ASSET PURCHASE AGREEMENT

Exhibit 2.1

 

CONFIDENTIAL

 

ASSET PURCHASE AGREEMENT

 

BETWEEN

 

RBC LIFE INSURANCE COMPANY

 

AND

 

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY

 

MADE AS OF

 

November 18,2003

 

McCarthy Tétrault LLP

 

Toronto, Ontario

TABLE OF CONTENTS

 

 

 

ASSET PURCHASE AGREEMENT

 

THIS AGREEMENT is made as of November 18, 2003

 

BETWEEN:

 

RBC LIFE INSURANCE COMPANY, an insurance company incorporated under the laws of Canada (the “Purchaser”),

 

- and -

 

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, an insurance company incorporated under the laws of the State of Tennessee, one of the United States of America (the “Vendor”),

 

WHEREAS the Vendor carries on a life, health, accident and sickness insurance business in Canada through the Branch;

 

AND WHEREAS the Vendor desires to sell and the Purchaser desires to purchase the life, health, accident and sickness insurance business carried on by the Vendor through the Branch, including substantially all of the operational assets located in Canada and required to support such business upon and subject to the terms and conditions hereinafter set forth;

 

NOW THEREFORE, in consideration of the premises and the covenants and agreements herein contained, the parties hereto agree as follows:

 

ARTICLE 1 - INTERPRETATION

 

1.01	Definitions

 

In this Agreement, unless something in the subject matter or context is inconsistent therewith:

 

“Act” means the Insurance Companies Act (Canada) and all regulations, orders and guidelines promulgated thereunder.

 

“Advance Ruling Certificate” means an advance ruling certificate issued by the Commissioner of Competition pursuant to section 102 of the Competition Act with respect to the transactions contemplated by this Agreement.

 

“Affiliate” has the meaning attributed thereto in the Act.

 

“Agreement” means this agreement, including its recitals and schedules, as amended from time to time.

 

“Ancillary Agreements” means the Transfer and Assumption Agreement, the Transition Services Agreement, the Non-Competition and Non-Solicitation Agreement, the Trade-Mark Licence Agreement and the Spillover Services Agreement.

 

“Applicable Jurisdictions” means Canada and each of the provinces and territories of Canada.

 

“Applicable Law” means any applicable domestic or foreign law including any statute, subordinate legislation or treaty, and any applicable guideline, directive, rule, standard, requirement, policy, order, judgment, injunction, award or decree of a Governmental Authority having the force of law.

 

“Asset Adjustment Amount” has the meaning set out in Section 2.09(3)(iii).

 

“Assets” means the assets and undertaking referred to or described in Section 2.01.

 

“Assumed Payables” means those liabilities of the Purchased Business listed in Schedule 2.07(b).

 

“Assumed Employees” has the meaning set out in Section 4.05(2).

 

“Audited Financial Statements” has the meaning set out in Section 3.01(g).

 

“Balance Sheet” means the balance sheet of the Branch as at the Balance Sheet Date.

 

“Balance Sheet Date” means December 31, 2002.

 

“Benefit Plans” has the meaning set out in Section 3.01 (vv).

 

“Branch” means the life, health, accident and sickness insurance branch of the Vendor in Canada approved under the Act, and all references in this Agreement to the Branch as a party to any agreement or commitment, as the owner of any assets or as the employer of any employee will be deemed to mean an agreement or commitment of the Vendor, the ownership of an asset by the Vendor or the employment of the employee by the Vendor, respectively, in relation to the Purchased Business.

 

“Business Day” means a day other than a Saturday, Sunday or statutory holiday in Ontario.

 

“Ceding Commission” has the meaning attributed thereto in the definition of “Purchased Invested Assets”.

 

“Claims” means all losses, damages, costs, expenses, liabilities, claims and demands of whatever nature or kind.

 

“Closing” means the completion of the sale and purchase of the Assets contemplated in this Agreement.

 

“Closing Date” means the date that is the first Business Day of the month following the month during which all Regulatory Approvals and the Required Consents have been obtained, provided that the date on which the Regulatory Approvals and the Required Consents have been obtained is more than 5 Business Days before the end of such preceding month; if the date on which the Regulatory Approvals and the Required Consents have been obtained is less than 5 Business Days before the end of such preceding month, the Closing Date shall be the first Business Day of

 

- 2 -

the second month following the month during which the Regulatory Approvals and the Required Consents have been obtained, or such other date as the parties may agree in writing, but in any event, no later than August 2, 2004.

 

“Commissioner of Competition” means the Commissioner of Competition appointed pursuant to the Competition Act or a person authorized by him to act on his behalf.

 

“CompCorp” means the Canadian Life and Health Insurance Compensation Corporation and its successors and assigns.

 

“CompCorp Refund” has the meaning set out in Section 2.06.

 

“Compensation Policies” has the meaning set out in Section 3.01 (ww).

 

“Competition Act” means the Competition Act (Canada).

 

“Contractors” has the meaning set out in Section 3.01(nn).

 

“Custody Account” has the meaning set out in Section 2.03(4).

 

“Effective Date” means the last day of the month preceding the Closing Date.

 

“Effective Date Financial Statements” means the unaudited financial statements of the Branch as at the date on which the Effective Time occurs, which shall be prepared in accordance with GAAP for purposes of determining the amount set forth in Section 2.07(b).

 

“Effective Time” means 12:00 a.m. (midnight) Toronto time at the end of the Effective Date.

 

“Eligible Invested Assets” has the meaning set out in Section 2.03(1).

 

“Essential Contracts” means those Material Contracts set out in Schedule 1.01(2) hereto.

 

“Estimated Value of the Policy Liabilities” has the meaning set out in Section 2.02.

 

“Estimated Schedule 2.07(b) Amount” has the meaning set out in Section 2.07.

