and complete copy of all Agent
Contracts between the Company or any Company Subsidiary, on the one hand, and
each of the Producers, on the other hand.
(iii) With respect to each Contract between the Company or a
Company Subsidiary, on the one hand, and a sales agent, broker or distributor of
the Company or Company Subsidiary, on the other hand (each, an "Agent
Contract"), (A) assuming due authorization, execution and delivery thereof by
the other party or parties thereto, such Agent Contract is in full force and
effect and is the legal, valid and binding obligation of (x) the Company and the
Company Subsidiaries that are a party thereto and (y) the other parties thereto,
and (B) such Agent Contract is enforceable against (x) the Company and the
Company Subsidiaries that are a party thereto and (y) the other parties thereto,
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Neither the Company nor any Company Subsidiary is in default under any
Agent Contract, nor to the Knowledge of the Company or Seller, is any other
party to any Agent Contract in default thereunder, except in either case where
such default would not have a Company Material Adverse Effect. Except as set
forth in Section 3.1(r)(iii) of the Disclosure Schedule, as of the date hereof,
no sales agent, broker or distributor of the Company has exercised any
termination rights with respect to any Agent Contract to which it is a party or
given any indication that it may terminate, or fail to renew, any such Agent
Contract.
(s) Insurance Issued by the Insurance Subsidiaries. Except as set
forth in Section 3.1(s) of the Disclosure Schedule, all in-force insurance
issued, underwritten or assured by any Insurance Subsidiary consists of life
insurance marketed in connection with funeral plans or final expense planning.
Except as set forth in Section 3.1(s) of the Disclosure Schedule, all such
insurance has been issued, underwritten or assured pursuant to policy forms that
conform to policy forms approved by applicable Insurance Regulators (to the
extent where required by applicable State laws) and such forms have been made
available to Buyer.
(t) Actuarial Reports. Seller has made available to Buyer a copy of
the actuarial report, dated as of March 31, 2003 prepared by Milliman USA, as
revised by Milliman USA on October 13, 2003, and all attachments, addenda,
supplements and modifications thereto (as revised, the "Milliman Report"). The
information and data furnished by the Company and each of the Insurance
Subsidiaries to Milliman USA in connection with the preparation of the Milliman
Report was accurate in all material respects, and, to the Knowledge of Seller,
the
32
Milliman Report was based upon an accurate inventory of policies in-force for
the Insurance Subsidiaries at the relevant time of preparation.
(u) Ratings. (i) The financial strength or claims-paying ability of
FLIC is rated A (Excellent) or better by A.M. Best Company as of the date hereof
and (ii) as of the date hereof A.M. Best Company has not indicated in writing
that it has under surveillance or review its rating of the financial strength or
claims-paying ability of any Insurance Subsidiary.
(v) Reserves. The reserves for payment of benefits, losses, claims
and expenses under all presently issued insurance policies and other material
Liabilities of each Insurance Subsidiary reflected in, or included with, the
Statutory Statements or the GAAP Financial Statements were determined in
accordance with SAP or GAAP, as applicable, consistently applied throughout the
specified period and the immediately prior period, were based on actuarial
assumptions that were in accordance with or more conservative than those called
in for relevant policy and contract provisions, are fairly stated in accordance
with sound actuarial principles, and are in compliance with the requirements of
applicable Laws. The admitted assets of each Insurance Subsidiary as determined
under applicable Laws are in an amount at least equal to the minimum amounts
required by applicable Laws.
(w) Risk-Based Capital. Seller has made available to Buyer true and
complete copies of all analyses, reports and other data prepared by or on behalf
of any Insurance Subsidiary or submitted by any Insurance Subsidiary to any
insurance regulatory authority relating to risk-based capital ("RBC")
calculations.
(x) Company Investment Assets. (i) Section 3.1(x)(i) of the
Disclosure Schedule lists (a) all Company Investment Assets as of December 31,
2003, with information included therein as to the cost of each such Company
Investment Asset and the market value thereof as of December 31, 2003 and (b)
all Company Investment Assets sold (or otherwise disposed of) or purchased (or
otherwise acquired) between January 1, 2003 and December 31, 2003 with
information included therein as to the sale price or cost of each such Company
Investment Asset. Except as set forth in Section 3.1(x)(i) of the Disclosure
Schedule, the Company or a Company Subsidiary has good and marketable title to
all Company Investment Assets, free and clear of any Liens (other than special
deposits required by Insurance Regulators made in the Ordinary Course of
Business). Except as set forth in Section 3.1(x)(i) of the Disclosure Schedule,
none of the Company Investment Assets is in default in the payment of principal
or interest or dividends or permanently impaired to any extent. The Company
Investment Assets do not include any "margin securities" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System. None of
the Company nor any Insurance Subsidiary is required to be registered under
Regulation U. None of the Company Investment Assets constituted a "purpose
credit" (as defined in Regulation U), nor is any such Company Investment Asset
secured, "directly or indirectly," by any "margin security" within the meaning
of Regulation U.
(ii) Since September 30, 2003, the Company and the Company
Subsidiaries have complied in all material respects with the investment
guidelines set forth in Section 3.1(x)(ii) of the Disclosure Schedule.
33
(y) Bank Accounts; Powers of Attorney; Proxies. Section 3.1(y) of
the Disclosure Schedule sets forth a list of the bank names, locations and
account numbers of all bank and safe deposit box accounts of the Company and
each Company Subsidiary including any custodial accounts for securities owned by
the Company or any Company Subsidiary and the names of all persons authorized to
draw thereon or to have access thereto as of the date hereof. Except as set
forth on Section 3.1(y), no Person holds a power of attorney or proxy to act on
behalf of the Company or any of the Company Subsidiaries.
(z) Bank Regulatory Matters. To the extent permitted by Federal
law, the Company has made available to Buyer copies of all examination reports,
deficiency letters, cease and desist orders, supervisory agreements, memoranda
of understanding or any other similar directives of the OTS and the FDIC
(collectively, the "Banking Regulators") with respect to FFSB that have been
completed and/or issued since January 1, 2000. Since January 1, 2000, no
violations of GLB, HOLA, the Bank Secrecy Act, the Community Reinvestment Act of
1977 or any other law to which FFSB is subject that are material to the
financial condition of FFSB have been asserted in writing by any Banking
Regulator, other than any violation that (i) has been cured or otherwise
resolved to the satisfaction of such Banking Regulator, (ii) is no longer being
pursued by the Banking Regulator following a response by FFSB, or (iii) would
not have a Company Material Adverse Effect.
(aa) Investment Management Regulatory Matters. Seller has made
available to Buyer copies of current Form ADV Parts I and II and all schedules,
and all examination reports, deficiency letters, cease and desist orders or any
other similar correspondence from the SEC and any state securities or Blue Sky
authority, and all correspondence in reply, with respect to the Investment
Adviser Subsidiary that have been completed and/or issued since January 1, 2000.
The Investment Adviser Subsidiary is duly registered and in good standing with
the SEC as an investment adviser, has submitted notice filings where required
under applicable state securities or Blue Sky laws, and has investment advisory
representatives who are duly registered where required under applicable state
securities or Blue Sky laws. To the Knowledge of Seller, none of Seller, the
Investment Adviser Subsidiary or any Person "associated" (as defined under
Section 202(a)(17) of the Investment Advisers Act) with Seller or the Investment
Adviser Subsidiary (i) is subject to disqualification pursuant to Section 203(e)
of the Investment Advisers Act, (ii) is subject to disqualification to serve as
an investment adviser or as an associated Person to an investment adviser, (iii)
is subject to disqualification pursuant to Rule 206(4)-3 under the Investment
Advisers Act, (iv) is the subject of a rebuttable presumption pursuant to Rule
206(4)-4(b) under the Investment Advisers Act, or (v) is subject to any
proceeding that could result in an affirmative response to (i) through (iv)
above.
(bb) Brokers. No broker, investment banker, financial advisor or
other Person, other than ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, Inc., the fees and expenses of
which will be paid by Seller, 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
Seller or the Company.
(cc) Technology and Intellectual Property. (i) Except as disclosed
in Section 3.1(cc) of the Disclosure Schedule and except as would not have a
Company Material Adverse Effect, the Company or a Company Subsidiary owns or
possesses, or has enforceable
34
rights or licenses to use, the patents, trademarks, service marks, trade names,
copyrights (including any registrations or applications to any of the
foregoing), trade secrets, patentable inventions, and computer programs that are
necessary to carry on its business as now conducted (each, an "Intellectual
Property Right"). Neither the Company nor any of the Company Subsidiaries has
received any written notice of any infringement of the rights of others with
respect to any Intellectual Property Right that, if such infringement is
determined to be unlawful, would have a Company Material Adverse Effect.
(ii) To the Knowledge of Seller, no use by the Company or any
of the Company Subsidiaries of any Intellectual Property Right owned by the
Company or any of the Company Subsidiaries infringes any patent, trade name,
service ▇▇▇▇, trade secret, trademark or copyright rights of any third party or
(except for the payment of licensing fees) requires any payment for the use of
any patent, trade name, service ▇▇▇▇, trade secret, trademark or copyright owned
by any third party.
(dd) Title to Assets. The Company and the Company Subsidiaries have
good title to, or valid and subsisting leasehold interests in, all personal
property and other assets on their books and reflected on the balance sheet
included in the GAAP Statements or the SAP Statements or acquired in the
Ordinary Course of Business since September 30, 2003 that would have been
required to be reflected on such balance sheet if acquired on or prior to
September 30, 2003, other than assets that have been disposed of in the Ordinary
Course of Business and those assets the failure of which to have good title to,
or valid and subsisting leasehold interests in, would not have a Company
Material Adverse Effect. None of such personal property and other assets is
subject to any Lien, except for Permitted Liens and those Liens set forth in
Section 3.1(dd) of the Disclosure Schedule. Except as set forth in Section
3.1(dd) of the Disclosure Schedule, such personal property and other assets are
sufficient to allow the Company and the Company Subsidiaries to operate their
respective businesses as currently operated as of the date hereof and as of the
First Closing Date or with respect to FFSB, the FFSB Closing Date, without the
imposition of any restriction or the payment of any material amount to any third
party that was not imposed or required to be paid, respectively, on or by the
Company or any Company Subsidiary prior to the First Closing Date, or with
respect to FFSB, the FFSB Closing Date.
(ee) Real Property. (i) Section 3.1(ee)(i) of the Disclosure
Schedule sets forth a complete list of (A) all real property and interests in
real property owned in fee by the Company or any of the Company Subsidiaries
(the "Owned Properties"), and (B) all real property and interests in real
property leased by the Company or any of the Company Subsidiaries (the "Real
Property Leases" and, together with the Owned Properties, the "Company
Properties"). The Company and the Company Subsidiaries have good and marketable
fee title to all Owned Properties, free and clear of all Liens of any nature
whatsoever except (A) Liens set forth on Section 3.1(ee)(i) of the Disclosure
Schedule and (B) Permitted Liens. The Company Properties constitute all
interests in real property currently used or currently held for use in
connection with the business of the Company and the Company Subsidiaries and
which are necessary for the continued operation of the business of the Company
and the Company Subsidiaries as the business is currently conducted. All of the
Company Properties, buildings, fixtures and improvements thereon owned or leased
by the Company and the Company Subsidiaries are in good operating condition and
repair (subject to normal wear and tear). The Company has made available to
Buyer true, correct and complete copies of (A) all deeds, title
35
reports and surveys for the Owned Properties and (B) the Real Property Leases,
together with all amendments, modifications or supplements, if any, thereto.
(ii) The Company and the Company Subsidiaries have a valid and
enforceable leasehold interest under each of the material Real Property Leases,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and neither the
Company nor any Company Subsidiary has received any notice of any material
default or event that with notice or lapse of time, or both, that would
constitute a material default by the Company or any Company Subsidiary under any
of the Real Property Leases and, to the Knowledge of Seller, no other party is
in material default thereof, and no party to the Real Property Leases has
exercised any termination rights with respect thereto.
(iii) There does not exist any actual or, to the Knowledge of
Seller, threatened or contemplated condemnation or eminent domain proceedings
that affect any Company Property or any part thereof, and none of the Company or
Seller has received any notice, oral or written, of the intention of any
Governmental Body or other Person to take or use all or any part thereof.
(iv) Neither the Company nor any Company Subsidiary has
received any notice from any insurance company that has issued a policy with
respect to any Company Property requiring performance of any structural or other
repairs or alterations to such Company Property.
(v) Neither the Company nor any Company Subsidiary owns or
holds, nor is obligated under or a party to, any option, right of first refusal
or other contractual right to purchase, acquire, sell, assign or dispose of any
real estate or any portion thereof or interest therein.
(vi) Neither Seller, the Company nor any of the Company
Subsidiaries has received written notice of any violation of or potential
liability under any Environmental Law or zoning law applicable to the Premises.
To the Knowledge of Seller, no facts, circumstances, or conditions exist at any
property currently or formerly owned or leased by the Company or any of the
Company Subsidiaries that would result in the Company or any Company Subsidiary
incurring material liabilities under any Environmental Law. Except as set forth
in the reports described in Section 3.1(ee)(vi) of the Disclosure Schedule,
Seller has no Knowledge of Hazardous Materials at, on, under or emanating to or
from the Premises, and to the Knowledge of Seller, neither the Company nor any
Company Subsidiary has received any written notice concerning the presence of
Hazardous Materials on the Premises.
(ff) Labor Matters Representation. (i) None of the Company and the
Company Subsidiaries is a party to any labor or collective bargaining agreement,
and no employees of the Company or any of the Company Subsidiaries are
represented by any labor organization. Within the preceding three years, there
have been no representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the Knowledge of
36
Seller, threatened in writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority.
(ii) There are no strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances or other material labor
disputes pending or threatened in writing against or involving the Company or
any of the Company Subsidiaries.
(iii) There are no complaints, charges or claims against the
Company and the Company Subsidiaries pending or, to the Knowledge of Seller,
threatened to be brought or filed with any governmental authority, arbitrator or
court based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment of any individual by the Company or any
of the Company Subsidiaries.
(iv) The Company and the Company Subsidiaries are in material
compliance with all laws, regulations and orders relating to the employment of
labor, including all such laws, regulations and orders relating to wages, hours,
the Worker Adjustment and Retraining Notification Act ("WARN"), collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax except for immaterial non-compliance.
(v) There has been no "mass layoff" or "plant closing" as
defined by WARN with respect to the Company and the Company Subsidiaries within
the six (6) months prior to the First Closing.
(gg) Related Party Transactions. Section 3.1(gg)(i) of the
Disclosure Schedule lists all Contracts (other than the Transaction Documents)
between the Company or any Company Subsidiary and any of the following Persons:
(i) Seller or any of its Affiliates (other than the Company or any Company
Subsidiary or any Affiliate that is an institutional investor), (ii) any
director, officer or senior executive of Seller, any Subsidiary of Seller, the
Company or any Company Subsidiary, or (iii) any Person (other than an
institutional investor) who is the beneficial owner (determined in accordance
with Rule 13d-3 under the Exchange Act) of five percent or more of the equity
securities of any class of Seller or any of its Affiliates (other than an
institutional investor). Except as set forth in Section 3.1(gg)(ii) of the
Disclosure Schedule, each Contract between the Company or any Company
Subsidiary, on the one hand, and any Person identified in clauses (i) through
(iii) above or any Person in relation to whom any of the Persons identified in
clauses (i) through (iii) is an Affiliate or an immediate family member or
member of the same household, on the other hand, is on terms that are fair and
reasonable to the Company or the Company Subsidiary, as applicable, and are at
least as favorable as the terms that could be obtained by the Company or such
Company Subsidiary, as applicable, in a comparable transaction made on an arm's
length basis with an unaffiliated third party. For purposes of this paragraph,
"control" shall have the meaning ascribed to such term in Rule 12b-2 under the
Exchange Act.
(hh) Pre-Closing Dividend. FLIC has paid the Pre-Closing Dividend to
the Company and the Company has paid the Pre-Closing Dividend to Seller on or
prior to December 31, 2003.
37
SECTION 3.2. Representations and Warranties of Buyer. Buyer
represents and warrants to Seller as follows:
(a) Organization, Standing and Corporate Power. Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Buyer is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified would not have a Buyer
Material Adverse Effect.