 

“Excluded Assets” means:

 

(i)

the Invested Assets other than the Purchased Invested Assets;

 

(ii)

the Retained Intellectual Property;

 

(iii)

the Excluded Contracts;

 

(iv)

the mainframe computer systems used by the Purchased Business, including all software residing on the mainframe computer and all related communications equipment and other systems hardware located outside Canada;

 

 

- 3 -

(v)

future income taxes of the Vendor;

 

(vi)

any refund or recovery of goods and services tax relating to periods prior to the Effective Time; and

 

(vii)

the assets listed in Schedule 1.01(3) hereto.

 

“Excluded Contracts” means the agreements set out in Schedule 1.01(3) and those Material Contracts Requiring Amendment that are not amended in accordance with Section 2.04(2) and, from and after the Effective Time, all Excluded Reinsurance Agreements.

 

“Excluded Leases” means the real property leases or subleases included in the Excluded Contracts.

 

“Excluded Liabilities” means any Liabilities of the Branch or the Vendor:

 

(i)

arising under any of the Excluded Contracts;

 

(ii)

accruing up to the Effective Time under all contracts and other commitments, the benefits of which form a part of the Assets, except those relating to Policy Liabilities and the payment of severance benefits to employees of the Purchased Business who become employees of the Purchaser;

 

(iii)

in respect of any accounts payable other than those that are Assumed Payables of the Branch for the period up to the Effective Time;

 

(iv)

owing or accrued, in respect of Taxes of the Vendor on the premium income, capital, investment income or net income of the Branch for any period either before or after the Effective Time;

 

(v)

in respect of any Claims by any Contractors or Producers against the Vendor that relate to the period prior to the Effective Time to the extent not included as liabilities for purposes of Schedule 2.07(b);

 

(vi)

in respect of Claims by employees or former employees for payments of the type described in the second sentence of Section 3.01 (rr);

 

(vii)

in respect of any registered pension plan and any retirement and supplementary retirement plan;

 

(viii)

in respect of Claims by employees of the Purchased Business who refuse offers of employment with the Purchaser, which offers comply with Section 4.05(1);

 

(ix)

which were not disclosed to the Purchaser in violation of the Vendor’s representations and warranties in Sections 3.01(z), 3.01(aa), 3.01(bb) or 3.01(cc);

 

- 4 -

(x)

in respect of which this Agreement or any Ancillary Agreement requires that the Vendor retain responsibility or liability; and

 

(xi)

those Liabilities listed in Schedule 1.01(4).

 

“Excluded Reinsurance Agreements” means all those reinsurance agreements in favour of the Vendor that are not Required Reinsurance Agreements.

 

“Financial Statements” means the Audited Financial Statements and the Interim Financial Statements.

 

“GAAP” means those accounting principles that are recognized as being generally accepted in Canada from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, the accounting requirements of the Superintendent of Financial Institutions (Canada) and, with respect to the valuation of liabilities, the standards promulgated by the Canadian Institute of Actuaries.

 

“Governmental Authority” means any domestic or foreign legislative, executive, judicial or administrative body or person having or purporting to have jurisdiction in the relevant circumstances.

 

“Handling Experience Report” has the meaning set out in Section 4.09(4).

 

“Indemnified Party” has the meaning set out in Section 6.05(1).

 

“Indemnifying Party” has the meaning set out in Section 6.05(1).

 

“Independent Consultants” has the meaning set out in Section 2.09(5).

 

“Ineligible Invested Assets” has the meaning set out in Section 2.03(1).

 

“Intellectual Property” means intellectual property of whatever nature and kind including all domestic and foreign trade-marks, business names, trade names, service marks, domain names, trading styles, trade secrets, copyrights, patents and industrial designs, whether registered or unregistered, and all applications for registration thereof.

 

“Interim Financial Statements” means the unaudited financial statements of the Branch for the quarter ended June 30,2003, consisting of a balance sheet, statement of income and statement of head office account in Canada, a copy of which is attached as Schedule 1.01(5) hereto.

 

“Interim Period” means the period between the close of business on the date hereof and the Time of Closing.

 

“Invested Assets” means all cash, marketable securities and/or other investment assets of the Purchased Business.

 

“Leases” means the leases and subleases of, and agreements to lease, real property described in Schedule 1.01(6).

 

- 5 -

“Liabilities” has the meaning set out in Section 2.04(1).

 

“Market Misconduct” means any false, misleading or unlawful representation, act, practice or omission in connection with the sale or renewal of any Policy issued in Canada by the Branch prior to the Closing Date, including any misrepresentation, collateral promise or assurance of additional benefits or coverage not actually provided for in such Policy, fraud or replacement in contravention of Applicable Law and including any course of conduct that is an “unfair or deceptive act or practice” within the meaning of the Insurance Act (Ontario).

 

“Material Adverse Change” means any adverse change in the operations or affairs of the Purchased Business or the Vendor that would materially impair the ability of the Vendor to perform its obligations under this Agreement or that is individually or in the aggregate materially adverse to the operations or affairs of the Purchased Business, except for (i) general economic or other conditions affecting Canada or the industries in which the Purchased Business operates, (ii) any claims in respect of benefits or other amounts payable under any insurance policy or reinsurance contract issued in the normal course of business other than any class action commenced or sought to be certified by policyholders of the Vendor, and (iii) any changes in the Purchased Business resulting from the announcement of the Transactions.

 

“Material Contracts” means any written contract or agreement relating to the Purchased Business to which the Branch is a party (including purchase contracts, purchase orders, supply commitments, leases, licences, equipment warranties, permits, leases of furniture and equipment, software licenses and other written agreements) that is either a material requirement of the operation of the Purchased Business as presently conducted or under which the Vendor has a financial obligation of more than $100,000 per annum, including those set out in Schedule 1.01(7), but excluding, for greater certainty:

 

(i)

the Excluded Contracts;

 

(ii)

the Producer Contracts; and

 

(iii)

any Policies.

 

“Material Contracts Requiring Amendment” means those Material Contracts listed in Schedule 1.01(8).

 

“Non-Competition and Non-Solicitation Agreement” means the agreement substantially in the form attached hereto as Schedule 1.01(9).

 

“On Site Representatives” has the meaning set out in Section 4.08(2).

 

“OSFI” means the Office of the Superintendent of Financial Institutions (Canada).

 

“Participating Policies” has the meaning set out in Section 3.01(ff).

 

“Permitted Encumbrances” means the liens, charges, encumbrances and/or rights of others set out or referred to in Schedule 1.01(10).

 

- 6 -

“Policies” means all life, health, accident and sickness insurance policies, including all treaties, policies, binders, slips and other agreements of reinsurance or retrocession written or issued by or on behalf of the Vendor, (including all endorsements, riders and ancillary agreements in connection therewith) issued and delivered in Canada by the Branch that are in force at the Effective Time or that were in force prior to the Effective Time and with respect to which the Branch has continuing undischarged payment obligations as of the Effective Time.

 

“Policy Liabilities” means, collectively, the Policy-Specific Liabilities and the Policy-Related Liabilities.

 

“Policy Loan” means a loan advanced by the Vendor in Canada to the holder of a Policy in accordance with the terms and conditions of the Policy secured against and not exceeding the cash surrender value of such Policy.

 

“Policy-Related Liabilities” means:

 

(i)

all obligations other than Policy-Specific Liabilities with respect to the Policies that have not been discharged as of, or that accrue after, the Effective Time which flow from the complete assumption of the Policies, including obligations under the Policy Loans; and

 

(ii)

all assessments, liabilities, cost and expenses incurred by the Vendor arising out of the participation of the Vendor in CompCorp, net of any assets relating to such participation (including any entitlement to any CompCorp Refund) whether such assessment, liability, cost or expense relates to a liability to CompCorp incurred prior to or after the Effective Time.

 

“Policy-Specific Liabilities” means all obligations under the Policies, including Claims arising under or in respect of the Policies, that have not been discharged as of, or that accrue after, the Effective Time including all obligations to pay under the Policies after the Effective Time, all claims incurred or accrued and reported but not paid as of the Effective Time, all claims incurred or accrued but not reported as of the Effective Time, all obligations to refund any premiums on the Policies that may become refundable after the Effective Time and all losses, damages or expenses arising from any action, suit or proceeding brought in respect of the Policies, including the sale of the Policies and the settlement and payment or non-payment of claims under the Policies.

 

“Post-Closing Actuarial Report” means the report of Tillinghast setting forth the calculation of the Value of the Policy Liabilities as at the Effective Time.

 

“Price Adjustment Amount” has the meaning set out in Section 2.09(3).

 

“Producer Contracts” means contracts and commitments between the Vendor and the Producers relating to the marketing and sale of the Branch’s insurance products by the Producers, and the remuneration to be received by the Producers in respect thereof.

 

- 7 -

“Producers” means the brokers, agents, managing general agents and associate general agents who have entered into agreements with the Vendor to distribute the insurance products of the Purchased Business, but does not include sales representatives who are employees of the Purchased Business.

 

“Purchase Price” has the meaning set out in Section 2.07.

 

“Purchased Business” means the life, health, accident and sickness insurance business at present and heretofore carried on by the Vendor in Canada through the Branch.

 

“Purchased Invested Assets” means those Invested Assets including those selected by the Purchaser, acting reasonably, in accordance with Section 2.03, having an aggregate fair market value at the Effective Time equal to the Value of the Policy Liabilities less $362 million (such deducted amount being herein referred to as the “Ceding Commission”).

 

“Purchaser’s Benefit Plans” has the meaning set out in Section 4.06(1).

 

“Purchaser’s Counsel” means McMillan Binch LLP.

 

“Regulatory Approvals” means all of the following in connection with the Transactions in each case on terms and conditions acceptable to the Purchaser or the Vendor, acting reasonably, as applicable:

 

(i)

any requisite approvals of the Minister of Finance and Canadian federal insurance and banking regulatory authorities;

 

(ii)

any requisite approvals of provincial insurance regulatory authorities;

 

(iii)

(a) the issuance of an Advance Ruling Certificate; or

 

(b)

the Purchaser and the Vendor have given the notice required under section 114 of the Competition Act with respect to the Transactions and the applicable waiting period under section 123 of the Competition Act has expired or been terminated by the Commissioner of Competition in accordance with the Competition Act; or

 

(c)

the obligation to give the requisite notice has been waived by the Commissioner of Competition pursuant to subsection 113(c) of the Competition Act

 

and, in the case of (b) or (c), the Purchaser has been advised in writing by the Commissioner of Competition that he is of the view that grounds do not exist to initiate proceedings before the Competition Tribunal under the merger provisions of the Competition Act with respect to the Transactions, and the form of and any terms and conditions attached to any such advice are acceptable to the Purchaser and the Vendor, acting reasonably, and such advice has not been rescinded or amended; and

 

- 8 -

(iv)

any requisite approvals of the Tennessee Commissioner of Banking and Insurance and there being no objection to the Transactions having been raised by such regulator that has not been resolved.

 

“Relevant Balance Sheet Date” means June 30, 2003, when used in reference to the Interim Financial Statements and the Balance Sheet Date when used in reference to the Audited Financial Statements.

 

“Required Consents” means any consents, waivers or approvals required to be obtained from third parties for the valid assignment to the Purchaser of the Essential Contracts.