(b) Authority.
(i) Buyer has the requisite corporate power and authority to
enter into this Agreement and each of the Transaction Documents to which it is a
party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Buyer of this Agreement and each of the Transaction
Documents to which it is a party and the consummation by Buyer of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Buyer. This Agreement has been, and
each Transaction Document to be delivered by Buyer pursuant to this Agreement
will have been as of the date each such Transaction Document is delivered, duly
executed and delivered by Buyer. Assuming (x) this Agreement constitutes the
valid and binding agreement of Seller, and (y) assuming each Transaction
Document to be delivered by Buyer pursuant to this Agreement is the valid and
binding obligation of the other parties thereto, each Transaction Document to be
delivered by Buyer will constitute as of the date that each such document is
delivered, a valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(ii) Each Subsidiary of Buyer that is party to a Transaction
Document has the requisite corporate power and authority to consummate the
transactions contemplated thereby. The execution and delivery of the Transaction
Documents to be delivered by such Subsidiary pursuant to this Agreement and the
consummation by such Subsidiary of the transactions contemplated thereby have
been, or prior to the First Closing Date will have been, duly authorized by all
necessary corporate action on the part of such Subsidiary. Each Transaction
Document to be delivered by such Subsidiary pursuant to this Agreement will have
been as of the date each such Transaction Document is delivered, duly executed
and delivered by such Subsidiary. Assuming each Transaction Document to be
delivered by such Subsidiary pursuant to this Agreement constitutes the valid
and binding obligation of the other parties thereto, each such Transaction
Document will constitute as of the date that each such document is delivered, a
valid and binding obligation of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other
38
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Capital Structure. The authorized capital stock of Buyer
consists, or will consist immediately prior to the First Closing, of: (A)
1,000,000 shares of common stock ("Buyer Common Shares"), $0.01 par value per
share, and (B) 28,700 shares of preferred stock, par value $0.01 per share, all
of which shares of preferred stock (I) have been designated Buyer Preferred
Stock and (II) are being issued and delivered to Seller pursuant to this
Agreement. The aggregate subscription price to be paid by the initial equity
investors for the Buyer Common Shares to be issued at or immediately prior to
the First Closing (the "Initial Buyer Common Shares") shall be at least
$41,300,000 and, giving pro-forma effect to the transactions contemplated hereby
(including the Securitization Financing), there is no other material amount of
indebtedness for borrowed money of Buyer on a consolidated basis other than the
Securitization Financing debt, the Note and other indebtedness of the Company
and the Company Subsidiaries theretofore incurred. The Initial Buyer Common
Shares will have been duly authorized, and at or immediately prior to the First
Closing, will be validly issued, fully paid and nonassessable. The Buyer
Preferred Shares, when issued and delivered on or prior to the First Closing
Date in accordance with the terms of the Certificate of Designation of Buyer
Preferred Stock, will be duly authorized, validly issued, fully paid and
nonassessable, and will not be subject to preemptive rights. Except as set forth
in the Certificate of Designation of Buyer Preferred Stock, the Warrant or the
Stockholders' and Warrant Holder's Agreement, there are no restrictions upon the
voting or transfer of any Buyer Preferred Shares or Buyer Common Shares pursuant
to Buyer's Articles of Incorporation, By-laws or other organizational documents
or any agreement to which either Buyer or any of its Affiliates is a party.
Assuming Seller has the requisite power and authority to be the lawful owner of
the Buyer Preferred Shares, Seller will acquire all rights in such Buyer
Preferred Shares, free and clear of all Liens other than any Liens arising
solely from acts of Seller and restrictions on transfer imposed by the terms of
the Buyer Preferred Stock or applicable securities laws. Assuming Seller has the
requisite power and authority to be the lawful owner of the Buyer Common Shares
issuable upon exercise of the Warrant, and upon exercise of the Warrant in
accordance with its terms, Seller will acquire all rights in the Buyer Common
Shares, free and clear of all Liens other than Liens arising solely from acts of
Seller and restrictions on transfer imposed by the terms of the Stockholders'
and Warrant Holder's Agreement or applicable securities laws. Except for the
Warrant, or the Stockholders' and Warrant Holder's Agreement, or subscription
agreements or similar agreements for the purchase of the Buyer Common Shares in
connection with the transactions contemplated by this Agreement, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal) or proxy or stockholder agreements of any kind for
the purchase or acquisition from Buyer of any of its equity securities (other
than equity compensation arrangements for employees).
(d) Subsidiaries. As of the First Closing Date, all of the
outstanding shares of capital stock of each of LifeCo and outstanding membership
interests of FLAC Holdings, LLC will have been duly authorized and validly
issued and are fully paid and nonassessable. As of the First Closing Date,
LifeCo will be owned of record beneficially and directly by Buyer and FLAC
Holdings, LLC will be owned of record and beneficially by LifeCo, in each case,
free and clear of all Liens, other than Liens contemplated by the Note and, in
the case of FLAC Holdings, LLC, Liens relating to the Securitization Financing.
As of the First Closing Date, there will not
39
be any securities, options, warrants, rights, commitments or agreements of any
kind to which Buyer or any of its Subsidiaries is a party or by which any of
them is bound obligating any of them to issue, sell or deliver shares of capital
stock or other equity securities of any of LifeCo or FLAC Holdings, LLC.
(e) Noncontravention; Consents. (i) Except as disclosed in Section
3.2(e)(i) of the Disclosure Schedule, the execution and delivery of this
Agreement by Buyer and of the Transaction Documents by Buyer and/or any of its
Subsidiaries that are parties thereto do not, and the consummation of the
transactions contemplated by this Agreement and such Transaction Documents will
not (A) conflict with any of the provisions of the Articles of Incorporation or
By-laws of Buyer or any of its Subsidiaries (B) conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of any benefit under, or give rise to any obligation
of Buyer or any of its Subsidiaries to make any payment under, or to the
increased, additional, accelerated or guaranteed rights or entitlements of any
Person under, or result in the creation of any Liens upon any of the properties
or assets of Buyer or any of its Subsidiaries under any Contract or Permit under
which Buyer or any of its Subsidiaries is a party or by which any of their
respective assets or properties owned or used are bound, that would,
individually or in the aggregate, have a Buyer Material Adverse Effect or a
material adverse effect on the ability of Buyer or any of its Subsidiaries to
consummate any of the transactions contemplated by this Agreement or the
Transaction Documents or (C) violate or give rise to the loss of a right or
benefit, or create any obligation or liability under any Laws applicable to
Buyer or any of its Subsidiaries, that would, individually or in the aggregate,
have a Buyer Material Adverse Effect or a material adverse effect on the ability
of Buyer or any of its Subsidiaries to consummate any of the transactions
contemplated by this Agreement or the Transaction Documents.
(ii) No consent, approval or authorization of, or declaration
or filing with, or notice to, any Governmental Entity is required by or with
respect to Buyer or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by Buyer or the Transaction Documents by Buyer and/or
any of its Subsidiaries that are parties thereto or the consummation by Buyer or
any of its Subsidiaries of the transactions contemplated hereby or thereby,
except for (A) the filing of premerger notification and report forms under the
HSR Act, (B) the approvals, filings and notices required under the insurance
laws of the jurisdictions in which Buyer (or any of its Affiliates or
subsidiaries) or the Company and its Subsidiaries transact the business of
insurance, (C) consents and approvals or non-disapprovals of, and filings or
applications with, or notices to the Banking Regulators, (D) consents, filings
or notices under the Investment Advisers Act, (E) such other consents,
approvals, authorizations, declarations, filings or notices as are set forth in
Section 3.2(e)(ii) of the Disclosure Schedule, and (F) such other consents,
approvals, authorizations, declarations, filings or notices the failure to
obtain or make any or all of which would not have a Buyer Material Adverse
Effect or a material adverse effect on the ability of Buyer or any of its
Subsidiaries to consummate any of the transactions contemplated by this
Agreement and the Transaction Documents.
(f) Purchase for Investment. Buyer has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its (or its Subsidiaries) purchase of the FLAC Shares,
the FLIC Shares and the Company Shares and the
40
other transactions contemplated hereby and is capable of bearing the economic
risks thereof. Buyer is acquiring the Company Shares (and any designee of Buyer
that acquires the FLIC Shares or the FLAC Shares pursuant to this Agreement will
acquire such shares) for its own account, for investment only and with no
present intention of resale or other distribution thereof. Buyer will not
transfer or otherwise dispose of the Company Shares (and any designee of Buyer
that acquires the FLIC Shares or the FLAC Shares will not transfer or otherwise
dispose of such shares), except in compliance with the registration requirements
of the Securities Act and any applicable state securities laws, or pursuant to
an available exemption therefrom.
(g) Litigation. There is no Legal Proceeding pending or, to the
Knowledge of Buyer, threatened in writing against or affecting Buyer or any
Affiliate of Buyer that, if adversely determined, would have (i) a material
adverse effect on the validity or enforceability of this Agreement or any
Transaction Document, (ii) a material adverse effect on the ability of Buyer or
any of its Affiliates to consummate any of the transactions contemplated by this
Agreement or the Transaction Documents or (iii) a Material Adverse Effect on
Buyer and its Subsidiaries. Neither Buyer nor any of its Affiliates nor, to the
Knowledge of Buyer, any officer, director or employee of Buyer or any of its
Affiliates has been permanently or temporarily enjoined or barred by any order,
judgment or decree of any Governmental Entity or arbitrator from engaging in or
continuing any conduct or practice in connection with the business conducted by
the Company or any Company Subsidiary that would have (i) a material adverse
effect on the validity or enforceability of this Agreement or any Transaction
Document, (ii) a material adverse effect on the ability of Buyer or any of its
Affiliates to consummate any of the transactions contemplated by this Agreement
or any Transaction Document or (iii) a Material Adverse Effect on Buyer and its
Subsidiaries.
(h) Requirements of GLB and HOLA. As of the FFSB Closing, Buyer
qualifies as an entity permitted to acquire a federal thrift or federal thrift
holding company (including for these purposes FFSB) under the conditions set
forth in Section 401(a) of the GLB and Section 10(c)9(A) of the HOLA or has
received written approval, notice, waiver or consent from the applicable Banking
Regulators waiving or consenting to Buyer's non-compliance with the requirements
of GLB and HOLA for purposes of this Agreement and the transactions contemplated
by this Agreement and the Transaction Documents, a true and complete copy of
which has been provided to Seller.
(i) Brokers. No broker, investment banker, financial advisor or
other Person, other than ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co., the fees and expenses of which
will be paid by Buyer, 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
Buyer or any Affiliate.
(j) Financing. Subject only to the satisfaction of the condition set
forth in Section 6.2(e), on or prior to the First Closing Date, Buyer will have
received and have on hand not less than $41,300,000 in cash proceeds from common
stock equity investors and have sufficient funds to consummate the transactions
contemplated by this Agreement and the Transaction Documents.
41
ARTICLE IV
COVENANTS
SECTION 4.1. Conduct of Business of the Company. Except as
contemplated or permitted by this Agreement or as may be required by Law, from
the date of this Agreement to the First Closing Date, or with respect to FFSB,
the FFSB Closing Date, Seller shall cause the Company and the Company
Subsidiaries to carry on their respective businesses in the Ordinary Course of
Business and, to the extent consistent therewith, use commercially reasonable
efforts to preserve intact their current business organizations and their
material relationships with employees, agents, customers, insureds and others
having material business dealings with them. Without limiting the generality of
the foregoing, from the date of this Agreement to the First Closing Date, or
with respect to FFSB, the FFSB Closing Date, except as contemplated or permitted
by this Agreement, as set forth on Section 4.1 of the Disclosure Schedule or as
may be required by Law, Seller shall not permit the Company or any Company
Subsidiary (as applicable) to, without the prior written consent of Buyer:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
its outstanding capital stock; (ii) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock; or (iii) purchase, redeem or otherwise acquire any
shares of its outstanding capital stock or any rights, warrants or options to
acquire any such shares;
(b) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(c) amend its articles of incorporation or by-laws or other
comparable organizational documents;
(d) acquire any corporation, partnership, joint venture, association
or other business organization or division thereof, or substantially all of the
assets of any of the foregoing;
(e) (i) except in the Ordinary Course of Business, incur any
indebtedness for borrowed money or guarantee or otherwise become responsible for
any such indebtedness of another Person; (ii) make any loans, advances or
capital contributions to, or investments in, any other Person, other than (A)
loans, advances or capital contributions to, or investments in the Company or
any of the Company Subsidiaries, (B) an inter-company loan or loans by FLIC to
Seller in the principal amount not to exceed $75,000,000 in the aggregate
(which, if made, will be repaid in full prior to the First Closing) and (C)
loans and advances to customers and agents, and to its officers and employees
for travel and general business expenses, each in the Ordinary Course of
Business; or (iii) make any commitments to any investment fund, collective
investment vehicle or other investment arrangement or acquire Company Investment
Assets, except as permitted under the investment guidelines set forth in Section
3.1(x)(ii) of the Disclosure Schedule;
42
(f) make any change in accounting methods, principles or practices
used by the Company or any Company Subsidiary affecting its assets or
liabilities, except insofar as may be required by Law or required by a change in
GAAP or SAP, as applicable;
(g) make any capital expenditures in excess of $1,000,000 in the
aggregate;
(h) make any material Tax election or settle or compromise any
material income Tax liability that is not consistent with the Company's and/or
any relevant Company Subsidiary's ordinary and usual past business practice;
(i) adopt or amend any Employee Benefit Plan (or any plan that would
be an Employee Benefit Plan if adopted) or enter into, adopt, extend, renew or
amend any collective bargaining agreement or Employee Arrangement;
(j) grant to any officer or employee any increase in compensation or
benefits, other than increases in annual compensation levels made in the
Ordinary Course of Business or as may be required under existing agreements;
(k) cancel any indebtedness for borrowed money owed to the Company
or any Company Subsidiary in excess of $100,000 in the aggregate, or waive any
material claims or rights;
(l) sell, lease, license or otherwise dispose of any material assets
(other than investments), except in the Ordinary Course of Business;
(m) enter into or amend any Contract, except in the Ordinary Course
of Business;
(n) settle any claim, action or proceeding (other than any claim
under an insurance contract) for an amount in excess of $250,000; or
(o) agree or commit to take any of the foregoing actions.
SECTION 4.2. Access to Information; Confidentiality. (a) From the
date of this Agreement through the First Closing Date, Seller shall cause the
Company and the Company Subsidiaries (i) to afford to Buyer and its
Representatives reasonable access upon reasonable notice at reasonable times
during normal business hours to all of its properties, books, contracts,
commitments and records and, (ii) to furnish to Buyer such information
concerning its business, properties, financial condition, operations and
personnel as Buyer may from time to time reasonably request, other than any such
properties, books, contracts, commitments, records and information that (a) are
subject to an attorney-client or other legal privilege or (b) are subject to an
obligation of confidentiality; provided, however, that Buyer's investigation
shall be conducted in a manner that does not interfere in any material respect
with the Company's or the Company Subsidiaries' normal operations, customers and
employee relations. In the event that the FFSB Shares are not transferred to
Buyer at the First Closing, from the First Closing Date through the FFSB Closing
Date, Seller shall cause FFSB, to the extent permitted by applicable Law, (i) to
afford to Buyer and its Representatives reasonable access upon reasonable notice
at reasonable times during normal business hours to all of its properties,
books, contracts, commitments and
43
records and, (ii) to furnish to Buyer such information concerning FFSB's
business, properties, financial condition, operations and personnel as Buyer may
from time to time reasonably request, other than any such properties, books,
contracts, commitments, records and information that (a) are subject to an
attorney-client or other legal privilege or (b) are subject to an obligation of
confidentiality; provided, however, that Buyer's investigation shall be
conducted in a manner that does not interfere in any material respect with
FFSB's normal operations, customers and employee relations. All requests for
access or information pursuant to this Section 4.2 shall be directed to such
Person or Persons as Seller shall designate. Without limiting the terms thereof,
the Confidentiality Agreement shall govern the obligations of Buyer and its
Representatives with respect to all information of any type furnished or made
available to them pursuant to this Section 4.2.
(b) The Confidentiality Agreement shall terminate as of the First
Closing. From and after the First Closing, Seller and its Affiliates (which, for
the avoidance of doubt, does not include the Company and the Company
Subsidiaries, except for FFSB until the FFSB Closing) on the one hand, and Buyer
and its Affiliates (including the Company and the Company Subsidiaries, except
for FFSB until the FFSB Closing), on the other hand, shall, and shall cause
their respective Representatives to, maintain in confidence, any written, oral
or other information relating to the other party or its Affiliates, except that
the foregoing requirements of this Section 4.2(b) shall not apply to the extent
that (i) any such information is or becomes generally available to the public
other than (A) in the case of Buyer, as a result of disclosure by Seller, its
Affiliates or any of its respective Representatives and (B) in the case of
Seller, as a result of disclosure by Buyer, the Company or any Company
Subsidiary or any of their respective Affiliates, or any of their respective
Representatives, (ii) any such information is required by applicable Law to be
disclosed after prior notice has been given to Seller or Buyer, as the case may
be or (iii) any such information was or becomes available to such party on a
non-confidential basis and from a source (other than a party to this Agreement
or any Affiliate or Representative of such party) that is not bound by a
confidentiality agreement.
(c) Notwithstanding anything to the contrary set forth herein or in
any other agreement to which the parties hereto are parties or by which they are
bound, the obligations of confidentiality contained herein and therein, as they
relate to the transactions contemplated by this Agreement, shall not apply to
the Tax structure or Tax treatment of such transaction, and each party hereto
(and any employee, representative, or agent of any party hereto) may disclose to
any and all persons, without limitation of any kind, the Tax structure and Tax
treatment of such transaction and all materials of any kind (including opinions
or other tax analysis) that are provided to such party relating to such Tax
treatment and Tax structure; provided, however, that such disclosure may not be
made until the earlier of (x) the date of the public announcement of discussions
relating to any of the transactions contemplated by this Agreement, (y) the date
of the public announcement of any of the transactions contemplated by this
Agreement and (z) the date of the execution of an agreement (with or without
conditions) to enter into any of the transactions contemplated by this
Agreement; provided further, that such disclosure shall not include the name (or
other identifying information not relevant to the Tax structure or Tax
treatment) of any person and shall not include information for which
nondisclosure is reasonably necessary in order to comply with applicable
securities laws. The preceding sentence is intended to cause the transactions
contemplated by this Agreement to not be treated as having been offered under
conditions of confidentiality for purposes of Section 6011 and 6111 of the Code
44
(or any successor provision) and the Treasury Regulations promulgated
thereunder, and shall be construed in a manner consistent with such purpose. In
addition, each party hereto acknowledges that it has no proprietary or exclusive
rights to the Tax structure of the transactions contemplated by this Agreement
or any Tax matter or Tax idea related to the transactions contemplated by this
Agreement.
SECTION 4.3. Consents, Approvals and Filings. (a) Each of Seller and
Buyer will each use its commercially reasonable efforts, 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 (x) necessary
Permits of Governmental Entities ("Governmental Consents") and (y) consents or
waivers of all third parties necessary in connection with the consummation of
the transactions contemplated by this Agreement, including, without limitation,
consents with respect to the agreements and other arrangements set forth on
Exhibits ▇-▇, ▇-▇ and C of the Disclosure Schedule (and, with respect to any
agreements or other arrangements set forth on Exhibit C of the Disclosure
Schedule for which consents cannot be obtained, each of Buyer and Seller will
use its commercially reasonable efforts, and will cooperate fully with each
other, to obtain appropriate substitution arrangements therefor prior to the
First Closing Date). In connection therewith, Seller and Buyer will use their
commercially reasonable efforts to make and cause their respective Affiliates to
make all legally required filings as promptly as is reasonably practicable in
order to facilitate prompt consummation of the transactions contemplated by this
Agreement, and will provide and will cause their respective Affiliates to
provide such information and communications to Governmental Entities as such
Governmental Entities may reasonably request. Each of the parties shall provide
to the other party copies of all applications or other communications to
Governmental Entities in connection with this Agreement in advance of the filing
or submission thereof.
(b) Without limiting the generality of Section 4.3(a), as promptly
as reasonably practicable, Buyer shall file with all applicable Insurance
Regulators requests for approval of the transactions contemplated by this
Agreement, including Form A filings, which requests shall include all required
exhibits. A reasonable time prior to furnishing any written materials or
presentations to any Insurance Regulator in connection with the transactions
contemplated by this Agreement, Buyer shall furnish Seller with a copy thereof,
and Seller shall have a reasonable opportunity to provide comments thereon.
Buyer shall give to Seller prompt written notice if it receives any notice or
other communication from any Insurance Regulator in connection with the
transactions contemplated by this Agreement, and, in the case of any such notice
or communication that is in writing, shall promptly furnish Seller with a copy
thereof. If any Insurance Regulator requires that a hearing be held in
connection with such approval, Buyer shall use its commercially reasonable
efforts to arrange for such hearing to be held as promptly as is reasonably
practicable after the notice that such hearing is required has been received by
Buyer. Buyer shall give to Seller reasonable prior written notice of the time
and place when any meetings or other conferences may be held by it with any
Insurance Regulator in connection with the transactions contemplated by this
Agreement, and Seller shall have the right to have one representative, the
identity of whom shall be subject to Buyer's consent (such consent not to be
unreasonably withheld or delayed), attend or otherwise participate in any such
meeting or conference.
45
(c) Without limiting the generality of Section 4.3(a), as promptly
as reasonably practicable after the date hereof, Buyer shall file such
regulatory applications or notices as are necessary to secure from the Banking
Regulators all such approvals, waivers, non-disapprovals or automatic
expirations of statutory waiting periods as may be required to consummate the
transactions contemplated by this Agreement in compliance with all applicable
Laws. A reasonable time prior to furnishing any written materials to any Banking
Regulator in connection with the transactions contemplated by this Agreement,
Buyer shall furnish Seller with a copy thereof, and Seller shall have a
reasonable opportunity to provide comments thereon. Buyer shall give to Seller
prompt written notice if it receives any notice or other communication from any
Banking Regulator in connection with the transactions contemplated by this
Agreement, and, in the case of any such notice or communication that is in
writing, shall promptly furnish Seller with a copy thereof. Buyer shall give to
Seller reasonable prior written notice of the time and place when any meetings
or other conferences may be held by it with any Banking Regulator in connection
with the transactions contemplated by this Agreement, and Seller shall have the
right to have one representative, the identity of whom shall be subject to
Buyer's consent (such consent not to be unreasonably withheld or delayed),
attend any such meeting or conference.
(d) Without limiting the generality of Section 4.3(a), Seller shall
use commercially reasonable efforts to obtain prior to the First Closing, from
each Person that is a party to an investment advisory agreement with the
Investment Adviser Subsidiary, consent to the continuation of such investment
advisory agreement following consummation of the transactions contemplated by
this Agreement.
SECTION 4.4. Public Announcements. Subject to the provisions of
Article X, Buyer and Seller, and their respective Affiliates, will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statement with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement without the advance written approval
of the other party following such consultation (such approval not to be
unreasonably withheld or delayed), except as may, in the opinion of counsel to
Seller, be required by Law or by the requirements of the SEC or any securities
exchange and except for statements to analysts, investors or prospective
investors that are not prohibited by Regulation FD under the Exchange Act. No
reference to the terms of the Securitization Financing or to XL Capital
Assurance Inc. will be made in any such news release or other public statement
without the prior approval of XL Capital Assurance Inc.
SECTION 4.5. Intercompany Agreements and Accounts. Except as set
forth in Section 4.5 of the Disclosure Schedule, all intercompany agreements and
accounts between or among either Seller or any Affiliate thereof (other than the
Company or any Company Subsidiary), on the one hand, and the Company or any
Company Subsidiary, on the other hand, will be terminated and cancelled without
payment prior to the First Closing, or with respect to FFSB, the FFSB Closing.
All intercompany agreements and accounts between or among the Company and any
Company Subsidiary in existence and in force as of the date hereof will remain
in effect and be in force on the First Closing Date. In the event that the FFSB
Shares are not transferred to Buyer at the First Closing, all agreements between
the Company or any Company Subsidiary (excluding FFSB), on the one hand, and
FFSB, on the other hand, in
46
existence and in force as of the date hereof will remain in effect and be in
force on the First Closing Date and the FFSB Closing Date.
SECTION 4.6. Transaction Documents. At the First Closing, Buyer and
Seller shall, and shall cause their respective Affiliates (as appropriate) to,
execute and deliver to the other parties (as applicable) the Transaction
Documents. The Transaction Documents shall be in effect and in force immediately
after the First Closing and shall supersede all other rights and obligations
under the terminated intercompany agreements and accounts described in Section
4.5 of this Agreement.
SECTION 4.7. Use of Names. (a) Following the First Closing, neither
Buyer nor any Subsidiary or Affiliate thereof (including the Company and any
Company Subsidiary) shall have any right to use, and they shall not use any of
the names or acronyms (including trademark(s)) set forth on Section 4.7(a) of
the Disclosure Schedule (the "Retained Names"), or any name that includes or is
confusingly similar to any of the foregoing, as a trademark or a servicemark in
any corporate name, trade name with respect to any product or otherwise in any
jurisdiction, except as set forth in the TCP Agreement. In furtherance of the
above, on or prior to the First Closing Date, Seller shall cause the Company and
the Company's Subsidiaries (i) to make all filings and take all such other
action as is necessary to wind down and cease the use of any of the foregoing
names or any derivation thereof in any manner whatsoever, and (ii) to transfer
and assign all rights that any of them may have in any of the foregoing names to
Seller or as Seller may direct.
(b) Seller will use its commercially reasonable efforts to wind down
and cease its use, and will cause all Affiliates of Seller to cease their use,
of the trade names, trademarks and service marks that are listed in Section
4.7(b) of the Disclosure Schedule (the "Names"), which use shall cease within
six months after the First Closing (other than inadvertently); provided,
however, that Seller and any Affiliates of Seller may continue to use the Names,
without payment therefor: (i) in the performance of their obligations under the
Transition Services Agreements, the TCP Agreement or the FFSB Agreement; (ii) in
filings or reports made or filings submitted to government or regulatory
authorities in Tax Returns, in litigation and claims and in similar corporate
purposes involving the business of the Company and the Company's Subsidiaries or
as otherwise necessary to refer to or identify the business as operated before
the Names were changed pursuant hereto; (iii) in editorial, non-trademark usages
or descriptive uses of the Names (or parts thereof); and (iv) for a period of
one year from the First Closing, or if applicable, the FFSB Closing or for such
additional period as Buyer may agree, such agreement not to be unreasonably
withheld or delayed, to the extent that the Names remain on existing documents,
papers, policies, inventory, reports, agreements and similar items.
(c) For the avoidance of doubt, Buyer agrees that it is acquiring
only the Names set forth in Section 4.7(b) of the Disclosure Schedule and shall
have no rights to use any names or acronyms (including trademarks, service marks
or trade names) owned or used by Seller and its Subsidiaries except as set forth
in this Agreement or the Transaction Documents.
SECTION 4.8. Access to Books and Records; Cooperation. Following the
First Closing, each of Seller and Buyer shall (and Buyer shall cause the Company
and the Company Subsidiaries to) preserve and keep the records held by them
relating to the respective businesses
47
of the Company and the Company Subsidiaries for a period of six (6) years from
the First Closing Date or, with respect to FFSB, the FFSB Closing Date, and
shall make such records and personnel available to the other as may be
reasonably required by such party in connection with, among other things, any
insurance claims by, legal proceedings by or against or governmental
investigations of Seller, Buyer, the Company, the Company Subsidiaries or any of
their respective Affiliates or in order to enable Seller or Buyer to comply with
their respective obligations under this Agreement and each other agreement,
document or instrument contemplated hereby. In the event that Seller or Buyer
wishes to destroy (or permit to be destroyed) such records after that time, such
party shall first give ninety (90) days prior written notice to the other and
such other party shall have the right at its option and expense, upon prior
written notice given to such party within that ninety (90) day period, to take
possession of the records within one hundred and eighty (180) days after the
date of such notice. Notwithstanding the foregoing, this Section 4.8 shall not
apply to the Tax Returns and other materials covered by Article X.
SECTION 4.9. Noncompetition. (a) Except as otherwise contemplated by
this Agreement, for a period of five years following the First Closing Date (the
"Designated Period"), Seller shall not, and shall cause its Affiliates, not to,
directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control (or derive, receive or participate,
directly or indirectly, in the profits or other material economic benefits) of
any business, whether in corporate, proprietorship or partnership form or
otherwise (including joint ventures, co-marketing arrangements, alliances and
other similar relationships), engaged in issuing, selling or marketing
"pre-need" insurance, annuity or trust products or other final expense planning
products (a "Seller Restricted Business"); provided, however, that the
restrictions contained in this Section 4.9(a) shall not restrict Seller from
performing its obligations under the FFSB Agreement or the TCP Agreement or any
other activities relating to insurance policies issued under the TCP Program of
Seller prior to the First Closing Date and shall not restrict the acquisition by
Seller or any of its Affiliates, directly or indirectly, of less than five
percent of the outstanding capital stock of any publicly traded company engaged
in a Seller Restricted Business. The parties hereto specifically acknowledge and
agree that the remedy at law for any breach of the foregoing will be inadequate
and that Buyer, in addition to any other relief available to it, shall be
entitled to temporary and permanent injunctive relief without the necessity of
proving actual damage or posting any bond whatsoever.
(b) For a period of two years following the First Closing Date,
Seller shall not, and shall cause its Subsidiaries not to, (i) hire any person
who has entered into an employment agreement or management contract with Buyer
on or prior to the Closing Date; or (ii) solicit for employment any person in
the employ of the Company or any Company Subsidiary; provided, however, the
above clause will not prohibit (x) any general solicitation of employment not
specifically directed toward employees of the Company or any Company Subsidiary
or (y) any employee terminated by Buyer or any of its Affiliates.
(c) Except as otherwise contemplated by this Agreement, during the
Designated Period, Buyer shall not, and shall cause its Affiliates, not to,
directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control (or derive, receive or participate,
directly or indirectly, in the profits or other material economic benefits) of
any business, whether in corporate, proprietorship or partnership form or
otherwise
48
(including joint ventures, co-marketing arrangements, alliances and other
similar relationships), engaged in manufacturing, designing, marketing or
selling funeral caskets, cremation containers and urns and similar vessels or
containers, and software products and consulting services related to "at need"
funeral ceremonial services or grief counseling (a "Buyer Restricted Business");
provided, however, that the restrictions contained in this Section 4.9(c) shall
not restrict Buyer from performing its obligations under the TCP Agreement and
shall not restrict the acquisition by Buyer or any of its Affiliates, directly
or indirectly, of less than five percent of the outstanding capital stock of any
publicly traded company engaged in a Buyer Restricted Business. The parties
hereto specifically acknowledge and agree that the remedy at law for any breach
of the foregoing will be inadequate and that Seller, in addition to any other
relief available to it, shall be entitled to temporary and permanent injunctive
relief without the necessity of proving actual damage or posting any bond
whatsoever.
(d) For a period of two years following the First Closing Date,
Buyer shall not, and shall cause its Affiliates not to, solicit for employment
any employee of Seller or any of its Subsidiaries earning a base salary of more
than $50,000 per year as of the First Closing Date; provided, however, the above
clause will not prohibit (x) any general solicitation of employment not
specifically directed toward employees of Seller or any of its Subsidiaries or
(y) any employee terminated by Seller or any of its Subsidiaries.
(e) During the Designated Period, Buyer shall not and shall cause
its Affiliates not to, cause, induce or encourage any material actual or
prospective client, customer, supplier, or licensor of Seller or any of its
Subsidiaries (including any existing or former customer Seller or any of its
Subsidiaries and any Person that becomes a client or customer of Seller or any
of its Subsidiaries after the First Closing) or any other Person who has a
material business relationship with Seller or any of its Subsidiaries, to
terminate or modify any such actual or prospective relationship.