 

“Required Reinsurance Agreements” means all those reinsurance agreements relating to the Purchased Business and the Branch:

 

(i)

under which the Vendor is the reinsurer (the “Reinsurance Assumed Agreements”); or

 

(ii)

under which:

 

(a)

the Vendor is the ceding insurer and the reinsurer has reinsured any Policy Liabilities; or

 

(b)

the Vendor has retroceded to the reinsurer any Policy Liabilities under any Reinsurance Assumed Agreement;

 

and in respect of which, in each case, the Vendor has taken reserve credits in accordance with accepted actuarial practice in Canada (the “Reserve Credits Reinsurance Agreements”)

 

including, for greater certainty, the reinsurance agreements marked by an asterisk in Schedule 1.01(7) hereto.

 

“Reserve Credits Reinsurance Agreements” has the meaning set out in the definition of “Required Reinsurance Agreements”.

 

“Retained Intellectual Property” means the trade marks set out or referred to in Schedule 1.01(11).

 

“Schedule 2.07(b) Amount” has the meaning set out in Section 2.07.

 

“Selected Invested Assets” has the meaning set out in Section 2.03(3).

 

“September 30 Invested Asset Portfolio” has the meaning set out in Section 2.03(1).

 

“Software” means the computer programs listed in Schedule 1.01(12), including source code and object code versions thereof.

 

“Spillover Business” has the meaning set out in Section 4.07.

 

- 9 -

“Spillover Services Agreement” has the meaning set out in Section 4.07.

 

“Taxes” means all taxes, surtaxes, duties, levies, imposts, rates, fees, assessments and other charges, including income tax, investment income tax applicable to insurance policy accumulations under Part XII.3 of the Income Tax Act (Canada), corporate, capital, net worth, premium, sales, consumption, use, transfer, goods and services, value-added, stamp, registration, franchise, withholding, payroll, employment, health, education, excise, business, property, occupation, customs, anti-dumping and countervail taxes, surtaxes, duties, levies, imposts and rates imposed by any national, federal, provincial, territorial, state, colonial, municipal, local or foreign taxing authority, together with any fines, interest, penalties or other additions on, to, in lieu of, for non-collection of or in respect of such taxes, surtaxes, duties, levies, imposts, rates, fees, assessments and other charges.

 

“Time of Closing” means 10:00 a.m. (Toronto time) on the Closing Date.

 

“Trade-Mark Licence Agreement” has the meaning set out in Section 4.01(5).

 

“Transactions” means all of the transactions and agreements described in Article 2 hereof and all of the transactions and agreements contemplated in the Ancillary Agreements.

 

“Transfer and Assumption Agreement” means a transfer and assumption agreement substantially in the form of the transfer and assumption agreement attached hereto as Schedule 1.01(13).

 

“Transition Services Agreement” means a transition services agreement of even date herewith entered into between the Vendor, the Purchaser and UnumProvident Corporation.

 

“Unassignable Reinsurance Rights” has the meaning set out in Section 4.11.

 

“Value of the Policy Liabilities” means the amount of actuarial and other liabilities of the Vendor under or with respect to the Policies, determined as at the Effective Time, adjusted appropriately for any prepaid or due and unpaid amounts. The valuation will be prepared using the same actuarial methods and assumptions used by the appointed actuary for GAAP reporting of the Branch in the December 31,2002 valuation of Policy Liabilities except that the valuation will reflect the Government of Canada yield rate current as at the Effective Time and the Invested Assets in existence as at the Effective Time. The Value of the Policy Liabilities as determined above (the “book valuation”) will be adjusted by the positive or negative difference between the fair market value at the Effective Time of the Invested Assets supporting the Policy Liabilities and the book value of such Invested Assets used in the book valuation; and for the purposes of the book valuation, “book value” shall include accrued interest and adjustments for deferred gains and losses relating to the Invested Assets used in the book valuation. If such difference is positive the Value of the Policy Liabilities will be increased by such difference and if such difference is negative the Value of the Policy Liabilities will be decreased by the absolute value of such difference.

 

For greater certainty, the phrase “using the same actuarial methods and assumptions” as used in the preceding paragraph means, inter alia,

 

- 10 -

(i)

the same percentages or tables will be used as those in the December 31, 2002 valuation; for example, individual disability income incidence rates would be based on the period from 1990 to 2001, as documented in the report of the appointed actuary of the Branch as at December 31,2002, not the most recent 12 year period prior to the Effective Date;

 

(ii)

the liabilities will be modelled and calculated using the valuation system and spreadsheets used in the December 31,2002 valuation;

 

(iii)

the amount of the provision for asset defaults will be calculated in a manner consistent with the December 31, 2002 valuation of Policy Liabilities;

 

(iv)

the amount of the provision for C-3 interest rate mismatch risk will be calculated in a manner consistent with the December 31,2002 valuation of Policy Liabilities;

 

(v)

any Invested Assets used in the December 31, 2002 valuation of Policy Liabilities will continue to be used for the valuation of Policy Liabilities at the Effective Time to the extent that those Invested Assets are still included in Invested Assets then supporting the Policy Liabilities; and if any additional Invested Assets are required for such valuation, they will be selected from the Invested Assets then held by the Vendor using the same criteria used to select Invested Assets for the December 31,2002 valuation of Policy Liabilities.

 

“Vendor’s Counsel” means McCarthy Tétrault LLP.

 

“Vendor’s Pricing Service” has the meaning set out in Section 1.06.

 

1.02

Headings

 

The division of this Agreement into Articles and Sections and the insertion of a table of contents and headings are for convenience of reference only and will not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof, “hereunder”, “herein” and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles, Sections and Schedules are to Articles and Sections of and Schedules to this Agreement.

 

1.03	Extended Meanings

 

In this Agreement words importing the singular number only include the plural and vice versa, words importing any gender include all genders and words importing persons include individuals, partnerships, associations, trusts, unincorporated organizations and corporations. The term “including” means “including without limiting the generality of the foregoing”.