(f) Seller and its Affiliates shall not, and shall cause each of
their respective directors, officers, employees, representatives or agents not
to, directly or indirectly, (i) discuss, negotiate, undertake, authorize,
recommend, propose or enter into, any transaction involving a merger,
consolidation, business combination, purchase or disposition of the assets or
capital stock of the Company or any of the Company Subsidiaries other than the
transactions contemplated by this Agreement (an "Acquisition Transaction"), (ii)
facilitate, encourage, solicit or initiate discussions, negotiations or
submissions of proposals or offers in respect of an Acquisition Transaction,
(iii) furnish or cause to be furnished, to any Person, any information
concerning the business, operations, properties or assets of the Company or any
Company Subsidiary in connection with an Acquisition Transaction, or (iv)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. Seller will inform Buyer in writing immediately following the receipt
by Seller or any of its Affiliates, or any of their respective directors,
officers, employees, representatives and agents of any proposal or inquiry in
respect of any Acquisition Transaction.
(g) Notwithstanding the foregoing, Buyer or Seller, as the case may
be, may participate in any co-marketing arrangement similar to the TCP Program
with a third party
49
(regardless of form) that would otherwise constitute a Buyer Restricted Business
or Seller Restricted Business, as the case may be, if the following conditions
are satisfied:
(A) prior to seeking to enter into such arrangement with
a third party, the party proposing such arrangement ("Offeror")
first proposes to enter into such arrangement with the other party
hereto ("Offeree");
(B) after a period of 30 days (during which the parties
shall have good faith discussions and negotiations concerning such
proposal), the parties fail to agree on mutually satisfactory terms
and conditions on which they would agree to engage in such activity;
(C) after the expiration of such 30 day period, Offeror
proposes the material economic terms of the proposed arrangement in
reasonable detail in writing (the "Definitive Proposal") to the
Offeree and the Offeree fails to accept the terms thereof within 10
days after receipt of the Definitive Proposal (the "Offer Expiration
Date"); and
(D) the Offeror enters into a definitive agreement with
a third party on terms that are no more favorable to the third party
than those offered to the Offeree in the Definitive Proposal within
90 days after the Offer Expiration Date.
SECTION 4.10. Company Investment Assets. From the date of this
Agreement until the First Closing Date, Seller shall cause the Company and the
Company Subsidiaries to comply with the investment guidelines set forth in
Section 3.1(x)(ii) of the Disclosure Schedule. To the extent permitted by
applicable Law, from the date of this Agreement to the First Closing Date,
Seller shall cause the Company and the Company Subsidiaries to provide ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ with reasonable advance notice of, and the right to attend as an
observer, any meetings of any investment management committee of the Company or
any Company Subsidiary.
SECTION 4.11. Excluded Assets; Dividend of FFSB Shares; Loan
Repayment. (a) Prior to the First Closing, Seller will purchase from the Company
and the Company Subsidiaries, without any representation or warranty from, or
recourse to, the Company or any Company Subsidiary, all of the Company's and the
Company Subsidiaries' right, title and interest in and to each of the assets set
forth in Section 4.11 of the Disclosure Schedule (collectively, the "Excluded
Assets") for an aggregate purchase price equal to the book value of the Excluded
Assets (or such other purchase price required by the applicable Insurance
Regulator) as of the date of the purchase in cash to be paid prior to the First
Closing.
(b) Seller will, prior to the First Closing, assume all Liabilities
of the Company and of the Company Subsidiaries (including, for the avoidance of
doubt, unfunded commitments of the Company or any Company Subsidiary) related to
the Excluded Assets and shall, at Buyer's request, obtain a release of the
Company and the Company Subsidiaries with respect to any commitment or other
Liability from the obligee thereof.
50
(c) In the event that the FFSB Shares will not be transferred to
Buyer at the First Closing, Seller shall cause the Company to instead declare
and pay a dividend-in-kind to Seller of all of the FFSB Shares on or prior to
the First Closing.
(d) Seller will, prior to the First Closing, repay to FLIC in full
all indebtedness owed by Seller or any of its Affiliates (other than the Company
or any Company Subsidiary) to FLIC, if any (whether or not yet due). For the
avoidance of doubt, this Section 4.11(d) shall not apply to the loans identified
in Section 4.13 or any other indebtedness owed to FLIC by the partnerships and
limited liability companies relating to the Excluded Assets.
SECTION 4.12. Financing. Buyer shall obtain not less than
$41,300,000 in cash from the issuance of its common stock prior to the First
Closing. Buyer shall use its commercially reasonable efforts to obtain and
deliver the proceeds of the Securitization Financing at the First Closing. In
order to assist with obtaining the Securitization Financing, Seller shall, and
shall cause the Company and the Company Subsidiaries to, provide such assistance
and cooperation as Buyer and its Affiliates may reasonably request, including
causing the relevant Insurance Subsidiaries to enter into the Reinsurance
Agreements effective upon the First Closing.
SECTION 4.13. Pre-payment of Loans. Following the First Closing,
Buyer shall, and shall cause the Company and the Company Subsidiaries to take
all actions reasonably requested by Seller to permit Seller or its Affiliates
(including, without limitation, Cornerstone Partners I, LLC, San Francisco Hotel
Group, LLC and Cambridge Hotel, LLC) to pre-pay or refinance the loans evidenced
by the secured promissory note in the principal amount of $22,750,000, dated as
of June 8, 2001, by Cornerstone Partners I, LLC in favor of Massachusetts Mutual
Life Insurance Company and the promissory note in the principal amount of
$39,650,000, dated as of May 18, 2003, by Cornerstone Partners II, LLC in favor
of FLIC without paying any pre-payment penalties to Buyer or its Affiliates,
notwithstanding any pre-payment restrictions or penalty provisions under such
loans.
SECTION 4.14. Qualification to purchase FFSB Shares. Buyer shall use
its commercially reasonable efforts to qualify as an entity permitted to acquire
a federal thrift or federal thrift holding company (including for these purposes
FFSB) under the conditions set forth in Section 401(a) of the GLB and Section
10(c)9(A) of the HOLA.
SECTION 4.15. Commercially Reasonable Efforts. Upon the terms and
subject to the conditions and other agreements set forth in this Agreement, each
of the parties to this Agreement agrees to use its commercially reasonable
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 4.16. Further Assurances. Seller and Buyer agree, and
Seller, prior to the First Closing, or with respect to FFSB, the FFSB Closing,
and Buyer, after the First Closing, or with respect to FFSB, the FFSB Closing,
agree to cause the Company and each Company Subsidiary, to execute and deliver
such other documents, certificates, agreements and other
51
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
SECTION 4.17. Buyer Pre-Closing Transactions. Buyer agrees that all
of the Buyer Pre-Closing Transactions shall be completed and closed in
accordance with the descriptions set forth on Annex C.
SECTION 4.18. Seller Pre-Closing Transactions. Seller agrees that
all of the Seller Pre-Closing Transactions shall be completed in accordance with
the descriptions set forth on Annex B.
SECTION 4.19. Sections 72 and 7702 Qualification. As promptly as
practicable after the date hereof, Seller shall, at its own expense, to the
satisfaction of Buyer, use commercially reasonable efforts to amend, correct, or
take any other action, if any, reasonably necessary to (i) cause all life
insurance policies issued or to be issued by the Insurance Subsidiaries to
comply with Section 7702 of the Code (and all similar provisions of state or
local Law); (ii) cause all annuity contracts issued or to be issued by the
Company Subsidiaries to qualify pursuant to the provisions of Section 72 of the
Code (and all similar provisions of state or local Law); and (iii) ensure that
all computer software and programming and any other analytical system used by
the Insurance Subsidiaries with respect to life insurance contracts operate in a
manner so as to ensure that the life insurance policies issued or to be issued
by the Insurance Subsidiaries will comply with Section 7702 of the Code (and all
similar provisions of state or local Law).
SECTION 4.20. Obligations under Retention Agreements. Seller shall
make the payments to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ required under Section
3(a) of the applicable Retention Agreement that are due and payable upon the
consummation of the transactions contemplated by this Agreement.
SECTION 4.21. Buyer Capital Structure. On or prior to the First
Closing, Buyer shall deliver to Seller a schedule setting forth (i) the pro
forma total consolidated capitalization of Buyer and its Subsidiaries, and the
individual capitalization of each Subsidiary of Buyer, in each case after giving
effect to the consummation of the transactions contemplated in this Agreement,
the Transaction Documents and the Securitization Financing, and (y) the pro
forma ownership of each Subsidiary of Buyer, giving effect to the consummation
of the transactions contemplated in this Agreement, the Transaction Documents
and the Securitization Financing.
ARTICLE V
EMPLOYEE MATTERS
SECTION 5.1. Certain Obligations. Following the First Closing Date,
Buyer shall honor, or shall cause the Company and the Company's Subsidiaries to
honor, all legal obligations in effect as of the date hereof to employees (or
former employees) of the Company or the Company Subsidiaries, including all
individual employment and severance agreements in effect for such employees (or
former employees) as of the date hereof, as disclosed in Section 5.1(a) of the
Disclosure Schedule. In the event that the FFSB Shares are not transferred to
Buyer
52
on the First Closing, FFSB shall not be deemed a Subsidiary of the Company until
the FFSB Closing for the purposes of this Section 5.1 and this Section 5.1 shall
apply with respect to FFSB as if it were a Company Subsidiary on the FFSB
Closing Date.
SECTION 5.2. Credit for Service. On and after the First Closing
Date, or with respect to FFSB, the FFSB Closing Date, Buyer shall provide, or
cause to be provided, to each Transferred Employee under any Buyer employee
benefit plans in which Transferred Employees are eligible to participate after
the First Closing Date, or with respect to FFSB, the FFSB Closing Date, credit
for purposes of eligibility to participate, vesting and benefit accruals (other
than benefit accruals under any buyer defined benefit plan) for full and partial
years of service with Seller or its Affiliates (including the Company or any
Company Subsidiary) performed at any time prior to the First Closing Date, or
with respect to FFSB, the FFSB Closing Date, except where such crediting results
in the duplication of benefits.
SECTION 5.3. Preexisting Conditions, Exclusions and Waiting Periods;
Deductibles. The Company, Buyer and their respective Subsidiaries and other
Affiliates shall (a) waive all limitations as to preexisting conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to Transferred Employees under any Buyer employee
benefit plans in which Transferred Employees are eligible to participate after
the First Closing Date other than limitations or waiting periods that are
already in effect with respect to such Transferred Employees and that have not
been satisfied as of the First Closing Date, or with respect to FFSB, the FFSB
Closing Date, and (b) provide each Transferred Employee with credit for any
co-payments and deductibles paid by such Transferred Employee prior to the First
Closing Date, or with respect to FFSB, the FFSB Closing Date, for purposes of
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans, funds or programs in which Transferred Employees are eligible to
participate after the First Closing Date, or with respect to FFSB, the FFSB
Closing Date.
SECTION 5.4. COBRA. Buyer shall be, or shall cause the Company to
be, responsible and liable for providing the appropriate COBRA notices and
coverages to Transferred Employees and qualifying beneficiaries who experience a
COBRA "qualifying event" on or after the First Closing Date, or with respect to
FFSB, the FFSB Closing Date.
SECTION 5.5. Filings and Records. Seller, Buyer and the Company
shall cooperate in (a) making all filings required under the Code or ERISA and
any applicable securities laws with respect to the Employee Benefit Plans that
cover Employees, (b) implementing all appropriate communications with
participants, (c) maintaining and transferring appropriate records and (d)
taking all such other actions as may be necessary and appropriate to implement
the provisions of this Article V. Following the First Closing Date, Seller,
Buyer and the Company shall cooperate fully with one another in providing
records regarding the employment of, and the benefits provided to, all
individuals who are or were Employees.
53
ARTICLE VI
CONDITIONS PRECEDENT OF FIRST CLOSING
SECTION 6.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the purchase and sale of the FLAC Shares,
the FLIC Shares and the Company Shares and the other actions to be taken at the
First Closing are subject to the satisfaction or waiver on or prior to the First
Closing Date of the following conditions:
(a) Consents. Other than the OTS Approval, the Governmental Consents
referred to in Section 6.1(a) of the Disclosure Schedule shall have been duly
obtained by Buyer and/or Seller, as the case may be, in form and substance
reasonably satisfactory to Buyer and Seller, and such Governmental Consents
shall be in full force and effect.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the transactions contemplated hereby under the HSR Act shall have
been terminated or shall have otherwise expired.
(c) No Injunctions or Restraints. No preliminary or permanent
injunction or statute, rule, regulation, order, writ, judgment, decree,
stipulation, determination, suit, action, proceeding or investigation of any
Governmental Entity shall be issued, pending or threatened that does or seeks to
prohibit, prevent, restrain, restrict or make illegal the consummation of the
transactions contemplated hereby; provided, however, that the party invoking
this condition shall have used all reasonable efforts to have any such
injunction, order, writ, judgment, decree, stipulation, determination, suit,
action, proceeding or investigation vacated, dismissed or discontinued, as
applicable.
SECTION 6.2. Conditions to Obligations of Buyer. The obligations of
Buyer to effect the purchase and sale of the FLAC Shares, the FLIC Shares and
the Company Shares and the other actions to be taken at the First Closing are
further subject to the satisfaction or waiver by Buyer on or prior to the First
Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller set forth in this Agreement shall be true and correct as of
the First Closing Date (except to the extent any such representation and
warranty speaks as of an earlier date), in which event such representation and
warranty shall be true and correct as of such date, except where the failure of
such representations and warranties to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect" or
"Company Material Adverse Effect" contained therein) would not, individually or
in the aggregate, have a Company Material Adverse Effect or a material adverse
effect on the ability of Seller to consummate any of the transactions
contemplated by this Agreement or any of the Transaction Documents; and Buyer
shall have received a certificate signed on behalf of Seller by an executive
officer of Seller to the effect set forth in this paragraph.
(b) Performance of Obligations of Seller. Seller shall have
performed in all material respects all obligations required to be performed by
it under this Agreement applicable to the First Closing on or prior to the First
Closing Date (and shall have performed in all respects
54
all obligations required to be performed by it under Section 4.18), and Buyer
shall have received a certificate signed on behalf of Seller by an executive
officer of Seller to such effect.
(c) Material Adverse Effect. There shall not have been or occurred
any event, change, occurrence or circumstance that, individually or in
conjunction with any other events, changes, occurrences or circumstances has had
a Material Adverse Effect on the Company or would reasonably be expected to have
a Material Adverse Effect on the Company.
(d) Requisite Consents. Seller shall have obtained those consents,
waivers and approvals referred to in Section 6.2(d) of the Disclosure Schedule
in a form satisfactory to Buyer.
(e) Financing. Buyer shall have obtained proceeds from financing
sources in an aggregate amount of not less than $150,000,000 on substantially
the terms and conditions set forth in the Buyer Financing Commitment or from
other sources otherwise sufficient to enable it to consummate the transactions
contemplated by this Agreement and the Transaction Documents.
(f) Tax Certificates. The Seller shall have provided the Buyer with
a certificate (which complies with Section 1445 of the Code and the Treasury
Regulations promulgated thereunder) of non-foreign status executed in accordance
with the provisions of the Foreign Investment in Real Property Tax Act and
Section 1445 of the Code and the Treasury Regulations promulgated thereunder.
(g) Other Documentation. Buyer shall have received such other
documents, certificates or statements as Buyer may reasonably request.
SECTION 6.3. Conditions to Obligations of Seller. The obligations of
Seller to effect the purchase and sale of the FLAC Shares, the FLIC Shares and
the Company Shares and the other actions to be taken at the First Closing are
further subject to the satisfaction or waiver by Seller on or prior to the First
Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct as of
the First Closing Date (except to the extent any such representation and
warranty speaks as of an earlier or later date, in which event such
representation and warranty shall be true and correct as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" or "Buyer Material Adverse Effect" contained therein)
would not, individually or in the aggregate, have a Buyer Material Adverse
Effect or a material adverse effect on the ability of Buyer to consummate any of
the transactions contemplated by this Agreement or any of the Transaction
Documents; and Seller shall have received a certificate signed on behalf of
Buyer by an executive officer of Buyer to the effect set forth in this
paragraph.
(b) Performance of Obligations of Buyer. Buyer shall have performed
in all material respects all obligations required to be performed by it under
this Agreement applicable to the First Closing on or prior to the First Closing
Date, and Seller shall have received a certificate signed on behalf of Buyer by
an executive officer of Buyer to such effect.
55
(c) Buyer Pre-Closing Transactions. Buyer shall have delivered to
Seller copies of all agreements evidencing and memorializing the Buyer
Pre-Closing Transactions with terms that are, at Seller's reasonable discretion,
acceptable to Seller and consistent with the descriptions contained on Annex C,
and representation letters from the parties undertaking the Buyer Pre-Closing
Transactions containing the representations described on Annex C.
(d) Tax Opinion. LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P. ("Seller's
Counsel") on the First Closing Date shall have provided to Seller an opinion of
counsel (the "Final Tax Opinion"), in a form similar to the unexecuted draft of
opinion provided to Buyer concurrent with the execution of this Agreement. The
Final Tax Opinion shall state that the Note attached hereto as Exhibit D should
be treated as bona fide debt for Federal income tax purposes based upon the
facts, the law, the terms of the Note and the terms of this Agreement, in each
case, as exist as of the First Closing Date. Notwithstanding anything to the
contrary in this Agreement, Seller's Counsel shall not be required to provide
the opinion of counsel required under this Section 6.3(d) and this condition
shall not be treated as having been satisfied in the event there is any change
in the law, fact or change in any of the terms of this Agreement or Note between
the period commencing on the date hereof and through and including the First
Closing Date that would in Seller's Counsel sole reasonable judgment result in
the Note not constituting bona fide debt for Tax purposes as determined on the
First Closing Date. In addition, notwithstanding any other provision in this
Agreement to the contrary, if the representation provided by Buyer or Seller, as
set forth on each party's respective Certification Letter as attached to the
Final Tax Opinion, are not true, correct or complete as of the Issue Date or the
First Closing Date or either Seller or Buyer cannot provide the representations
set forth on either of their respective Certification Letters on the Issue Date
and the First Closing, Seller's Counsel shall not be required to provide the
opinion of counsel required under this Section 6.3(d) and the condition required
by this Section 6.3(d) shall not be deemed to have been satisfied.
(e) Other Documentation. Seller shall have received such other
documents, certificates or statements as Seller may reasonably request.
ARTICLE VII
CONDITIONS PRECEDENT OF FFSB CLOSING
SECTION 7.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the purchase and sale of the FFSB Shares and
the other actions to be taken at the FFSB Closing are subject to the
satisfaction or waiver on or prior to the FFSB Closing Date of the following
conditions:
(a) Consents. Buyer and Seller shall have obtained such Governmental
Consents as are required to consummate the sale and purchase of the FFSB Shares
contemplated hereby.
(b) No Injunctions or Restraints. No preliminary or permanent
injunction or statute, rule, regulation, order, writ, judgment, decree,
stipulation, determination, suit, action, proceeding or investigation of any
Governmental Entity shall be issued, pending or threatened that does or seeks to
prohibit, prevent, restrain, restrict or make illegal the consummation of the
56
sale and purchase of the FFSB Shares contemplated hereby shall be in effect;
provided, however, that the party invoking this condition shall have used all
reasonable efforts to have any such injunction, order, writ, judgment, decree,
stipulation, determination, suit, action, proceeding or investigation vacated,
dismissed or discontinued, as applicable.
SECTION 7.2. Conditions to Obligations of Buyer. The obligations of
Buyer to effect the purchase and sale of the FFSB Shares and the other actions
to be taken at the FFSB Closing are further subject to the satisfaction or
waiver by Buyer on or prior to the FFSB Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Seller in this Agreement, to the extent and only to the extent
they apply to FFSB and/or the FFSB Closing, shall be true and correct as of the
FFSB Closing Date (except to the extent any such representation and warranty
speaks as of an earlier date, in which event such representation and warranty
shall be true and correct as of such date), except where the failure of such
representations and warranties to be true and correct (without giving effect to
any limitation as to "materiality" or "Material Adverse Effect" or "Company
Material Adverse Effect" contained therein) would not, individually or in the
aggregate, have a material adverse effect on the business, assets, properties,
financial condition or results of operations of FFSB or a material adverse
effect on the ability of Seller to consummate the sale and purchase of FFSB
contemplated by this Agreement; and Buyer shall have received a certificate
signed on behalf of Seller by an executive officer of Seller to the effect set
forth in this paragraph.
(b) Performance of Obligations of Seller. Seller shall have
performed in all material respects all obligations required to be performed by
it under this Agreement to the extent and only to the extent they apply to FFSB
and/or the FFSB Closing on or prior to the FFSB Closing Date, and Buyer shall
have received a certificate signed on behalf of Seller by an executive officer
of Seller to such effect.
(c) Tax Certificates. The Seller shall have provided the Buyer with
a certificate (which complies with Section 1445 of the Code and the Treasury
Regulations promulgated thereunder) of non-foreign status executed in accordance
with the provisions of the Foreign Investment in Real Property Tax Act and
Section 1445 of the Code and the Treasury Regulations promulgated thereunder.
SECTION 7.3. Conditions to Obligations of Seller. The obligations of
Seller to effect the purchase and sale of the FFSB Shares and the other actions
to be taken at the FFSB Closing are further subject to the satisfaction or
waiver by Seller on or prior to the FFSB Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer in this Agreement, to the extent and only to the extent they
apply to FFSB and/or the FFSB Closing, shall be true and correct as of the FFSB
Closing Date (except to the extent any such representation and warranty speaks
as of an earlier date, in which event such representation and warranty shall be
true and correct as of such date), except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Buyer Material Adverse Effect" or
"Material Adverse Effect" contained
57
therein) would not, individually or in the aggregate, have a Buyer Material
Adverse Effect or a material adverse effect on the ability of Buyer to
consummate any of the transactions contemplated by this Agreement or any of the
Transaction Documents; and Seller shall have received a certificate signed on
behalf of Buyer by an executive officer of Buyer to the effect set forth in this
paragraph.
(b) Performance of Obligations of Buyer. Buyer shall have performed
in all material respects all obligations required to be performed by it under
this Agreement to the extent and only to the extent they apply to FFSB and/or
the FFSB Closing on or prior to the FFSB Closing Date, and Seller shall have
received a certificate signed on behalf of Buyer by an executive officer of
Buyer to such effect.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 8.1. Survival of Representations and Warranties. Except for
the representations and warrantees set forth in Sections 3.1(i)(v) and 3.1(k),
which shall terminate as provided in Section 10.8(c), representations and
warranties contained in this Agreement shall survive the First Closing and the
FFSB Closing solely for purposes of Sections 9.1(a) and 9.1(b), and shall
terminate and expire at the close of business on the date that is 18 months
after the First Closing Date, or with respect to FFSB, the FFSB Closing Date,
except for: (a) those representations contained in Section 3.1(j), 3.1(cc) and
3.1(ff), which shall survive until the expiration of the applicable statute of
limitations period, (b) those representations and warranties contained in
Sections 3.1(a), 3.1(b), 3.1(c), 3.1(d), 3.1(bb), 3.2(a), 3.2(b), 3.2(c),
3.2(d), 3.2(i) and 3.2(j) which shall survive indefinitely and (c) Section
3.1(h) which shall survive two years from the First Closing Date, or with
respect to FFSB, the FFSB Closing Date. All covenants and agreements contained
in this Agreement, to the extent that the foregoing by their express terms are
to have effect or be performed after the First Closing or the FFSB Closing shall
survive the First Closing or the FFSB Closing, as the case may be, in accordance
with their terms.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1. Obligation to Indemnify. (a) Subject to the limitations
set forth in this Article IX, Seller agrees to indemnify and hold harmless Buyer
and its Affiliates (including the Company and Company Subsidiaries), and their
respective directors, officers, employees, successors and assigns (the "Buyer
Indemnified Parties") from and against all losses and out-of-pocket expenses
(including reasonable attorneys' fees and expenses of outside counsel and
irrespective of whether or not such losses and expenses arise out of or in
connection with a Third Party Claim) but not including punitive, consequential,
all other kinds of special damages and Taxes or any amounts related to any claim
for an indemnity based on or relating to Taxes ("Losses") to the extent actually
incurred as a result of, based upon, or in connection with (i) any failure of
the representations and warranties of Seller contained in this Agreement to be
true and correct as of the date hereof and as of the First Closing Date, and to
the extent and only to the extent they apply to FFSB and/or the FFSB Closing,
the FFSB Closing Date, (ii) any breach of
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any of the covenants and agreements of Seller contained in this Agreement, (iii)
liability incurred under Title IV of ERISA with respect to any pension plan
maintained or contributed to by Seller or any corporation, trade or business
under common control or treated as a single employer with Seller, (iv) the
Excluded Assets, or (v) any failure by BCC to satisfy its obligations to The
Forethought Group, Inc. under the Assignment and Assumption Agreement; provided,
however, that Seller shall not have any liability for Losses under this
Agreement except as otherwise provided herein unless the aggregate of all Losses
for which Seller would, but for this proviso, be liable exceeds on a cumulative
basis an amount equal to $5,500,000 (the "Indemnification Basket"), and then
only to the extent such Losses exceed $1,500,000; provided, further, that Seller
shall not have any liability for indemnification under this Agreement for any
individual item of Loss that is less than $25,000 (unless such item of Loss
would, when aggregated with each other item of Loss arising from the same
underlying facts, events or circumstances, equals or exceeds $25,000). The
maximum amount for which Seller shall be liable in the aggregate under Section
9.1(a) shall not exceed $90,000,000 (the "Indemnification Cap"). Notwithstanding
the foregoing, neither the Indemnification Basket nor the Indemnification Cap
shall apply to claims for Losses as a result of, based upon, or in connection
with (i) any breach of any of the representations and warranties contained in
Sections 3.1(a), 3.1(b), 3.1(c), 3.1(d) and 3.1(bb), (ii) any breach of any of
the covenants and agreements of Seller contained in this Agreement, (iii)
liability incurred under Title IV of ERISA with respect to any pension plan
maintained or contributed to by Seller or any corporation, trade or business
under common control or treated as a single employer with Seller, (iv) the
Excluded Assets and (v) any failure by BCC to satisfy its obligations to The
Forethought Group, Inc. under the Assignment and Assumption Agreement.
(b) Subject to the limitations set forth in this Article IX and not
including any indemnification with respect to a breach of the covenants provided
in Section 10.7(d), Buyer agrees to indemnify and hold harmless Seller and its
Affiliates (excluding the Company and Company Subsidiaries) and their respective
directors, officers, employees, successors and assigns (the "Seller Indemnified
Parties") from and against all Losses to the extent actually incurred as a
result of, based upon, or in connection with (i) the failure of the
representations and warranties of Buyer contained in this Agreement to be true
and correct as of the date hereof and as of the First Closing Date, or to the
extent and only to the extent they apply to FFSB and/or the FFSB Closing, the
FFSB Closing Date; (ii) any breach of any of the covenants and agreements of
Buyer contained in this Agreement; (iii) the ownership by Buyer or any of its
Affiliates of the Company and its Subsidiaries or the operation of the business
of the Company or any of its Subsidiaries, except to the extent such Losses are
incurred as a result of any breach of the representations and warranties of
Seller contained in this Agreement or any breach of any of the covenants and
agreements of Seller contained in this Agreement that survive the First Closing,
or to the extent and only to the extent they apply to FFSB and/or the FFSB
Closing; or (iv) any Third Party Claim arising from any equity or debt financing
obtained or arranged by Buyer (including, without limitation, the Securitization
Financing) in connection with the transactions contemplated hereby; provided,
however, that Buyer shall not have any liability under this Agreement unless the
aggregate of all Losses for which Buyer would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to the Indemnification Basket, and
then only to the extent such Losses exceed $1,500,000; provided, further, that
Buyer shall not have any liability for indemnification under this Agreement for
any individual item of Loss that is less than $25,000 (unless such item of Loss
would, when aggregated with each other item of Loss arising from the same
underlying facts, events or circumstances, equals or exceeds $25,000).
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The maximum amount for which Buyer shall be liable in the aggregate under this
Section 9.1(b) shall not exceed the Indemnification Cap. Notwithstanding the
foregoing, neither the Indemnification Basket nor the Indemnification Cap shall
apply to claims for Losses as a result of, based upon, or in connection with (i)
any breach of any of the representations and warranties contained in Sections
3.2(a), 3.2(b), 3.2(c), 3.2(d) and 3.2(i) and (ii) any breach of any of the
covenants and agreements of Buyer contained in this Agreement.
(c) For purposes of this Article IX and for purposes of determining
whether any Buyer Indemnified Party is entitled to indemnification from Seller,
or any Seller Indemnified Party is entitled to indemnification from Buyer,
pursuant to Section 9.1(a) or Section 9.1(b) hereof, any breach of or inaccuracy
in any representation or warranty of Buyer or Seller shall be determined without
regard to any materiality qualifications set forth in such representation or
warranty, and all references to the terms "material", "materially",
"materiality", "Material Adverse Effect", "Company Material Adverse Effect",
"Buyer Material Adverse Effect" or any similar terms shall be ignored for
purposes of determining whether such representation or warranty was true and
correct when made or deemed to have been made.
SECTION 9.2. Indemnification Procedures. (a) The party seeking
indemnification under Section 9.1 (the "Indemnified Party") agrees to give the
party from which such indemnification is sought (the "Indemnifying Party")
notice in writing of the assertion of any 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") in respect of which indemnity may be sought
under such Section promptly after such Indemnified Party learns of the Third
Party Claim; provided, however, that failure to give such notice 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,
by providing notice to the Indemnified Party delivered within 20 Business Days
of the receipt of notice of such Third Party Claim, to assume the defense
thereof with counsel selected by the Indemnifying Party; provided that (i) the
Indemnifying Party provides the Indemnified Party with an unqualified
acknowledgment in writing (at the time it elects to assume such defense) of its
obligation under this Section 9.2 to indemnify the Indemnified Party with
respect to such Third Party Claim, (ii) such counsel is approved by the
Indemnified Party (such approval not to be unreasonably withheld or delayed),
(iii) the Indemnified Party is kept fully informed of all developments, and is
furnished with copies of all documents and papers, related thereto and is given
the right to participate in the defense and investigation thereof as provided
below, and (iv) such counsel proceeds with diligence and in good faith with
respect thereto. Should the Indemnifying Party so elect to assume the defense of
a Third Party Claim, the Indemnifying Party will not as long as it conducts such
defense 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
right to participate in the defense thereof and to employ its own counsel,
separate from the counsel employed by the
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Indemnifying Party at its own expense, except that the Indemnifying Party shall
bear the expense of such separate counsel if (A) in the written opinion of
counsel to the Indemnified Party reasonably acceptable to the Indemnifying
Party, use of counsel of the Indemnifying Party's choice would be expected to
give rise to a conflict of interest or (B) there are or may be legal defenses
available to the Indemnified Party that are different from or additional to
those available to the Indemnifying Party. 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 that 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. If 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. Notwithstanding the foregoing, if a settlement offer
solely for money damages is made by a Third Party Claimant, and the Indemnifying
Party notifies the Indemnified Party in writing of the Indemnifying Party's
willingness to accept the settlement offer and, subject to the applicable
limitations of Section 9.1, pay the amount called for by such offer, and the
Indemnified Party declines to accept such offer, the Indemnified Party may
continue to contest such Third Party Claim, free of any participation by the
Indemnifying Party, and the amount of any ultimate liability with respect to
such Third Party Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (A) the amount of the settlement
offer that the Indemnified Party declined to accept plus the Losses of the
Indemnified Party relating to such Third Party Claim through the date of its
rejection of the settlement offer or (B) the aggregate Losses of the Indemnified
Party with respect to such Third Party Claim.
SECTION 9.3. Termination. (a) The indemnities provided in this
Agreement shall survive the First Closing and, with respect to FFSB and matters
related to the FFSB Closing, the FFSB Closing; provided, however, that the
indemnities provided under Sections 9.1(a)(i) and 9.1(b)(i) shall terminate when
the applicable representation or warranty terminates pursuant to Article VIII
and Section 10.8(c), except as to any item as to which the Person to be
indemnified 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. Except as provided in Article X,
and other than with respect to the covenants and agreements contained in
Sections 4.4, 4.7, 4.8 and 4.9, after the First Closing (other than with respect
to FFSB) and the FFSB Closing (with respect to FFSB) the indemnities provided in
Sections 9.1(a) and 9.1(b) shall be the sole and exclusive remedy at law or in
equity for any breach of a representation, warranty, covenant or agreement or
other claim arising out of this Agreement.