 

- 11 -

1.04	Knowledge of the Vendor

 

Reference herein to “knowledge of the Vendor” means (i) the actual knowledge of Tom Watjen and George Shell, and (ii) the actual knowledge of John Young, Scott Fixter, Robert Best, Cindy Winer, Tim Cavallin or Diane Churilla, means their actual knowledge of matters pertaining to their respective functional areas of responsibility after having made reasonably diligent enquiries concerning the relevant subject matter and such other enquiries as the Vendor in its sole discretion considers appropriate; provided, however, that John Young’s functional area of responsibility shall be deemed to include all of the Purchased Business. For purposes of the foregoing, the Vendor and the individuals referred to above shall not be required to make enquiries of any third parties contracting with the Purchased Business.

 

1.05	Statutory References

 

In this Agreement, unless something in the subject matter or context is inconsistent therewith or unless otherwise herein provided, a reference to any statute is to that statute as now enacted or as the same may from time to time be amended, re-enacted or replaced and includes any regulations made thereunder.

 

1.06	Market Value

 

Whenever in this Agreement reference is made to a calculation of the “fair market value” of any Invested Assets, the fair market value of such Invested Assets will be determined as follows:

 

(1) The Vendor will follow its normal procedures to identify a market price for each security included in the Invested Assets the fair market value of which is to be calculated using a pricing service selected by it (the “ Vendor’s Pricing Service ”) or, where a price for a security is not available from the Vendor’s Pricing Service, using a manual matrix type analysis of the term, spread and yield of such security in comparison to that of similar securities to determine a price.

 

(2) The Vendor will provide its price for each such security as so determined to the Purchaser.

 

(3) The Purchaser will use its normal procedures to identify market prices for each such security using a pricing service selected by it and, if required, a similar manual matrix analysis, and identify and give notice to the Vendor of any security included in the Invested Assets for which it disagrees with the Vendor’s pricing.

 

(4) In the event that the Purchaser disputes the Vendor’s pricing for any Invested Assets, the parties will work expeditiously and in good faith in an attempt to resolve any such dispute, failing which such dispute (and, for greater certainty, only such dispute) will be submitted for determination to a firm of chartered accountants agreed to by the parties. If the parties cannot agree to a firm of chartered accountants, the parties will submit the dispute to a Canadian firm of chartered accountants of national standing appointed by the President of the Canadian Institute of Chartered Accountants. The parties will instruct such firm to complete the determination of such dispute within 10 days from the date such dispute is submitted to it. The

 

- 12 -

determination of such firm will be final and binding upon the parties hereto and not subject to appeal, absent manifest error. The firm will act and will be deemed to be acting as experts and not as arbitrators. The cost and expenses of such firm will be borne equally by the Vendor and the Purchaser.

 

1.07

Currency

 

All references to currency herein are to lawful money of Canada.

 

1.08

Schedules

 

The following are the Schedules to this Agreement:

 

 

 

- 13 -

 

ARTICLE 2 - SALE AND PURCHASE

 

2.01	Sale and Purchase of the Purchased Business

 

Upon and subject to the terms and conditions hereof, at the Time of Closing, the Vendor will sell to the Purchaser and the Purchaser will purchase from the Vendor as a going concern, as of and with effect from the Effective Time, all of the right, title, benefit and interest of the Vendor in and to the undertaking of the Purchased Business, and all assets used by the Vendor in the operation of the Purchased Business (other than the Excluded Assets), including those assets specifically described below (the “Assets”):

 

(a)

the Purchased Invested Assets;

 

(b)

the Policy Loans;

 

(c)

all of the Vendor’s rights, interests and benefits under all contracts or other commitments relating to the Purchased Business (other than the Excluded Contracts), including:

 

(i)

the Policies;

 

(ii)

the Leases; and

 

(iii)

the Material Contracts (other than those which are Excluded Contracts);

 

(d)

all equipment, vehicles, desk-top computer hardware and peripheral equipment, furniture, furnishings and accessories of the Purchased Business including the equipment described in Schedule 2.01(d);

 

(e)

leasehold improvements in respect of the Leases;

 

(f)

all inventories relating to the Purchased Business including any supplies, computer supplies, forms, stationery and advertising material used in the Purchased Business;

 

(g)

all accounts receivable of the Purchased Business (other than amounts receivable under the Policies which for greater certainty are included as Assets under Section 2.01(c)(i) above);

 

- 14 -

(h)

all the right, title, benefit and interest of the Vendor in and to the Intellectual Property used by the Purchased Business (other than the Retained Intellectual Property);

 

(i)

the Software;

 

(j)

any entitlement of the Vendor to a CompCorp Refund;

 

(k)

except as otherwise prohibited by Applicable Law, all books and records of the Purchased Business, including copies of the Policies (whether in-force or not), claim files and records, documentation manuals, desk-top computer program documentation, administration, actuarial and accounting information, personnel records of the employees of the Purchased Business hired by the Purchaser, inspection records and other records, books, documents and data bases relating to the employees of the Purchased Business hired by the Purchaser and the Assets and the Liabilities, as are in the possession or under the control of the Vendor, including computer-based systems, electronically stored data and computer disks, in all cases wherever such books or records are located from time to time or used in connection with the Purchased Business;

 

(l)

all prepaid expenses of the Purchased Business; and

 

(m)

the goodwill of the Purchased Business, including:

 

(i)

the exclusive right to the Purchaser to represent itself as carrying on the Purchased Business in continuation of and in succession to the Vendor and. the right to use any words indicating that such business is so carried on, but excluding any right to the Retained Intellectual Property, and

 

(ii)

all records of sales, policyholder lists, agent and broker records, and supplier lists of or used in connection with the Purchased Business.

 

2.02	Estimate of Value of Policy Liabilities

 

Upon and subject to the terms and conditions hereof, for purposes of determining the Value of the Policy Liabilities used to determine the fair market value of the Invested Assets that the Vendor will sell, assign and transfer to the Purchaser at the Time of Closing as the Purchased Invested Assets, the Vendor will in good faith prepare an estimate of the Value of the Policy Liabilities (the “Estimated Value of the Policy Liabilities” ) as at the Effective Time and deliver a written statement of the Estimated Value of the Policy Liabilities to the Purchaser not less than four (4) Business Days prior to the Closing Date. The Vendor will prepare such estimate based on the most recent quarterly in-force policy information extrapolated to the Time of Closing.

 

2.03	Selection of Invested Assets

 

(1) No less than ten (10) Business Days after the date hereof, the Vendor shall deliver to the Purchaser a complete list of the Invested Assets then held by the Vendor on the date

 

- 15 -

hereof, which shall update the list of Invested Assets attached hereto as Schedule 2.03 (the “September 30 Invested Asset Portfolio” ). Within ten (10) Business Days after such updated list is delivered, the Purchaser, in co-operation with the Vendor, shall designate to the Vendor in writing those Invested Assets or classes thereof that the Purchaser is not prepared to accept as Purchased Invested Assets ( “Ineligible Invested Assets” ) and those that it is prepared so to accept ( “Eligible Invested Assets” ).

 

(2) During the Interim Period, the Vendor shall cause the Eligible Invested Assets to be managed in accordance with the “prudent person” investment policies of the Vendor required by OSFI and Vendor’s usual and ordinary practices and in such manner that the credit quality and duration of the Eligible Invested Assets (or any Invested Assets substituted therefor that are not Ineligible Invested Assets) do not deviate materially in the aggregate from the credit quality and duration of the Eligible Invested Assets included in the September 30 Invested Asset Portfolio. No later than the third Business Day of each month during the Interim Period, the Vendor shall deliver to the Purchaser in electronic form an update of the list identifying the names of the securities held as Invested Assets by the Vendor as of the last Business Day of the preceding month and a report summarizing the transactions involving the Invested Assets during such preceding month.

 

(3) The Vendor shall provide to the Purchaser in electronic form a final updated list of the Invested Assets no less than four (4) Business Days before the Closing Date. In the event that there is any change in the list of Invested Assets held between the date that such list is provided to the Purchaser and the Closing Date, the Vendor will provide the Purchaser with a notice of such change at the end of business on the day such change occurs. The Purchaser shall select from this list in its discretion, acting reasonably, Eligible Invested Assets having a fair market value equal to the Estimated Value of the Policy Liabilities, less the Ceding Commission, and shall deliver to the Vendor a final list setting out such selection (the “Selected Invested Assets” ) no later than two (2) Business Days before the Closing Date.

 

(4) To facilitate the transfer of the Purchased Invested Assets to the Purchaser, the parties shall cooperate in seeking the approval of OSFI to permit, no later than one (1) Business Day before the Closing Date, the Vendor to open a dedicated, segregated custody account in its name (the “Custody Account” ) and cause the Selected Invested Assets to be transferred to the Custody Account, the ownership of which Custody Account would then be transferred from the Vendor to the Purchaser upon Closing.

 

(5) On the Closing Date the Vendor shall provide to the Purchaser an electronic file containing an updated list of the Selected Invested Assets together with all data and reports generated by the Princeton Asset Management database application used by the Vendor and a statement summarizing the transaction history of each Selected Invested Asset, including date of purchase, corporate actions, payments of interest or dividends, redemptions, rollovers and transfers.

 

(6) If the OSFI approval referenced in paragraph (4) above is obtained, then at the Time of Closing, the Vendor shall sell, assign and transfer the Selected Invested Assets to the Purchaser by transferring ownership of the Custody Account to the Purchaser.

 

- 16 -

(7) In the event that the OSFI approval referenced in paragraph (4) above is not obtained, then the parties will cooperate and use reasonable commercial efforts, including providing any directions required to be given to transfer agents, trustees, custodians or investment managers, to ensure that title to the Selected Invested Assets is transferred to the Purchaser at or immediately after the Time of Closing such that the Selected Invested Assets are under the control of the Purchaser and its agents immediately after the Time of Closing.

 

(8) If any of the Selected Invested Assets are in default on the Closing Date, the Purchaser shall have the right to require the Vendor to substitute other suitable Eligible Invested Assets selected by the Purchaser for such Selected Invested Assets in default, which selection shall be subject to final approval by the Vendor.

 

2.04	Assumption of Liabilities

 

(1) At the Time of Closing, as of and with effect as of the Effective Time, the Purchaser will assume, fulfil and perform and will indemnify and save completely harmless the Vendor in respect of all of the obligations, liabilities and commitments of, or Claims arising from, the Purchased Business (the “Liabilities” ) other than the Excluded Liabilities. Without limiting the generality of the foregoing, the Liabilities to be assumed, fulfilled and performed by the Purchaser include:

 

(a)

all liabilities of the Branch accruing from and after the Effective Time under all contracts and other commitments, the benefits of which form a part of the Assets;

 

(b)

the Policy-Specific Liabilities;

 

(c)

the Assumed Payables; and

 

(d)

the Policy-Related Liabilities.

 

(2) The Purchaser will assume Liabilities under only those Material Agreements Requiring Amendment that have been amended on or before January 9, 2004, on terms and conditions satisfactory to the Purchaser, as set out in amending agreements in form and substance satisfactory to the Purchaser that have been executed and delivered to the parties thereto prior to such date, to take effect as of the Effective Time. In the event that any such required amendment has not been completed on or before January 9, 2004, then such agreement shall be considered an Excluded Contract under this Agreement, unless the parties otherwise agree in writing.