(b) The amount of any Losses 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 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
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realized by the Indemnified Party arising from the incurrence or payment of any
such Losses. 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 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 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).
SECTION 9.4. Tax Indemnification. Notwithstanding anything in this
Agreement to the contrary, the rights and obligations of the parties with
respect to indemnification for any and all matters relating to Taxes shall be
governed exclusively by Article X of this Agreement.
SECTION 9.5. Set-off. At the election of Seller, any indemnification
payment payable by Seller to Buyer or any of its Affiliates under Article IX or
Article X hereof, other than indemnification payments in respect of Assigned
Rights (which shall be made without setoff), may be applied, on a dollar for
dollar basis, against amounts payable by Buyer under the Note, as provided
therein.
ARTICLE X
TAX MATTERS
SECTION 10.1. (a) Indemnification. Seller agrees to pay, indemnify
and hold harmless the Buyer Indemnified Parties from and against the following
Taxes including with respect to clause (v) amounts paid on a claim (except as
specifically provided in Section 10.6 and to the extent such Taxes are reflected
in the Final Adjusted Book Value or as disclosed on Sections 3.1(k) or 10.1 of
the Disclosure Schedule) and, except as otherwise provided in Section 10.4,
against any loss, damage, liability or expense, including reasonable fees for
attorneys and other outside consultants, incurred in contesting or otherwise in
connection with any such Taxes (and with respect to clause (v) any claim): (i)
Taxes imposed on the Company or the Company's Subsidiaries with respect to
taxable periods or portions thereof (as determined pursuant to Section 10.1(b)
of this Agreement) ending on or before the First Closing Date (other than Taxes
resulting from a transaction (not including, however, any transaction deemed to
occur as a result of the Section 338(h)(10) Elections) occurring on the First
Closing Date but after the First Closing that is not in the Ordinary Course of
Business of the Company or the Company Subsidiaries or the transactions
occurring pursuant to the Reinsurance Agreement); (ii) Taxes imposed for any
taxable period on any member (other than the Company or any Company Subsidiary)
of an affiliated group (within the meaning of Section 1504(a)(1) of the Code or
any similar provision under state, local or foreign Law) with which the Company
or any Company Subsidiary was a member on or before the First Closing; (iii)
Except as provided in clause (z) of the next sentence hereof, any Tax, whether
with respect to taxable periods before or after the First Closing Date that
relate to annuity contracts or life insurance policies issued on or prior to the
First Closing, resulting from a breach of the representation set forth in
Section 3.1(k)(xv) (without giving effect to any limitation as to
"materiality"); (iv) Except as provided in clause (z) of the next sentence
hereof, with respect to any life insurance policy or annuity contract that is
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issued after the First Closing Date but before the first anniversary of the
First Closing Date that does not differ materially from the form of life
insurance policies or annuity contracts that are currently in use by the Company
or any Company Subsidiary or that are issued in reliance on the computer
software or programming (or any other analytical systems) that are currently
used by the Company or Company Subsidiaries to calculate the statutorily
mandated amounts required to qualify as a life insurance policy under Section
7702 of the Code (or any similar provision of state or local Law), Taxes
resulting from such policies and contracts not complying with the requirements
of sections 7702 of the Code (or any analogous provision of state or local Law)
or not being qualified under section 72 of the Code (or any analogous provision
of state or local Law), but with respect to (iv) only to the extent that: (A)
Buyer has complied with the requirements of Section 10.1(d), or (B) Buyer has
not Knowingly issued life insurance policies or annuities contracts that are not
in compliance with Section 7702 or qualified under Section 72 of the Code (and
any analogous provision under state or local Law), as applicable and (v) Except
as provided in clause (z) of the next sentence hereof, any amounts paid in
connection with, or in settlement or satisfaction of any claim made by a holder
of an insurance policy or annuity contract described in clauses (iii) or (iv)
hereof. Buyer shall indemnify, pay and hold harmless Seller for: (x) Taxes
attributable to, imposed on, related or allocated to the Company or any Company
Subsidiary and any associated Losses not otherwise allocated to Seller pursuant
to the first sentence hereof; (y) Taxes and Losses resulting from a breach by
Buyer of any of the covenants made under Section 10.7(d) of this Agreement (as
provided and determined pursuant to Section 10.7(d)) and (z) notwithstanding any
provision to the contrary, Buyer shall pay (A) the first $100,000 of attorney
fees incurred with respect to legal representation in connection with Taxes
described in clauses (iii), (iv) and (v) of this Section 10.1 and (B) 30 percent
of all Taxes described in clauses (iii), (iv) or (v) of the immediately
preceding sentence hereof and 30 percent of all expenses incurred by Seller
pursuant to Section 10.1(d); provided, however, for purposes of this sub-clause
(B) Buyer's liability shall not exceed $500,000. Notwithstanding any provision
in this Agreement to the contrary, Tax Indemnified Losses shall be paid in full
and shall not be subject to the Indemnification Basket or the Indemnification
Cap provided for in Section 9.1(a).
(b) In the case of Taxes that are payable with respect to a taxable
period that begins before the First Closing Date and ends after the First
Closing Date, the portion of any such Tax that is allocable to the portion of
the period ending on the First Closing Date shall be:
(i) in the case of Taxes (other than Transfer Taxes resulting
from the transactions contemplated by this Agreement or Taxes resulting from
transactions (A) occurring on the First Closing Date after the First Closing
that are not in the ordinary course of the Company's or any Company Subsidiary's
business or (B) resulting from the Reinsurance Agreement) that are either (x)
based upon or related to income, premiums or receipts, or (y) imposed in
connection with any sale or other transfer or assignment of property (real or
personal, tangible or intangible), deemed equal to the amount that would be
payable if the taxable year ended with (and included) the First Closing Date;
and
(ii) in the case of Taxes (other than Taxes as described in
clause (i) above) imposed on a periodic basis with respect to the assets of the
Company or any Company Subsidiary, or otherwise measured by the level of any
item, deemed to be the amount of such Taxes for the entire period (or, in the
case of such Taxes determined on an arrears basis, the
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amount of such Taxes for the immediately preceding period), multiplied by a
fraction the numerator of which is the number of calendar days in the period
ending on the First Closing Date and the denominator of which is the number of
calendar days in the entire period
(c) Notwithstanding anything in this Agreement to the contrary, if
the sale of the Company or the Company Subsidiaries are, for any reason, held or
determined not to qualify for treatment as a deemed sale of assets (in whole or
in part) pursuant to section 338(h)(10) of the Code (and to the extent relevant,
any other similar provision under state or local law), Buyer shall pay to Seller
an amount equal to the excess, if any, of (A) any Tax benefit that Buyer
actually realizes (which for the avoidance of doubt a Tax benefit shall include,
without limitation, any Tax benefit Buyer realizes from the use of any
depreciation, amortization, deduction or loss, or any pre or post First Closing
Tax attribute of the Company or any Company Subsidiary) that Buyer would not
have been entitled to if the transaction had qualified as a deemed sale of
assets pursuant to section 338(h)(10) of the Code (and to the extent relevant,
any other similar provision of state or local Law) over (B) (i) the amount of
any payments that Buyer is required to make pursuant to Section 10.7(d) less
(ii) any amounts Buyer recovers under Section 10.3(b).
(d) Buyer shall, at its own expense, as promptly as is reasonably
practicable after the First Closing Date, use commercially reasonable efforts to
investigate, identify, amend, correct, create substitute forms or take any other
actions necessary to cause the life insurance policies or annuity contracts
issued in the forms referred to in Section 10.1(a)(iv) (for which Buyer intends
to continue to issue life insurance policies or annuity contracts using such
forms) or in reliance on the computer software or programming or analytical
systems referred to in Section 10.1(a)(iv) to qualify as life insurance
contracts under Section 7702 of the Code or annuity contracts under Section 72
of the Code, as applicable. Subject to clause (z) of Section 10.1(a), Seller
shall reimburse Buyer for any costs incurred by any Buyer Indemnified Party in
connection with Buyer's obligations under this Section 10.1(d) (other than any
such costs incurred in investigating or identifying non-complying policies or
contracts (and the forms thereto) or failing computer software, program or other
analytical systems).
SECTION 10.2. Returns and Payments. (a) Except as provided for in
Section 10.7 of this Agreement, from the date of this Agreement through and
after the First Closing Date, Seller shall prepare and file or otherwise furnish
in proper form to the appropriate Tax Authority (or cause to be prepared and
filed or so furnished) in a timely manner: (i) all consolidated, unitary,
combined or similar Tax Returns (the "Consolidated Tax Returns") that include or
would include the Company or the Company's Subsidiaries, and (ii) all other Tax
Returns not including the Consolidated Tax Returns that relate to the Company
and the Company's Subsidiaries that are due on or before or relate to any
taxable period ending on or before the First Closing Date; and Buyer shall do
the same with respect to all Tax Returns that include or relate to a taxable
period ending after the First Closing Date. (The party with the obligation to
file a Tax Return as determined under the preceding sentence shall hereinafter
be referred to as the "Filing Party".) Tax Returns of the Company and the
Company's Subsidiaries for any taxable period that begins before the First
Closing Date and that ends after the First Closing Date shall be prepared in a
manner consistent with past practices employed with respect to the Company and
the Company's Subsidiaries (except to the extent counsel for the Filing Party
renders a legal opinion that there is no substantial authority in law as that
standard is defined pursuant to Treasury Regulation
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1.6662-4(d)(3) or determines that a Tax Return cannot be so prepared and filed
without being subject to penalties). With respect to any Tax Return required to
be filed by Buyer or Seller (as required by the first sentence of this Section
10.2(a)) with respect to the Company and the Company's Subsidiaries and as to
which an amount of Tax is allocable to the other party under Section 10.1 (the
"Tax Indemnifying Party"), the Filing Party shall provide the Tax Indemnifying
Party and its authorized representatives with: (1) a copy of such completed Tax
Return or in the case of a Consolidated Tax Return, (i) the pro-forma
Consolidated Tax Return, if any, filed by the Insurance Subsidiaries that does
not include the Company, and (ii) a pro forma Tax Return for the Company and the
Company's Subsidiaries (prepared on a separate company basis), and (2) a
statement certifying and setting forth the calculation of the amount of Tax
shown on such Tax Return or Consolidated Tax Return (as the case may be) that is
allocable to such Tax Indemnifying Party pursuant to Section 10.1, together with
appropriate supporting information and schedules at least 20 Business Days prior
to the due date (including any extension thereof) for the filing of such Tax
Return. Such Tax Indemnifying Party and its authorized representatives shall
have the right to review and comment on such Tax Return and statement prior to
the filing of such Tax Return.
(b) Seller shall pay or cause to be paid when due and payable all
Taxes allocated to Seller pursuant to the provisions of Section 10.1 to the
extent that such Tax is shown on a Tax Return that Seller is required to file
(or caused to be filed) pursuant to the terms of paragraph (a) above and Buyer
shall do the same with respect to Tax Returns Buyer is required to file.
(c) In any case where a Filing Party files (or causes to be filed) a
Tax Return on which there is an amount of Tax that is allocable to a Tax
Indemnifying Party, the Tax Indemnifying Party shall pay the Filing Party the
amount so allocated to it pursuant to Section 10.1 at least three Business Days
before the due date of the Tax Return required to be filed by the Filing Party
(pursuant to Section 10.2(a)) or within three Business Days following an
agreement between Seller and Buyer that an indemnity amount is payable by the
other, or within 3 days of (i) an assessment of a Tax by a Tax Authority, or
(ii) a "determination" as defined in Section 1313(a) of the Code has been made.
If liability under this Article X is in respect of costs or expenses other than
Taxes, payment by the Tax Indemnifying Party of any amounts due under this
Article X shall be made within five Business Days after the date when the Tax
Indemnifying Party has been notified by the Filing Party that the Tax
Indemnifying Party has a liability for a determinable amount under this Article
X and is provided with calculations and all other materials reasonably necessary
to support such liability.
SECTION 10.3. Refunds. (a) Except as provided in Section 10.1(c) and
10.3(b), any Tax refund or credit (including any interest with respect thereto)
relating to the Company or any Company Subsidiary for any taxable period or
portion thereof ending on or prior to the First Closing Date, to the extent in
excess of amounts reflected therefor in the Final Adjusted Book Value, shall be
the property of Seller, and if received by Buyer, the Company or any of the
Company's Subsidiaries such Tax refund or credit shall be paid over promptly to
Seller together with interest thereon at the rate of 6% per annum compounded
daily, calculated on the basis of the actual number of days elapsed and a 360
day year, for the period from and including the date which 10 Business Days
after such tax refund or credit was received by Buyer or the Company
65
or one of its Subsidiaries as relevant to and including the date Seller actually
receives payment of such tax refund or credit from Buyer.
(b) Notwithstanding anything in this agreement to the contrary, in
the event the sale of the Company or the Company Subsidiaries is not (in whole
or in part), for any reason, treated as a deemed sale of assets pursuant to
section 338(h)(10) of the Code (or any similar provision under state or local
law), Buyer agrees, at Seller's request and expense, that it will or will cause
the Company or any Company Subsidiary to carryback any (i) losses that relate or
are attributable to any built-in loss (calculated as of the First Closing Date
and equal to the excess of the Tax basis of any such asset over such assets
allocable fair market value as of such date), or (ii) Tax benefits or Tax
attributes that would not have otherwise been available to Buyer had the sale
been treated as a deemed sale of assets. Any Tax refund resulting from such
carryback shall be paid to Buyer to the extent of any payments made by Buyer
pursuant to Section 10.7(d). Except as provided in the immediately preceding
sentence, Buyer, the Company, the Company Subsidiaries and any of their
Affiliates shall have no obligation to carryback any loss or other Tax item.
SECTION 10.4. Contests. (a) After the First Closing, Buyer or Seller
shall notify the other party in writing within seven days of receiving any
written notice of a proposed assessment or claim in an audit or administrative
or judicial proceeding which, if determined adversely to such entity, would be
subject to indemnification under this Article X; provided, however, that a
failure to give such notice will not affect a party's right to indemnification
under this Article X except to the extent, if any, that, but for such failure,
Seller or Buyer, as the case may be, could reasonably likely have avoided all or
a portion of the Tax liability to which such written notice relates.
(b) In the case of an audit or administrative or judicial proceeding
(a "Tax Contest") that relates to periods ending on or before the First Closing
Date (including, without limitation, any Tax Contest relating to life insurance
policies or annuities issued by a Company Subsidiary prior to the First
Closing), Seller shall have the sole right at its own expense, to control the
conduct of any such Tax Contest; provided, however, that if Seller does not
exercise such right to control, Buyer, at its own expense, may assume such
control in such manner as it may deem appropriate, including, but not limited
to, settling such Tax Contest (subject to the requirement of Section 10.4(d))
after giving five days prior written notice to Seller setting forth the terms
and conditions of settlement.
(c) In case of a Tax Contest that relates to periods beginning
before and ending after the First Closing Date, the party that is liable for the
issue pursuant to the terms of this Section 10.1 shall control the audit or
proceeding with respect thereto; provided, however, that if the Tax Contest
involves issues relating to potential adjustments or assessments for which both
Seller and Buyer, the Company or any Company Subsidiary could be liable, (i)
each party may participate in the Tax Contest, and (ii) the Tax Contest shall be
controlled by that party that would bear the burden of the greater portion of
the sum of the adjustment and any corresponding adjustments that may reasonably
be anticipated for future Tax periods; provided further, however, that with
respect to any Tax Contest, as described in the first proviso of this paragraph
(c), that relates to or involves any Tax issues regarding or relating to life
insurance policies or annuities, Buyer and Seller shall jointly control such Tax
Contest. The principle set
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forth in the first sentence of this Section 10.4(c) shall govern also for
purposes of deciding any issue that must be decided jointly (including, without
limitation, choice of judicial forum) in situations in which separate issues are
otherwise controlled under this Article X by Buyer and Seller.
(d) Notwithstanding any other provision in this Agreement to the
contrary, Seller shall have the right to control any proceeding or Tax Contest
that relates to the issue of whether the Section 338(h)(10) Elections should be
respected, provided, however, that Buyer shall have the right to approve of any
counsel, such approval to not be unreasonably withheld, chosen by Seller to
represent Seller in such Tax Contest and Buyer shall have the right to
participate in such Tax Contest at its own expense in the same manner as
provided in paragraph (b) of this Section 10.4, including, without limitation,
to the extent allowed by law, the right to attend all meetings with the relevant
Tax Authority.