 

2.05	Non-Transferability

 

(1) Notwithstanding any other provision of this Agreement, this Agreement will not constitute a transfer, conveyance, sale or assignment of, or an agreement to transfer, convey, sell or assign, any document or any right or benefit thereunder if an attempted assignment of any such document, right or benefit as contemplated hereunder without the consent of another party thereto would constitute a breach thereof or in any material way affect the rights of the assignor thereunder (unless such consent is obtained). Both parties hereto will use their best efforts to obtain any such consent, but the Purchaser shall not be required to incur any out-of-pocket

 

- 17 -

expenses in respect of obtaining such consent. If such consent is not obtained, or if an attempted assignment would materially affect the Vendor’s rights thereunder or if an assignment without consent, while not constituting a breach or in any material way affecting the rights of the Vendor thereunder would be invalid and such consent has not been obtained, the Vendor will hold all of its rights under any such document and all monies paid to it with respect thereto in trust for the Purchaser, to convey, assign and transfer the same as the Purchaser may from time to time direct and will co-operate in any reasonable arrangement designed to provide to the Purchaser the benefits and obligations under such document, including the enforcement at the Purchaser’s expense of all rights of the Vendor thereunder against the other party thereto arising out of any breach due to the attempted assignment, cancellation by such other party or otherwise, and the payment over to the Purchaser of the monies so received. In the event of the continuing inability to obtain any consent to transfer or assignment which may be required, the cost of obtaining any such document, right or benefit will be for the account of the Vendor.

 

(2) For greater certainty, no mainframe computer systems used by the Purchased Business will be transferred, conveyed, sold or assigned to the Purchaser under this Agreement. Access to mainframe computer systems used by the Purchased Business will be made available to the Purchaser in accordance with the terms and conditions set forth in the Transition Services Agreement.

 

2.06	CompCorp Assessment Base

 

The Vendor and the Purchaser agree that for the purposes of any assessments made by CompCorp against the Branch in respect of any period before the Closing Date, the assessment history of the Purchased Business, including any adjustments thereto, for the five year period preceding the Closing Date will be included in the Purchaser’s assessment base and not in the Vendor’s assessment base with the result that if CompCorp subsequently determines that a refund (each, a “CompCorp Refund”) is payable in respect of any assessment made against the Branch during any year in such five year period which CompCorp subsequently determines to be in excess of its requirements for such year in light of the applicable claims experience, the Purchaser and not the Vendor will be entitled to such refund. The Vendor and the Purchaser will jointly give notice in writing to CompCorp of the agreement set out in the preceding sentence and of the assumption by the Purchaser of the assessments, liabilities, costs and expenses incurred by the Vendor arising out of its participation in CompCorp, as provided in paragraph (ii) of the definition of “Policy-Related Liabilities”.

 

2.07	Purchase Price

 

The purchase price payable to the Vendor for the Assets (the “Purchase Price”) will be:

 

(a)

an amount equal to the Value of the Policy Liabilities as at the Effective Time; and

 

(b)

the amount determined as at the Effective Time in accordance with the formula set out in Schedule 2.07(b) (the “Schedule 2.07(b) Amount”),

 

adjusted in accordance with Sections 2.09 and 4.09.

 

- 18 -

The Vendor will in good faith prepare an estimate of the Schedule 2.07(b) Amount ( “Estimated Schedule 2.07(b) Amount” ) and deliver to the Purchaser a written statement describing such calculation not less than four (4) Business Days prior to the Closing Date. For greater certainty, the Schedule 2.07(b) Amount shall be determined in a manner consistent with the sample calculations set out as Appendix I to Schedule 2.07(b), which the parties acknowledge are based on the Audited Financial Statements as of the Balance Sheet Date.

 

2.08	Payment of Purchase Price

 

The Purchase Price payable at the Time of Closing pursuant to Section 2.07 will be paid and satisfied:

 

(a)

by the assumption of all of the Policy Liabilities pursuant to Section 2.04(1) and the Transfer and Assumption Agreement; and

 

(b)

by a wire transfer of immediately available funds to the Vendor in an amount equal to the Estimated Schedule 2.07(b) Amount.

 

2.09	Purchase Price Adjustment Calculation

 

(1) Immediately following the Closing, the Vendor will instruct Tillinghast to prepare and deliver to the Vendor and the Purchaser the Post-Closing Actuarial Report within 60 Business Days following the Closing Date. The Post-Closing Actuarial Report prepared and delivered as aforesaid will be final and binding upon the parties hereto for the purposes hereof, absent manifest error, unless the Purchaser notifies the Vendor in writing that it disputes the Value of the Policy Liabilities expressed therein within 20 Business Days after receipt by the Purchaser of the Post-Closing Actuarial Report.

 

(2) In the event that the Purchaser (after consultation with its own actuarial advisors) disputes the Value of the Policy Liabilities set forth in the Post-Closing Actuarial Report, the parties will work expeditiously and in good faith in an attempt to resolve any such dispute within a further period of 20 Business Days after the date of notification by the Purchaser to the Vendor of such dispute, failing which such dispute (and, for greater certainty, only such dispute) will be submitted for determination to Eckler Partners Ltd. The parties will instruct such firm of actuaries to complete the determination of such dispute within 60 days from the date such dispute is submitted to it. The determination of such firm of actuaries will be final and binding upon the parties hereto and not subject to appeal, absent manifest error. The firm of actuaries will act and will be deemed to be acting as experts and not as arbitrators. The costs and expenses of such firm of actuaries will be borne equally by the Vendor and the Purchaser. The Vendor and the Purchaser will each bear their own costs and the costs of their own actuarial advisors in presenting their respective cases to such firm of actuaries.