(e) Notwithstanding anything in this Agreement to the contrary,
neither Buyer, Seller, the Company nor any Company Subsidiary shall enter into
any compromise or agree to settle any claim pursuant to any Tax Contest that
would or that would reasonably be expected to adversely affect the other party
for such year or any other year without the written consent of the other party,
which consent may not be unreasonably withheld. Buyer and Seller agree to
cooperate, and Buyer agrees to cause the Company and the Company's Subsidiaries
to cooperate, in the defense against or compromise of any claim in any Tax
Contest.
(f) Notwithstanding anything in this Agreement to the contrary,
after the First Closing Date Buyer and Seller, at each party's own expense,
shall cooperate and consult with each other in determining whether the Company
Subsidiaries have issued any life insurance policies or annuity contracts that
do not comply with Section 7702 of the Code (or any similar provision of state
or local Law) or are not qualified under Section 72 of the Code (or any similar
provisions of state or local Law), as applicable. In the event Buyer determines
that such policies or contracts have been issued and that it is obligated to
inform any relevant Tax Authority of such non-compliance, Buyer shall first
provide written notification to Seller of its conclusion regarding such
annuities or life insurance policies, with a reasonably detailed explanation of
why such life insurance policies or annuities are not compliant, at least 10
business days prior to Buyer contacting any Tax Authority, and Buyer or Seller
shall thereafter have the right to inform any such relevant Tax Authority as to
the existence of such policies or contracts for the purposes of entering into a
closing agreement with such Tax Authority and such action by Buyer shall not
relieve Seller of any indemnification obligation under this Article X.
SECTION 10.5. Cooperation and Exchange of Information. Seller and
Buyer will provide each other with such cooperation and information as either of
them reasonably may request of the other in filing any Tax Return, amended Tax
Return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes, participating in or conducting any audit or other proceeding in
respect of Taxes at the expense of the requesting party. Such cooperation and
information shall include providing copies of relevant Tax Returns or portions
thereof, together with accompanying schedules, related work papers and documents
relating to rulings or other determinations by Tax Authorities. Seller and Buyer
shall each make its employees available on a basis mutually convenient to both
parties to provide explanations of any documents or information provided
hereunder. Each of Seller and Buyer shall retain all Tax
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Returns, schedules and work papers, records and other documents in its
possession relating to Tax matters of the Company and the Company's Subsidiaries
for each taxable period first ending after the First Closing Date and for all
prior taxable periods until the later of (i) the expiration of the statute of
limitations of the taxable periods to which such Tax Returns and other documents
relate, without regard to extensions, or (ii) three years following the due date
(without extension) for such Tax Returns. Prior to disposing of any such records
notice shall be given to the other party providing reasonable terms allowing
such other party to take, at its sole expense, possession of such records.
Subject to Section 4.2(c), any information obtained under this Section 10.5
shall be kept confidential, except as may be otherwise necessary in connection
with the filing of Tax Returns or claims for refund or in conducting an audit or
other proceeding.
SECTION 10.6. Conveyance Taxes. Notwithstanding any other provision
in this Agreement to the contrary, all stock transfer, real estate transfer,
documentary, stamp, registration, filing, sales, use, recording, ad valorem, and
other similar Taxes ("Transfer Taxes") arising out of, or directly attributable
to, the transfers of the Company and the Company Subsidiaries will be borne and
paid equally by Seller and Buyer. Seller and Buyer will use reasonable best
efforts to secure any available exemptions from any such Taxes and to cooperate
in providing any information and documentation that may be necessary to obtain
such exemptions.
SECTION 10.7. Section 338(h)(10) Election. (a) Buyer and Seller
shall join in making an election under Section 338(h)(10) of the Code (or any
identical or similar provisions under state or local law) with respect to the
Section 338(h)(10) Companies (the "Section 338(h)(10) Elections"). Buyer and
Seller agree to cooperate in all respects for the purpose of the preparation and
filing of the Section 338(h)(10) Elections (including the preparation of the
Form 8023), and jointly filing effective Section 338(h)(10) Elections on a
timely basis and comply with the rules and regulations applicable to such
Section 338(h)(10) Elections prior to, at the time of and subsequent to the
filing of such Section 338(h)(10) Elections.
(b) For purposes of making such Section 338(h)(10) Elections, Buyer
shall initially determine the value of the tangible and intangible assets of the
affected entities and shall within 100 days of the First Closing Date provide
Seller with an allocation of Buyer's "adjusted grossed-up basis" in the shares
of the Section 338(h)(10) Companies (within the meaning of the Treasury
Regulations under Section 338 of the Code) to such assets (the "Allocation"). If
on the date that is 150 days following the First Closing Date any adjustments to
Buyer's "adjusted grossed-up basis" in the shares of the Section 338(h)(10)
Companies are necessary, Buyer shall provide Seller with an allocation of the
"adjusted grossed-up basis," so adjusted, amongst the tangible and intangible
assets of the affected entities (the "Adjusted Allocation"). The Allocation and
the Adjusted Allocation, if any, shall be in writing and shall be binding upon
Buyer and Seller for purposes of allocating the "deemed selling price" (within
the meaning of the Treasury Regulations) among the assets of the affected
entities; provided, however, that if Seller disagrees with all or a portion of
the Allocation or the Adjusted Allocation and Buyer and Seller cannot resolve
their disagreement within thirty (30) days after notification thereof by Seller
to Buyer, a nationally recognized independent accounting firm shall be jointly
selected by Seller's and Buyer's accounting firms (the "Independent Accounting
Firm"), to determine whether the Allocation or the Adjusted Allocation is
incorrect and the determination of such Independent Accounting Firm shall be
final and made no later than 15 days prior to the date when any part of
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a Section 338(h)(10) Election must be filed with a Governmental Authority. The
Parties shall be bound by the Allocation or the Adjusted Allocation, as
applicable, as adjusted by such Independent Accounting Firm.
(c) Neither Seller nor Buyer shall file any Tax Return, or take a
position with a Tax Authority, that is inconsistent with the Allocation or the
Adjusted Allocation. The parties agrees to cooperate with each other in
preparing Form 8883 for filing by each and to furnish the other with a copy of
such Form prepared in draft form within a reasonable period before its filing
due date and notwithstanding any other provision of this Agreement to the
contrary, the parties agree that all Tax Returns relating to the Section
338(h)(10) Election shall be timely filed in the manner prescribed by Law.
(d) Notwithstanding any other provision in this Agreement to the
contrary, Buyer, Company and the Company Subsidiaries agree to pay, indemnify
and hold harmless Seller for: (i) the loss or deferral of any Tax credits,
deductions, losses, carry over losses or credits, and any other Tax attribute of
Seller and its Affiliates to the extent, and at such time, that such loss or
deferral results in an actual higher Tax liability to the Seller or any of its
Affiliates and (ii) any Losses, in each case, relating to or resulting from a
breach of any of the covenants set forth on Annex D; provided, however, that the
total amount of the indemnity provided under this Section 10.7(d) shall not
exceed $20 million. For the avoidance of doubt, any matter relating to a breach
under this Section 10.7 and any rights of indemnification pursuant to this
Section 10.7 shall be treated as relating to Taxes for purposes of Section 9.4
of this Agreement.
(e) Notwithstanding any provision in this Agreement to the contrary,
for purposes of Section 338 of the Code and consistent with Section 10.8(g), the
Parties agree to treat the transactions occurring as a result of the Reinsurance
Agreement as taking place after all of the transactions that are deemed to occur
pursuant to the Section 338(h)(10) Elections.
SECTION 10.8. Miscellaneous. (a) Seller and Buyer agree to treat all
payments made by either of them to or for the benefit of the other (including
any payments to the Company or any Company Subsidiary) under this Article X,
under any other indemnity provisions of this Agreement and for any
misrepresentations or breaches of warranties or covenants as adjustments to the
Final Purchase Price for Tax purposes and that such treatment shall govern for
purposes hereof except to the extent that the laws of a particular jurisdiction
provide otherwise, in which case such payments shall be made in an amount
sufficient to indemnify the relevant party on an after-Tax basis.
(b) All payments payable under any tax sharing agreement or
arrangement between Seller and the Company or any Company Subsidiary for any
taxable period ending on or prior to the First Closing Date shall be calculated
on a basis consistent with that used to date and be payable in full at the First
Closing (or a reasonable estimate thereof, with any required adjusting payment
to be payable together with the amount, if any, paid pursuant to an adjustment
to the Final Purchase Price, including interest in accordance with the
provisions thereof), notwithstanding any later time for payment set forth in any
such agreement. Any tax sharing agreement or arrangement between Seller and the
Company or any Company Subsidiary shall be terminated immediately prior to the
First Closing.
69
(c) Notwithstanding any provision in this Agreement to the contrary
and except as provided herein, the representations and warranties provided
pursuant to Sections 3.1(i)(v) and 3.1(k) shall terminate at the First Closing;
provided, however, that the representation provided pursuant to Section
3.1(k)(xv) shall survive indefinitely. For the avoidance of doubt, the indemnity
provided in Section 10.1(a)(iii), (iv) and (v) shall be the sole and exclusive
remedy at law or in equity for any claim against Seller or any Affiliate thereof
relating to or resulting from an insurance policy not satisfying the
requirements of Section 7702 of the Code or an annuity contract not qualifying
under section 72 of the Code.
(d) Notwithstanding any provision in this Agreement to the contrary,
the obligations of Seller to indemnify and hold harmless Buyer, the Company and
the Company's Subsidiaries and the obligations of Buyer to indemnify and hold
harmless Seller pursuant to this Article X (except with respect to the indemnity
provided for in Section 10.1(a)(iii), (iv) and (v) which obligation shall
survive indefinitely) shall terminate at the close of business on the day
following the expiration of the applicable statute of limitations with respect
to the liabilities in question.
(e) Notwithstanding any other provision in this Agreement to the
contrary (except to the extent Sections 3.1(i)(v), 6.2, 8.1, 9.1(a) and (b) and
9.4 specifically mention Taxes or reference any provision set forth in this
Article X), Section 3.1(k) and 4.19 and Article X of this Agreement shall
exclusively govern all matters relating to Taxes.
(f) Except with respect to the indemnity provided under Section
10.1(a)(iii), (iv) and (v), for purposes of this Article X any reference to the
First Closing Date or the First Closing shall mean the FFSB Closing Date or the
FFSB Closing, as appropriate, to the extent such provision under this Article X
is addressing a matter regarding FFSB.
(g) Notwithstanding any provision of this Agreement to the contrary,
pursuant to Treasury Regulation Section 1.1502-76(b)(1)(ii) (and any other
analogous provision under state or local Law), the transactions occurring and
deemed to occur as a result of the Reinsurance Agreement will be treated by the
parties as having occurred on the day after the First Closing Date.
ARTICLE XI
TERMINATION
SECTION 11.1. Termination of Agreement Prior to the First Closing.
This Agreement may be terminated at any time prior to the First Closing:
(a) by Seller or Buyer in writing, if there shall be any order,
injunction or decree of any Governmental Entity that prohibits or restrains any
party to this Agreement from consummating the transactions contemplated hereby,
and such order, injunction or decree shall have become final and nonappealable;
(b) by Seller or Buyer in writing, if the First Closing has not
occurred on or prior to the date that is six months following the date of this
Agreement (the "Cut Off Date"); provided, however, that the right to terminate
this Agreement under this Section 11.1(b) shall not
70
be available to the party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the First Closing
to occur on or before such date;
(c) by either Seller or Buyer (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein), if there has been a material breach on the
part of the other party of any representation, warranty or agreement contained
herein which cannot be or has not been cured within 30 days after written notice
by Buyer to Seller or Seller to Buyer, as the case may be, of such breach;
(d) by mutual written consent of Seller and Buyer at any time on or
prior to the First Closing Date; and
(e) by Buyer pursuant to Section 12.3(d).
SECTION 11.2. Survival. If this Agreement is terminated pursuant to
Section 11.1 and the transactions contemplated hereby are not consummated as
described herein, this Agreement shall become null and void and of no further
force and effect, except for (i) the provisions of Sections 4.2(b) and 4.2(c),
this Section 11.2 and Article XII and (ii) rights and obligations arising from
any breach of this Agreement prior to such termination.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. Fees and Expenses. Whether or not the purchase and
sale of the Company Shares, the FLIC Shares, the FLAC Shares and the FFSB Shares
is consummated, each party hereto shall pay its own fees and expenses incident
to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby (which, in the case of
Seller, shall include such fees and expenses incurred by the Company or any
Company Subsidiary); provided, however, that if either party (the "Terminating
Party") terminates this Agreement pursuant to Section 11.1(c), then, in addition
to any other remedies that the Terminating Party may have at law or in equity,
the other party shall pay, or reimburse the Terminating Party for, all such
reasonable and documented fees and expenses incurred by the Terminating Party.
SECTION 12.2. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
delivered personally, by facsimile (which is confirmed as provided below) or by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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If to Buyer, to:
FFS Holdings, Inc.
c/o The ▇▇▇▇▇▇ Group
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ Nissan
If to Seller, to:
▇▇▇▇▇▇▇▇▇▇▇ Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
with a copy to:
LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇
and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Notice given by personal delivery or overnight courier shall be effective upon
actual receipt. Notice given by facsimile shall be confirmed by appropriate
answer back and shall be effective upon actual receipt if received during the
recipient's normal business hours, or at the beginning of the recipient's next
Business Day if not received during the recipient's normal business hours.
SECTION 12.3. Interpretation. (a) When a reference is made in this
Agreement to a Section, Exhibit, Annex or Schedule, such reference shall be to a
Section of, or an Exhibit, Annex or Schedule to, this Agreement unless otherwise
indicated. Nothing in any Disclosure Schedule hereto shall be deemed adequate to
disclose an exception to a representation or warranty made in this Agreement
unless the Schedule sets forth the relevant facts in reasonable detail so as to
make the relevance of such disclosure reasonably apparent; provided, however,
that the inclusion of any fact or item in a Schedule referred to specifically in
the Agreement shall, provided that the existence of such fact or item or its
content is relevant to any other
72
Schedule and that such fact or item is disclosed in sufficient detail so as to
make such relevance to the other Schedule reasonably apparent, be deemed to be
disclosed with respect to such other Schedule whether or not an explicit
cross-reference appears. Without limiting the generality of the foregoing, the
mere listing (or inclusion of a copy) of a document is not deemed adequate to
disclose an exception to a representation or warranty unless the representation
or warranty relates solely to the existence of the document itself.
Notwithstanding the foregoing, the Company may cross-reference Sections of the
Schedules and a reference in any Section or subsection of the Schedules to
another Section or subsection of the Schedules shall be deemed to incorporate
the matters so referenced. In the event of any inconsistency between the
statements in this Agreement and statements in the Disclosure Schedule, the
statements in this Agreement will control and the statements in the Schedule
will be disregarded. Disclosure of any item in the Disclosure Schedule shall not
be deemed an admission that such item represents a material item, fact,
exception of fact, event or circumstance or that occurrence or non-occurrence of
any change or effect related to such item would result in a Material Adverse
Effect, Company Material Adverse Effect or Buyer Material Adverse Effect, as the
case may be. The Disclosure Schedule is qualified in its entirety by reference
to the specific provisions of the Agreement, and is not intended to constitute,
and shall not be construed as constituting, representations or warranties of
Seller or Buyer except as and to the extent set forth in this Agreement. The
table of contents and headings contained in this Agreement and the Disclosure
Schedule are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement (which, for the avoidance
of doubt, includes any Schedule or Exhibit hereto), they shall be deemed to be
followed by the words "without limitation." Whenever the singular is used in
this Agreement (which, for the avoidance of doubt, includes any Schedule or
Exhibit hereto), the same shall include the plural, and whenever the plural is
used herein, the same shall include the singular, where appropriate.
(b) No provision of this Agreement will be interpreted in favor of,
or against, either party hereto by reason of the extent to which any such party
or its counsel participated in the drafting thereof or by reason of the extent
to which any such provision is inconsistent with any prior draft hereof or
thereof.