 

(3) The Purchaser shall cause the employees of the Purchased Business to prepare the Effective Date Financial Statements and calculations of (i) the Schedule 2.07(b) Amount, (ii) the amount, whether positive or negative (the “Price Adjustment Amount”), determined by subtracting the Schedule 2.07(b) Amount from the Estimated Schedule 2.07(b) Amount paid to the Vendor pursuant to Section 2.08(b) on the Closing Date, and (iii) the amount, whether positive or negative (the “Asset Adjustment Amount” ), determined by subtracting from the

 

- 19 -

Value of the Policy Liabilities, as finally determined in accordance with Section 2.09(1) or (2), the Estimated Value of the Policy Liabilities and as further adjusted to the extent required by Section 4.11.

 

(4) The Purchaser shall cause the employees of the Purchased Business to prepare and deliver to the Vendor and the Purchaser a copy of the Effective Date Financial Statements and the calculations referred to in Section 2.09(3) within ten Business Days after the finalization of the Post-Closing Actuarial Report. The Vendor may object to any aspect of the Effective Date Financial Statements and/or calculations referred to in Section 2.09(3) hereof by notice in writing given to the Purchaser within 15 Business Days following the delivery of the Effective Date Financial Statements and calculations to the Vendor.

 

(5) In the event that a written statement of objections pursuant to the last sentence of Section 2.09(4), including the reasons therefor, is delivered, the Vendor and the Purchaser shall attempt in good faith to resolve such objections. If the Vendor and the Purchaser fail to resolve the objections within 5 Business Days after the delivery of the written objections, then the matters at issue shall be referred for final determination by a firm of chartered accountants (the “Independent Consultants”), acting as expert and not as arbitrator, other than the accountants of the Vendor or the Purchaser, selected by agreement of the Vendor and the Purchaser within such latter 5 Business Day period. If within such latter 5 Business Day period the Vendor and the Purchaser are unable to agree upon the selection of the Independent Consultants, then the matters at issue shall be referred by any of the parties to a Canadian accounting firm of national standing appointed by the President of the Canadian Institute of Chartered Accountants, other than the accountants of the Vendor or the Purchaser at the request of any party hereto, and such firm(s) shall be the Independent Consultants for the purposes of this paragraph. Fifty percent of the costs of the Independent Consultants shall be borne by the Vendor and 50% of the costs of the Independent Consultants shall be borne by the Purchaser.

 

(6) Subject to Section 2.09(7) below, the determination of the Independent . Consultants upon the matters in issue shall be final and binding upon the parties hereto and the Effective Date Financial Statements and the calculations shall be deemed to be amended forthwith for all purposes of this Agreement as may be required to give effect to such determination of the Independent Consultants.

 

(7) If the Vendor makes no objection to the Effective Date Financial Statements and/or calculations in accordance with this Section 2.09, or if after such objection the parties reach agreement on the disposition thereof then the Effective Date Financial Statements and calculations, as may be amended as aforesaid, shall be the Effective Date Financial Statements and calculations for all purposes of this Agreement.

 

(8) For the purpose of raising objections under this section, each of the parties hereto shall allow the other party and their authorized representatives access to all relevant books and records and shall cause their respective auditors or accountants to provide each other with all working papers and other relevant records.

 

- 20 -

2.10	Payment of Price Adjustment and Asset Adjustment Amounts

 

(1) The Vendor will pay to the Purchaser, if positive, and the Purchaser will pay to the Vendor, if negative, in each case by a wire transfer of immediately available funds within 2 Business Days after the date of the final and binding determination of the Value of the Policy Liabilities in accordance with Sections 2.09(1) and 2.09(2), the absolute value of the Asset Adjustment Amount.

 

(2) The Vendor will pay to the Purchaser, if positive, and the Purchaser will pay to the Vendor, if negative, the absolute value of the Price Adjustment Amount, in each case by a wire transfer of immediately available funds, within 17 Business Days of the date of delivery of the Effective Date Financial Statements and/or calculations if the Vendor has not raised an objection under Section 2.09(4), or if the Vendor has raised an objection, within 2 Business Days of the date of final determination of the adjustment amount by the Independent Consultants pursuant to Section 2.09(5).

 

(3) All amounts to be paid under this Section 2.10 shall bear interest at 3.5% per annum from and including the Closing Date to but not including the date of payment.

 

(4) The determinations and adjustments referred to in Section 2.09 and this Section 2.10 will not limit or affect any other rights or causes of action which either the Vendor or the Purchaser may have under this Agreement with respect to representations, warranties, covenants and indemnities in its favour contained herein.

 

2.11	Tax Filings

 

(1) The Purchaser and the Vendor will prepare and file their respective income tax returns, and make and file the elections referred to in Section 2.12, on a basis that is consistent with the allocations set out in Schedule 2.11, as determined pursuant to Sections 2.09 and 4.09 of this Agreement.

 

(2) The Purchaser and the Vendor will prepare and file their respective income tax returns on the basis that Subsection 138(11.92) of the Income Tax Act (Canada) applies to the purchase and sale of the Purchased Business.

 

2.12	Transfer Taxes and Tax Elections

 

(1) Subject only to Section 2.12(2), and unless required by Applicable Law, the Purchaser will be liable for and pay directly to the appropriate taxing authority or other Governmental Authority within the required time period, all Taxes, if any (but excluding any Taxes based upon the income, revenues or capital receipts of the Vendor), including for greater certainty any provincial sales taxes properly payable in connection with the transfer of the Assets.

 

(2) The Vendor and the Purchaser will at the Time of Closing, or as soon as reasonably practicable thereafter, execute elections, in prescribed form containing prescribed information, to have Subsection 167(1) of the Excise Tax Act (Canada) and Section 75 of An Act Respecting the Quebec Sales Tax (Quebec) apply at the time of the sale and purchase of the

 

- 21 -

Assets, and the provisions of any other equivalent provincial or territorial legislation that apply to the sale and purchase of the Assets. The Purchaser will file such elections with the appropriate tax returns within the time periods prescribed by such legislation. The Purch