(c) If more than one provision contained in this Agreement relates
to the same subject matter, then each such provision shall apply thereto with
equal force and effect, and the more specific provision shall not be presumed or
deemed to prevail over, or exclude the application of, the more general
provision.
(d) No less than five Business Days prior to the First Closing Date,
Seller may provide Buyer a revised Disclosure Schedule in order to reflect
changes resulting solely from events that occur after the date hereof which are
not caused by the intentional misconduct or reckless acts of Seller. Within five
Business Days following the delivery of such revised Disclosure Schedule, Buyer
may elect to terminate this Agreement by written notice to Seller if the matters
reflected in any such change or changes would, individually or in the aggregate,
cause the condition to the obligation of Buyer set forth in Section 6.2(a) not
to be satisfied if such change or changes were not set forth in Seller's
Disclosure Schedule. In the event that Buyer does not make such election by such
date, the Disclosure Schedule as so revised shall
73
constitute Seller's Disclosure Schedule for all purposes of this Agreement,
including, without limitation, Section 9.1(a).
SECTION 12.4. Entire Agreement; No Other Representations;
Third-Party Beneficiaries. (a) This Agreement (including the Transaction
Documents and all exhibits and schedules hereto and thereto), the Disclosure
Schedule and the Confidentiality Agreement constitute the entire agreement, and
supersede all prior agreements, understandings, representations and warranties,
both written and oral, among the parties with respect to the subject matter of
this Agreement.
(b) Buyer acknowledges that neither Seller nor any Affiliate nor any
officer, director, employee, representative or agent of any of them or any
Affiliate makes or has made any representation or warranty, express or implied,
or any other inducement or promise to Buyer other than in this Agreement or the
Transaction Documents.
(c) Except as otherwise provided herein, the terms and provisions of
this Agreement are intended solely for the benefit of the parties hereto, and
their respective successors and assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person.
SECTION 12.5. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 12.6. Assignment. Neither this Agreement nor any of the
rights, interests or obligations of any party to this Agreement shall be
assigned, by operation of law or otherwise by such party without the prior
written consent of the other parties, and any such assignment that is not
consented to in writing shall be null and void; provided, however, that Buyer
may assign this Agreement and any or all rights or obligations hereunder to (i)
any wholly-owned Subsidiary of Buyer, provided that any such assignment is not
materially adverse to Seller, (ii) any lender or financial guarantor for the
purpose of collateral security in connection with the Securitization Financing,
or any refinancing thereof or, (iii) following the First Closing Date, any
Person to which Buyer or any of its Affiliates proposes to sell all or
substantially all of the assets relating to the business of the Company. Upon
any such permitted assignment, the references in this Agreement to Buyer shall
also apply to any such assignee unless the context otherwise requires. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns. Notwithstanding the foregoing, any assignment by either party as
permitted under this Section 12.6 shall not relieve the assignor from its
obligations under this Agreement.
SECTION 12.7. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state court that in either case is located in the City of Indianapolis (any
such federal or state court, an "Indiana Court"), in addition to any other
remedy to which they are entitled at law
74
or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Indiana Court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction or venue by motion or other request for leave from any
such Indiana Court.
SECTION 12.8. Severability; Amendments; Waiver. (a) Whenever
possible, each provision or portion of any provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable Law,
but if any provision or portion of any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.
(b) This Agreement may be amended, superseded, cancelled, 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.
(c) 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.
SECTION 12.9. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties. Each party hereto is
entitled to rely on a facsimile signature of the other party as an original.
SECTION 12.10. Non-recourse. No past, present or future director,
officer, employee, incorporator, member, partner, stockholder, Affiliate, agent,
attorney or representative of Seller or Buyer shall have any liability for any
obligations or liabilities of Seller or Buyer, as applicable, under this
Agreement or for any claim based on, in respect of, or by reason of, the
transactions contemplated hereby.
75
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
▇▇▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC.
By: /S/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President and Chief Executive Officer
FFS HOLDINGS, INC.
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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ANNEX A
AGREED PROCEDURES FOR CALCULATION OF ADJUSTED BOOK VALUE
ADJUSTED BOOK VALUE means, in the aggregate, the following items, each as of the
specified date: (i) the Capital and Surplus of FLIC (which includes the carrying
value of FLAC and ANLIC); minus (ii) the sum of the Admitted Net Deferred Tax
Assets of each of the Insurance Subsidiaries; plus (iii) the sum of the Asset
Valuation Reserves held by each of the Insurance Subsidiaries; minus (iv) the
Unamortized Statutory Goodwill balance; plus (v) an amount (which may be
negative) equal to the tax effected difference between the Fair Market Value and
statutory admitted value of Surplus Assets of the Insurance Subsidiaries on a
consolidated basis.
CAPITAL AND SURPLUS means line 38, column 1 in the "Liabilities, Surplus and
Other Funds" section of the balance sheet in the applicable statutory financial
statements (page 3) of the Insurance Subsidiaries, or, if the line number is
changed in such statutory financial statements, on the line that supersedes line
38 and reflects capital and surplus.
ADMITTED NET DEFERRED TAX ASSET means line 15.2, column 3 in the "Assets"
Section of the balance sheet in the applicable statutory financial statements
(page 2) of the Insurance Subsidiaries, or, if the line number is changed in
such statutory financial statements, on the line that supersedes line 15.2 and
reflects admitted net deferred tax assets.
ASSET VALUATION RESERVE means line 24.1, column 1 in the "Liabilities, Surplus
and Other Funds" section of the balance sheet in the applicable statutory
financial statements of the Insurance Subsidiaries, or, if the line number is
changed in such statutory financial statements, on the line that supersedes line
24.1 and reflects Asset Valuation Reserve.
UNAMORTIZED STATUTORY GOODWILL means the portion of line 2.2, column 3 in the
"Assets" section of the balance sheet in the applicable statutory financial
statements of the Insurance Subsidiaries that represents unamortized statutory
goodwill related to FLIC's purchase of ANLIC, or, if the line number is changed
in such statutory financial statements, the portion of the line that supersedes
line 2.2 and reflects unamortized statutory goodwill.
FAIR MARKET VALUE shall be determined as follows:
Real Estate
The fair market value of Real Estate shall be the appraised value
determined by a qualified appraiser acceptable to both Buyer and
Seller.
Mortgage Loans on Real Estate
The fair market value of mortgage loans on real estate should be
determined by adding the present value of future cash flows. The
discount rate utilized should be the current risk adjusted interest
rate for a loan of the same type, size, location and risk profile.
In the computation of the market values of its mortgages,
Forethought will obtain the current risk adjusted interest rate from
the originator of the mortgage (Key Bank or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇). Should
Buyer dispute the risk adjusted interest rate of any loan, the
dispute will be resolved by taking the middle rate of three rates,
obtained by three independent
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mortgage originators, with one such originator selected by Seller,
one by Buyer, and one selected by the two other originators.
Investments other than Real Estate and Mortgage Loans on Real Estate
For other investments other than real estate and mortgage loans on
real estate, Forethought will obtain fair market values from its
independent investment advisors (▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or Conning) which
shall not take into account "investment income due and accrued." If
Buyer disputes a market value on any such asset, then the Fair
Market Value shall be the middle value of three values determined by
three independent brokers, with one such broker selected by Seller,
one by Buyer and one selected by the two other brokers.
SURPLUS ASSETS means assets not supporting liabilities determined using the
procedures set forth below. All assets shall be recorded according to Statutory
Accounting Principles.
Procedure for Determining Surplus Assets
Surplus Assets should be determined as follows:
A. Calculate liabilities ("Backed Liabilities") that must be
backed by assets. The Backed Liabilities are total statutory
liabilities reported by FLIC, FLAC and ANLIC as would be reported on
page 3, line 26 reduced by:
1. the Asset Valuation Reserve held by FLIC, FLAC and ANLIC
as would be reported on page 3, line 24.1, column 1;
2. Contract loans held by FLIC, FLAC and ANLIC as would be
reported on page 2, line 6, column 3; and
3. Deferred Premiums held by FLIC, FLAC and ANLIC as would
be reported on page 2, line 12.2, column 3.
B. Select assets from the following asset categories held by
FLIC, FLAC and ANLIC to back the liabilities. The asset categories
should be selected in the following order:
1. Investment income due and accrued
2. Short term investments and cash
3. Bonds with an NAIC designation of 1
4. Bonds with an NAIC designation of 2
5. Bonds with an NAIC designation of 3
6. Bonds with an NAIC designation of 4
7. Bonds with an NAIC designation of 5
8. Bonds with an NAIC designation of 6
(collectively, the "Included Asset Categories").
C. Continue to include all assets in an asset category until
the cumulative statutory admitted value of all such assets in the
Included Asset Categories equals or exceeds the Backed Liabilities.
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The computation of statutory admitted values for assets and
statutory liabilities must be in accordance with Statutory Accounting
Principles. The Accounting and Actuarial principles, methods and
assumptions utilized must be consistent with those utilized by FLIC, FLAC
and ANLIC in their Statutory filings, dated September 30, 2003. Except as
otherwise specified herein, line number and page number references are to
the Statutory filings of FLIC, FLAC and ANLIC, dated September 30, 2003.
Procedure for calculating the difference between the Fair Market Value and
Statutory Admitted Value of Surplus Assets
The difference between the Fair Market Value and Statutory Admitted
Value of Surplus Assets is comprised of the sum of the following two
components:
1. Allocation of excess gains/losses on assets backing
liabilities calculated as follows:
a. For whichever category of assets (listed above) that,
when added to the prior categories causes the cumulative
statutory admitted value of assets in included
categories to exceed the Backed Liabilities, compute the
ratio of excess assets as follows: One (1) minus ((i)
Statutory Admitted Value of assets in the last included
asset category necessary to equal the Backed Liabilities
divided by (ii) the Statutory Admitted Value of all
assets in the last included asset category). The
components (in (i) and (ii) herein) are as calculated in
the Procedure for Determining Surplus Assets;
b. Compute the difference between the Fair Market Value and
Statutory Admitted Value on all assets in the last
included asset category.;
c. Multiply the difference determined in part b. by the
amount calculated in part a.
2. The difference between the Statutory Admitted Value and Fair
Market Value of the invested assets not in the Included Asset
Categories.
The sum of 1 and 2 should be multiplied by 0.65 to determine the
tax-effected difference between the Fair Market Value and the Statutory
Admitted Value of Surplus Assets.
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ANNEX B
SELLER PRE-CLOSING TRANSACTIONS
Seller shall cause the following transactions to be effected prior to the First
Closing in the order set forth below:
1. FLIC declares and pays to the Company a dividend of all of the FLAC
Shares.
2. FLIC redeems 1,000 shares of its common stock from the Company for an
aggregate redemption price of cash in the amount of $168,000,000 (or such other
amount that Buyer notifies Seller of in writing at least five Business Days
prior to the First Closing Date) (the "Redemption Price"), which is to be paid
to the Company at the time such redemption is effected.
3. The Company pays the Redemption Price in cash to FLAC as a contribution of
capital.
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ANNEX C
BUYER PRE-CLOSING TRANSACTIONS
The following transactions are listed in the chronological order in
which the transactions must occur:
1. Initially, a purchaser (the "Initial Purchaser") enters into a
binding written agreement with a third party (the "Second Purchaser") to sell to
the Second Purchaser, on the day following the First Closing Date, all of the
Buyer's Class B non-voting common stock issued to the Initial Purchaser by Buyer
for $2 million.
2. The Initial Purchaser will purchase directly from Buyer, in
exchange for $2 million in cash, all of Buyer's Class B non-voting common stock
immediately prior to the First Closing. The cash used by the Initial Purchaser
to purchase Buyer's Class B non-voting common stock must not be borrowed from or
be paid directly or indirectly by the Second Purchaser or any party related to
the Second Purchaser.
3. In accordance with the terms of the binding agreement referenced
above in 1., on the day following the First Closing Date, the Second Purchaser
will acquire from the Initial Purchaser all of the Class B non-voting common
stock issued to the Initial Purchaser by Buyer. The consideration used by the
Second Purchaser to acquire such stock should not be borrowed from or be paid
directly or indirectly by the Initial Purchaser or any party related to the
Initial Purchaser.
4. The stock purchase agreement between Buyer and the Initial
Purchaser and the stock purchase agreement between the Initial Purchaser and the
Second Purchaser will contain representation and warranties made by: (w) the
Initial Purchaser, that the Initial Purchaser has not obtained the funds needed
to acquired the Class B non-voting stock from the Second Purchaser, Buyer or any
party related to the Second Purchaser or Buyer, (x) the Second Purchaser, that
the Second Purchaser has not obtained the funds needed to purchase the Class B
non-voting common stock from Buyer, the Initial Purchaser or any party related
to Buyer or the Initial Purchaser; (y) the Second Purchaser, that the Second
Purchaser has no intent to sell or otherwise transfer the Class B non-voting
common stock to any of the other initial buyers of Initial Buyer Common Shares
(as determined as of the First Closing Date, the "Initial Investors") or Buyer
or any party related to such Initial Investors or Buyer; and (z) the Initial
Purchaser and the Second Purchaser that neither the Initial Purchaser nor the
Second Purchaser, will take any position with respect to any Tax audit,
controversy or claim, financial statement, public filing, Tax Return,
administrative filing, or any other filing that is not consistent with the
Second Purchaser being the bona fide purchaser and owner of the Class B
non-voting common stock.
For purposes of Annex C of this Agreement a party will be treated as
a party related to either the Initial Purchaser, the Second Purchaser, the Buyer
or the Initial Investors (the "Pre-Closing Transaction Parties") if such party
is: (i) a Person that is either "controlled" or in "control" (as defined
pursuant to Section 1.482-(1)(i)(4) of the Treasury Regulations) of any
Pre-Closing Transaction Party, (ii) a "controlled taxpayer" with respect to any
Pre-Closing Transaction Party as that term is defined pursuant to Section
1.482-1(i)(5) of the Treasury
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Regulation, or (iii) is part of the same controlled group as any Pre-Closing
Transaction Party (as defined pursuant to Section 1.482-1(i)(6) of the Treasury
Regulations).
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ANNEX D
COVENANTS CONCERNING THE SECTION 338(h)(10) ELECTION
1. Buyer, and to the extent relevant any successor to Buyer, the
Company, any Company Subsidiary, the initial holders of the Initial Buyer Common
Shares (the "Initial Holders") and the holder of the Class B non-voting common
stock, and in each case, any party related to such party will, except to the
extent required by a final determination of applicable Law, (x) not take any
position on any financial statement, public filing, Tax Return, administrative
filing, or any other filing or any position whether written or oral with any
Governmental Entity or judicial or administrative body, agency or office, in
each case, that is inconsistent with: (a) treating the acquisition of the
Company and the Company Subsidiaries being treated as a deemed sale of assets
for income tax purposes pursuant to Section 338(h)(10) of the Code or any
similar applicable provision of state or local law, (b) treating the Seller's
Note as debt, (c) treating Buyer's Class B stock as non-voting stock for federal
income tax purposes, or (d) treating the transaction as an exchange that would
not be subject to Section 351 of the Code; and
2. Buyer, Company or any Company Subsidiary, and any successors
thereto, will not redeem the Initial Buyer Common Shares for a period of 5 years
after the First Closing Date or redeem the Class B non-voting common stock for a
period of 3 years after the First Closing Date.
For purposes of Annex D of this Agreement, a party will be treated
as a party related to either the Buyer, the Company, a Company Subsidiary, the
Initial Investors, or the holder of Class B non-voting common stock
(collectively the "338(h)(10) Parties" and each individually a "338(h)(10)
Party") if such party is: (i) a Person that is either "controlled" or in
"control" (as defined pursuant to Section 1.482-(1)(i)(4) of the Treasury
Regulations) of any 338(h)(10) Party, (ii) a "controlled taxpayer" with respect
to any 338(h)(10) Party as that term is defined pursuant to Section
1.482-1(i)(5) of the Treasury Regulation, or (iii) is part of the same
controlled group as any 338(h)(10) Party (as defined pursuant to Section
1.482-1(i)(6) of the Treasury Regulations).
D-1
ANNEX E
COLLATERAL ASSIGNMENT
[ATTACHED AS SEPARATE DOCUMENT]
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DISCLOSURE SCHEDULE
[ATTACHED AS SEPARATE DOCUMENT]